Catastrophe risk insurance makes its biggest payout ever following Haiti disaster - but is it enough?
by Fergus Thomas, Risk Finance Lead
People buying and selling stuffs in front of a collapsed building in Port-Au-Prince, Haiti on August 21 2010. Credit: arindambanerjee / Shutterstock
The Haiti earthquake is the latest tragedy to befall a beleaguered nation still in recovery from previous disasters, not least the devastating 2010 quake. While the road to recovery will be long, the country has already benefited from a relatively new approach to funding such disasters that saw life-saving international financing delivered within two weeks of the initial shock. This quick response is far from the norm, but it shows that how the world pays for crises is evolving and modernising.
Unlike most disaster financing, this money was arranged in advance and triggered automatically meaning it was faster off the mark. But it still represents a tiny amount compared to the full cost of response and recovery. Unless this approach starts to become the norm, not the novelty, vulnerable countries like Haiti will likely remain in a constant loop of disaster and recovery, putting long term development progress out or reach.
The magnitude of last month’s earthquake was three times more powerful than the 2010 quake which destroyed the capital, Port-au-Prince, and claimed more than 200,000 lives. This time however, loss of life, although significant, has not been so great, but hot on the tail of the quake came torrential rains. At the last count, 2,200 people are dead, over 12,000 are injured and more than 130,000 homes damaged.
A new way forward?
The good news is that some international money for response and recovery has already been delivered to the country to help with the response. The automated pay out of almost $40M by the Caribbean Catastrophic Risk Facility (CCRIF), a risk pool set up to finance hurricane and earthquake response in the region, is 5 times greater than its 2010 equivalent. It demonstrates the progress made in making pre-agreed financing - that is funding for disasters that is arranged in advance based on an understanding of the disaster risk profile of a country or region - a greater part of the international response to crises like these.
While this money has reached the country swiftly - and certainly faster than more traditional sources of finance are likely to - it is still a drop in the ocean compared to what is necessary to help communities recover quickly and with dignity. The humanitarian response in 2010 cost the international community $1bn. While the immediate cost of this most recent crisis will be less, it is still likely to vastly exceed the money committed so far.
For the rest of the funding, Haitians must rely on the old way of doing things – emergency appeals to development banks and donor governments in the hope they will be generous, while the tragedy they are living through disappears from the headlines. When money is finally committed, it will likely take months, or even years, to trickle through to the country and then even longer to get to affected communities. Delays like these cost lives and make the recovery more expensive for communities, for the Haitian government, and for the international donor community and humanitarian system. And while affected communities wait, the countdown has already begun on the next disaster that could come at any moment.
How can pre-arranged disaster finance help?
If the global crisis financing system was to embrace pre-arranged disaster financing at a much faster rate and much more deliberately, people all over the world, especially in disaster-vulnerable countries like Haiti, would benefit. Here’s how:
Fast funding at scale immediately after a shock (or just before) could enable first responders to go further and faster, instead of trying to put together a response with uncertain funding arrangements amid the chaos of a disaster. The more planning that occurs before a disaster strikes, the faster, more coordinated, and ultimately more effective the response.
Predictable funding that the government, communities and humanitarian responders know would be triggered in the event of a disaster, can help pave the way for a more pro-active approach to disaster risk reduction and preparedness. African Risk Capacity, the risk pool for Africa, requires its member countries to provide plans for how the money will be spent - including on risk reduction efforts - before contracts are agreed.
A more diverse set of responders, especially those connected locally with affected communities, could have better access to international funds. By agreeing plans in the aftermath of a disaster, these groups are often left out of discussions. By planning the response in advance, based on predictable funding, it is possible to ensure that power and decision making is in the hands of organisations on the front line of crises in the crucial first few weeks, instead of waiting for money to trickle down through overwhelmed government bureaucracies or the international humanitarian system. Currently as little as 10% of humanitarian funding makes its way to local and national responders according to the Humanitarian Practice Network.
Pre-arranged financing for disasters is not a silver bullet for Haiti’s problems. The country faces multiple challenges that require complex and layered solutions - not least how to ensure international funds are spent in ways that meet the needs of ordinary Haitians. However, vulnerable communities there deserve the right to think beyond hand-to-mouth survival, and pre-arranged funding for disasters can help make that change if well planned, inclusive and accountable.