Can insurance make emergency aid better, faster and fairer?

I joined a discussion this week, convened and chaired by Owen Barder, on how we can use insurance — both the principles and products — to help countries better prepare for, and respond to, emergencies.

I have to say it is not something I had given a whole lot of thought to before yesterday (so apologies for being so late to the party).

We talked about the opportunities to use insurance to help countries respond to emergencies and the potential benefits of being able to respond more quickly, cheaply, predictably and transparently than classic humanitarian appeals, that can so often feel clunky and slow.

We agreed insurance shouldn't be seen as the latest ‘magic bullet’

We agreed that insurance may not be cost effective for all the risks that a country will face and key challenges remain:

  • It takes time and effort to get the right product for the right risks.
  • Finding good data and easily measurable and objective indicators can be complex.
  • It is complicated too. Countries need new skills to negotiate contracts — the devil really is in the detail.
  • It is essential to do all the preparation up front, for instance developing the payout channels, so that those who need help get it fast.

We also agreed insurance shouldn’t entirely replace humanitarian aid

But for those risks that have a big impact and happen less often, it can be a useful way to improve the efficiency and cost of responses (relieving the burden on humanitarian aid). Just as we only choose to insure things that would have a major impact on our finances; so too should countries.

Examples of where we already use insurance principles

We already use insurance principles through our work on the Hunger Safety Net Programme which can scale up ahead of weather shocks such as drought. The programme uses satellite early warning data (based on vegetation cover) to trigger an emergency cash transfer to pastoral communities in northern Kenya. The great thing about this is that drought response can be channeled through a tried and tested mechanism to get money to the right people quickly.

Predictable approaches like this are not only cheaper and more efficient, they also mean that people are less likely to sell off livestock that might help them survive in the short term but set them back in the long term. We have also supported world leading research into livestock insurance in Kenya that has helped shape Kenya’s national Livestock Insurance programme. Some of the first pay outs were made into peoples’ bank accounts using HSNP bank cards.

So why are insurance principles and products not used more widely?

I left the room thinking that there must be huge scope to use insurance and its principles more in international development. But Owen’s killer question resonated:

Why — he asked — don’t governments take out insurance more?

It could be because we don’t have the right models yet or that those we have aren’t cost effective yet? But it could be a more fundamental problem with the way the international system works. Donors like DFID have strong moral and ethical reasons to want and need to respond to an emergency and will do so wherever we can. So why would a country bother to take out insurance if it knows someone else will step in anyway? It’s a tricky conundrum..

Either way, we agreed this has to be something we can fix. The benefits of timely, predictable, fast and transparent financing have to be worth it.