Pooling funds, transferring risks to insurers enhances coverage to those at-risk: Start Network

In an interview with Reinsurance News, Abdou Alassane, Technical Lead, Crisis Anticipation and Risk Financing at Start Network, emphasised that pooling funds and transferring some risk to the insurance market has enhanced Start Network’s humanitarian efforts, providing greater coverage to at-risk populations.

Start Network is a global network of non-governmental organisations (NGOs) comprising nearly 100 national and international NGOs from six continents. Its mission is to create a new era of humanitarian action that saves more lives through innovation, fast funding, early action, and localisation.

Amid the growing threat of natural disasters around the world as a result of the changing climate, urbanisation, etc, we spoke with Abdou about the key role insurance and reinsurance has to play in conjunction with entities like Start Network and the wider public sector.

He explained that the humanitarian system is struggling to meet the demand, although there are new efforts to provide assistance. This includes the insurance sector which allows governments to purchase climate-risk insurance that will provide them with funding in the event of a climate-related disaster.

Abdou highlighted that pooling funds offers increased flexibility and coverage, allowing Start Network to proactively address the rising frequency of global disasters.

He stated, “By pooling funds and transferring some risk to the reinsurance market, we can provide more coverage than our existing resources allow. This ensures we cover the risk of insolvency by offloading some of the risk to the insurance market.”

He added, “If all risks were to occur at the same time and we are unable to cover them, we would likely trigger the reinsurance coverage limit and be able to fill the gap, ensuring we can meet our financial needs while still protecting people at risk in various countries.”

Abdou emphasised Start Network’s role in transforming the global humanitarian system through its proactive approach.

“In our humanitarian work, one of our main goals is to protect people and their livelihoods from the negative impacts of various crises including climate related ones. We need to be proactive and anticipate the impact of these crises before the event occurs,” he explained.

He noted that using parametric insurance is an effective way to leverage more funds and ensure Start Network offers robust protections, enabling timely action ahead of a crisis.

Abdou stated, “Traditional insurance indemnify actual loss incurred from an event but parametric insurance operates on the likelihood and probability of a loss-causing event to happen.

“We have been working with some re/insurers in London since our launch, and the agreement sees them make a payment upon the attachment point is met. The reinsurance limit is set on our global pooled fund and losses are assessed on underlying countries risk which falls in the pool. For each country in the pool, we trigger funds when the occurrence of a covered risk met or exceeded a predefined intensity threshold as measured by an objective index or parameters.”

He continued, “One of the key criteria for an index or parameter to be used as a trigger for parametric insurance is that it must be something we can model. It’s important as we need to agree with reinsurers on the terms and have a clear framework to assess the losses.”

Abdou mentioned that although this approach with the humanitarian world is relatively new for insurers, they continue to learn from each other through initiatives like the Insurance Development Forum (IDF).

He highlighted the advantages of using parametric insurance over traditional models in humanitarian aid: “Traditional humanitarian works which focus mainly on response after an event may seem impactful, however, people may die or lose everything they have. Anticipating the crisis is typically less costly and, in the end, we are protecting more people and saving more lives, instead of just waiting for a crisis to happen.”

Abdou also discussed Start Network’s family of funds, which includes various financial instruments for rapid and early action.

One of these instruments, Start Ready, is a unique financing mechanism that uses advanced planning to enable rapid funding release for crises that occur with regular and predictable patterns, such as floods, cyclones, droughts, and heatwaves.

He provided an example of how Start Ready effectively mitigated severe impacts from a large event: “In the Philippines in July 2023, we effectively implemented actions before the peak of cyclone Doksuri.

“On 21 July 2023, a low-pressure area north-east of Luzon in the Philippines intensified into Tropical Cyclone Doksuri. Then from 22 to 25 July, it intensified further into a super typhoon, making landfall at both Luzon and Fuga Island in Cagayan municipality on 25 July.”

Abdou explained, “The pre-agreed contingency plan activities were activated 2 days before landfall. Based on forecasts of the cyclone’s intensity and expected path, Start Ready was activated by Start Network’s in-country governance team on 23 July, so we were able to release £20k for anticipatory action.

“Then on 27 July, a second risk threshold for a very high severity scenario was also activated, and we were able to release around £300k to two local NGOs.”

Abdou highlighted a specific benefit of Start Network’s financing during this crisis: “We noticed that the price of products such as rice and fish, often increase following a cyclone due to market disruptions and the consequence of impacts of the supply chain.

So, having that access to cash to be able to buy food items in advance to the cyclone hitting the ground, it helps households most at risk of harm and mitigates this inflation burst.”

He stressed that it is particularly challenging for Start Network to provide early and rapid financing for cyclone events due to the short lead time—the period from when the hazard starts forming to when it hits the ground.

“At Start Network, we start monitoring when it starts forming, but we need to know exactly how many days and hours it should take to hit the ground. As the lead time is very short for a cyclone, the key challenge for us is how to be able to implement action within that short period of time,” he stated.

In Abdou’s closing remarks, he addressed challenges that Start Network faces, such as a limited understanding of disaster risk financing and the accuracy and availability of data in some countries, particularly remote and less organised ones.

He commented, “It is difficult to present strong modelling to the insurance markets without adequate data. To build effective models, we need ground-level, local data to ensure strong modelling and avoid relying solely on global datasets, which sometimes fail to capture the full reality.”

“There are still many challenges in the field, but we are working really closely with all the stakeholders to take them out and make sure we are very strong in terms of anticipating and tackling different crises across the world,” Abdou concluded.

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