CGD in the News

The Push For Faster Aid To Developing Countries (Financial Times)

August 15, 2017
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From the article:

Western governments believe insurance will help deliver relief more effectively. But some fear the policies do not cover the real risks...

Supporters say that using insurance to respond to natural disasters can help to save millions of lives in the world’s poorest countries, by putting in place a quicker and more predictable source of funds when the worst happens...

The insurance industry has assembled a host of executives, alongside the UN and the World Bank, into a group called the Insurance Development Forum, which aims to extend the use of insurance and risk management techniques to “build greater resilience and protection” in the developing world...

“The current humanitarian system works really badly,” says Owen Barder, a vice-president at the Center for Global Development, a think-tank.

He says there are two big problems. The first is the often late arrival of aid. Countries only ask for help when problems become apparent, and that help can take months to arrive. By that time the problem has become much worse, and much more expensive. Second, aid is unpredictable. Governments that ask for help have no idea what they are going to receive, and so cannot make firm plans for how to spend it...

One is the question of who pays the premium for the policy. In some of the schemes operating at the moment, donor governments pay. In others, it is the recipient countries.

According to Mr Barder, there are reasons why both donor countries and recipients are reluctant to pay up. “Politicians have short-time horizons,” he says. “You could pay a premium while in office and not get a payout. Why would you spend your scarce resources on an insurance policy?”

Likewise, he says, some donor countries hold back. “It is very rare for donor countries to pay the premium . . . there is a real reluctance,” he says, partly because some donors prefer to wait until the aftermath of a disaster to decide how much they want to give. There is also, he adds, some suspicion of the private sector...

[Barder] says the centre [the London Centre for Global Disaster Protection] has a role to play in ensuring that developing nations are not overpaying for their insurance. “I am persuaded but not certain that the market is sufficiently competitive [and] that there will not be excess profits from the deals. We have to be vigilant about that. There is potential for rent seeking,” he says. “The London Centre could and needs to be a source of reassurance on this.”

Read full article here.