8 November 2021Insurance

ILS can help close gap in disaster relief funding: Howden tells COP26

David Howden (pictured), CEO of broker  Howden Group, has appealed to senior leaders in the global investment, humanitarian and philanthropic communities to create a market that helps close the widening gap in disaster relief funding.

The call to action formed part of a keynote speech in which he addressed delegates at the World Climate Summit at COP26 yesterday (Nov 7). Despite governments, foundations and individuals continuing to pour public money into disaster relief, the funding shortfall has never been wider, rising from $1bn 20 years ago to $20bn today. Public funds are not enough to tackle the rising frequency and severity of disasters globally, leading Howden to conclude that the deployment of private capital is essential to providing this relief, he said.

He explained how “the shortfall isn’t just a funding gap – it is lives and livelihoods. It is the difference between the 235 million people who need humanitarian support and the 160 million people that humanitarian organisations can currently afford to reach.”

Insurance solutions, such as catastrophe bonds, could be the bridge between private capital and the humanitarian projects that need it. He observed: “The real power of insurance lies not only in its underwriting and risk modelling capabilities, but its ability to attract and mobilise capital.”

Howden referenced the recently launched world’s first catastrophe bond for volcanic eruptions, which it worked on in partnership with the Danish Red Cross and helped to fund through its own foundation to demonstrate the role insurance can play in disaster relief financing.

The volcano bond, whose multiplier effect means it pays out up to twenty times the premium, as an eruption happens, was a $3m ‘proof of concept’. It is a model that can be applied to many other types of disaster relief projects. “In Alok Sharma’s opening speech, he talked of the communities being devastated by climate change – droughts, floods, hurricanes, famine, plagues of locusts; this can be applied to all of them.”

He explained: “It is an acorn which, if we bring together the investment, humanitarian and philanthropic communities, can grow into a forest of oaks trees.”

Howden continued: “The concept has received huge support from our own employees, who want to work in an industry that is not just for profit but for purpose as well. They are putting significant sums of their own money into our foundation to back it, enabling the foundation to commit future funding that will result in up to £100m of disaster relief financing for projects globally.”

With growing investor appetite for asset classes that support societal resilience, Howden estimates that if just 3% of global pension funds’ assets under management were redirected into insurance-based ESG investments, this would equate to $1.5trn of capital for social good.

He called upon the global investment, humanitarian and philanthropic communities at the Summit to join together to establish a market: “We can’t keep relying on government and charities to find more money - there is far more private capital available than public – and there is huge appetite from this capital to invest in ESG, but it needs a market. So I’m here today to ask for your help in creating that market.

“To humanitarian organisations wanting to make the most of your funds for resilience and preparedness - bring us your disaster relief projects.  To foundations looking to make the greatest impact on saving lives and livelihoods with every donation - fund the premium and stretch the impact of every dollar. And to investors looking to channel your capital into asset classes that help to deliver societal good – come and talk to us.”

He appealed to them: “Together, we can plant and grow that amazing oak forest by creating a market that unlocks private capital for social good.”

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