BRIEF October 12, 2018

Global Risk Financing Facility

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What is the Global Risk Financing Facility (GRiF)?

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The governments of Germany and the UK, with support from the World Bank, are establishing a new Global Risk Financing Facility (GRiF) to pilot and scale up support to strengthen the resilience of vulnerable countries to climate and disaster shocks.

Climate change will further increase the magnitude and frequency of extreme events in the future. While regional catastrophe risk insurance pools in the Caribbean and the Pacific provided almost $60m of fast liquidity within days to speed response and recovery in 2017 alone, this is still only a small fraction of total losses.

The multilateral system is still weighed too heavily towards responding only after the disasters. On average, the humanitarian system provides $1.5bn in responding to disasters every year – an amount that regularly increases to over $4bn.

The development objective of the GRiF is to strengthen financial resilience of vulnerable countries by enabling earlier and more reliable response and recovery to climate and disaster shocks, and over time to a wider range of crises, through establishing or scaling up pre-arranged risk financing instruments, including market-based instruments like insurance. It will focus on helping poor and vulnerable people, and the economy, services and infrastructure they depend on, to recover more quickly when a disaster strikes.

Pre-arranged financing instruments not only allow for faster, more cost-effective response and recovery but can also drive greater disaster preparedness and resilience. Such instruments could absorb a larger fraction of disaster losses, helping to shift the balance from a reactive to a proactive approach to disaster financing and crisis management globally. GRiF aims also to create incentives for disaster prevention, preparedness, response and resilient reconstruction.

GRiF adopts a sequential approach, from climate and disaster risks toward wider range of crises. The scope of activities financed through the GRiF will begin with a strong focus on climate and disaster risk. However, given the high potential to apply risk financing instruments to wider crises, over time, projects and instruments financed through the GRiF will also respond to crises. Pilot engagements in contexts of wider crises will be identified within the first year of operations of GRiF.

The important role of risk financing and insurance is now globally recognized, including in the G7, G20 and V20 dialogues, and has led to the launch of the InsuResilience Global Partnership in November 2017. The GRiF will be supported by and build on the work of existing programs, including the InsuResilience Climate Risk Financing and Insurance Program MDTF jointly established by BMZ, DFID and the World Bank, the Centre for Global Disaster Protection jointly established by DFID and the World Bank, and InsuResilience Solutions Fund jointly established by BMZ and KFW. These programs currently form the Program Alliance of the InsuResilience Global Partnership.

The GRiF will be aligned with the vision and principles of the InsuResilience Global Partnership and will also form part of its Program Alliance, but it is not limited only to the results/objectives of the Partnership. The Facility is expected to be equally aligned with and support future policy priorities of participating countries. The GRiF can also be a vehicle to invest in risk financing and insurance instruments for earlier action in humanitarian emergencies.


How will the GRiF achieve its objectives?

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GRiF will scale up and strengthen existing risk financing initiatives as well as act as catalyst to pilot approaches not yet explored by other programs. This includes scaling-up existing and piloting new risk pooling mechanisms; testing insurance premium financing for the poorest countries; and new types of contingent financing to complement insurance, including contingent investment loans. It would also explore new financial structures, for example linking risk financing directly to scalable safety net systems, disaster preparedness plans, or to financing for resilient infrastructure. The scope of GRiF will initially cover climate and disaster shocks, and over time, will be broadened to other crises pending interest from partners.

Activities to be financed by GRiF include:

  1. insurance premium financing, e.g., for the payment of risk transfer instruments;
  2. contingent financing, e.g., through the provision of concessional credits to complement risk transfer solutions;
  3. risk financing investments, e.g., investment in start-up or operating costs and capital for risk pools;
  4. integrating risk transfer with loans to pilot new approaches to support debt sustainability in the face of extreme events;
  5. risk financing mechanisms that promote parallel improvements in country systems for crisis response and recovery;
  6. technical assistance and capacity building where this is not yet covered by other programs.

GRiF will be implemented by the World Bank, the Global Facility for Disaster Reduction and Recovery (GFDRR), and select implementing partners. GRiF funding will be channeled through the World Bank or select implementing partners such as regional development banks.

The ultimate recipients of the GRiF funds are either (i) countries with adequate capacity and government systems in place; or (ii) humanitarian and development partners where appropriate to the context. GRiF works mainly with governments to implement risk financing strategies as part of core development planning and fiscal risk management, linking crisis response funding to contingency plans within national systems.

In cases where government systems for emergency response are insufficiently developed, overstretched, or under stress from other challenges (e.g., in conflict situations), response funding may be provided to external implementing agencies (such as WFP, FAO, and other UN agencies) or non-governmental partners with a view to strengthening structural and systematic response.

Projects will be selected and evaluated through a transparent process. External expertise will feed into the World Bank’s internal evaluation of funding proposal. Independent impact evaluations will be included in the program design of GRiF.

 


Who are GRiF’s development partners?

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Civil society organizations are key stakeholders in the design and implementation of GRiF activities. The GRiF aims to build on participatory approaches in the preparation of all investments and appropriately incorporate dimensions of gender, disability, age, and other social vulnerabilities while designing financial instrument. GRiF will seek to work with and support operational civil society organizations (CSO). This work is already ongoing through collaboration with the Start Network. More CSOs involvement in risk finance and insurance could follow suit.

Strong collaboration with the private sector is key to achieve the objectives of GRiF, aligned with the World Bank’s “Maximizing Finance for Development” principles. GRiF aims to apply these principles to harness sustainable private sector solutions for risk financing. This includes building on the ongoing technical collaboration with the Insurance Development Forum (IDF). GRiF seeks to crowd in sustainable private sector solutions.

Regional catastrophe risk pools are important partners of GRiF. Regional catastrophe risk pools in Africa (ARC), the Caribbean (CCRIF), and the Pacific (PCRAFI) have established themselves as key vehicles for countries to strengthen their financial resilience, with a facility for Southeast Asia (SEADRIF) under development. The GRiF will duly consider these entities while implementing activities. Such consideration will take into account financial analysis and potential larger development objectives including regional ownership and public goods.

 

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