The Danish Red Cross is piloting a parametric flood insurance program in Malawi with the support of the African Risk Capacity (ARC) as it looks to develop a sustainable solution to make humanitarian funding faster when disaster strikes.
The Danish Red Cross has been working with parametric risk transfer and other innovative financing structures for a number of years. Back in 2021 the organisation was behind the Dunant Re IC Limited (Series 2021-1) catastrophe bond, which was the first to transfer pure volcanic eruption risk to the capital markets.
Flood risk is a significant peril that activates Red Cross funding and by working to develop a parametric insurance solution, the organisation is again looking to develop a responsive financing solution using insurance market techniques.
The parametric flood insurance pilot in the Phalombe District of Malawi aims to shift disaster response from reactive to predictive, the Red Cross explained.
The initiative is led by the Malawi Red Cross Society and the Danish Red Cross, working alongside parametric risk pool insurer African Risk Capacity (ARC) Ltd., modeller JBA Global Resilience, the InsuResilience Solutions Fund (ISF), and the Danish Ministry of Foreign Affair.
“The new flood insurance is a big step forward for resilience in Malawi. Funds can be transferred within days – not months – and families can receive support when they need it most,” explained Chifundo Kalulu, Secretary General of the Malawi Red Cross Society, co-designer and implementing partner.
“Humanitarian needs are rising, and traditional grants alone are not enough. The Malawi Flood Insurance shows how pre-arranged, trigger-based finance can complement donor funding to strengthen resilience and deliver aid when it’s needed most,” added Anders Ladekarl, Secretary General of Danish Red Cross, policyholder and technical enabler of the project.
“This initiative is a powerful example of how we can tailor ARC Ltd.’s parametric solutions to different needs across the continent,” David Maslo, CEO of ARC Ltd. further explained. “By insuring the Danish Red Cross for severe floods, we are helping strengthen the speed and predictability of humanitarian action in Malawi.
“Most importantly, this pilot shows how partnership enables us to combine our strengths and expand resilience where it is needed most.”
“JBA has greatly valued the collaboration with our partners on the implementation of disaster risk financing in Malawi. Through this co-development, we have been able to apply JBA’s market-leading flood-risk analytics to the needs of local stakeholders. This type of pre-arranged, risk-informed financing offers the possibility of bridging the insurance protection gap,” added Paul Maisey, Director at JBA Global Resilience, developer of the flood-risk model and parametric trigger.
“At the InsuResilience Solutions Fund, our goal is to enable sustainable, scalable insurance solutions that close the protection gap for vulnerable populations,” Irene Loder, M&E Expert at the InsuResilience Solutions Fund also said. “The Malawi Flood Insurance project is a tangible example of how innovative financing can complement humanitarian aid and strengthen climate resilience.”
This parametric insurance arrangement goes a step further than just providing responsive insurance, it also links resilience and response planning into a single integrated system, through the advanced flood-risk modelling and use of predefined contingency plans.
By using insurance the pressure on humanitarian budgets can be reduced, while it is seen as a complement to grant funding and allows it to be better directed to crises that cannot be modelled or forecast.
The model being used is being tested with this local pilot in Malawi, with the hope that the coverage can expand to more regions of that country and potentially be adapted abroad to other countries facing meaningful flood risks and where responsive, triggered financing could support and enhance resilient and recovery to the peril. By Steve Evans, Artemis