Dare to share! Why transparency around disaster risk finance matters
Author: Veronika Bertram
Conference participants arrive at the UNFCCC COP29 Climate Conference on November 18, 2024 in Baku, Azerbaijan. Photo: Sean Gallup / Getty Images
At COP29 in Baku, the V20- and G7-led Global Shield against Climate Risks launched its Global Shield Ambition framework to strengthen financial resilience in climate-vulnerable countries. It commits major disaster risk finance actors to five core principles: country ownership, complementarity, timeliness, inclusivity, and transparency. These principles aim to create fairer, more effective systems for disaster risk financing, better equipping countries to take risk-informed decisions and access the support they need to create financial crisis protection.
One principle provides the critical foundation for achieving against all others. Transparency. The Centre for Disaster Protection recently published an insight paper on rethinking premium support—international assistance to reduce the cost of insurance protection through premium subsidies for vulnerable countries. Our research found a general lack of information publicly available in relation to premium support on how decisions are made, including on eligibility, allocations, terms and conditions, and on application and negotiation processes. Transparency of such information is crucial to scaling up effective financial protection.
Why does this matter? Climate- and crisis-vulnerable countries face an uneven playing field when it comes to selecting disaster risk finance instruments, as each comes with different costs and levels of concessionality (the extent to which the instruments are offered at below-market rates and other favourable terms).
This blog explores how the lack of transparency around the levels of costs and concessionality across different risk finance instruments hinders countries when choosing the most appropriate instruments that best address their crisis protection gaps, and what can be done to address this.
The uneven playing field
Imagine a country that faces a range of disaster risks, from rapid-onset typhoons that bring devastating floods to prolonged droughts. Ideally, the government would be able to assess its financing gap for these different risks and access a mix of risk finance instruments—such as contingency funds, loans, or insurance—tailored to mitigate the impact of disasters. With clear, accessible information, a government can evaluate the costs and benefits of each option, negotiate terms from international partners and choose the instruments that maximise financial crisis protection for its people.
In reality, this process is far more complicated. Shakira Mustapha, Research Lead at the Centre for Disaster Protection, and Charlotte Benson, published research comparing the costs of disaster risk finance instruments based on an approach developed with the UK Government Actuary’s Department (figure below). The ‘cost multiple’ indicates how much a country pays, on average, for every dollar of payout it receives from a financial instrument. For example, a cost multiple of 2.0 means that for every $1 a country receives as a payout, it spends $2 on the instrument. A cost multiple greater than 1.0 indicates that costs exceed payouts. Since the cost of most instruments changes for disasters depending on different likelihood of happening, it is critical to consider the return period (the likelihood of an event, e.g., a 1-in-5-year event).
Comparison of costs of different pre-arranged financing instruments for Africa based on public data
Source: Mustapha and Benson, 2024. Notes: ‘IDA loan’ and ‘IDA grant’ refer to Catastrophe Deferred Drawdown Options (Cat DDOs) offered to low-income countries eligible for International Development Association (IDA) support. ‘ARC’ refers to a sovereign insurance policy from the African Risk Capacity.
Ideally, a country government would have access to similar analyses for its available instruments. Unfortunately, the results presented in the figure for Africa are based on publicly available data, which are then regionally aggregated - and somewhat outdated. The findings cannot be generalised for any African country that received IDA support from the World Bank. The research found sourcing up-to-date and disaggregated information at the country level extremely challenging. Particularly information on premium support.
Regular information sharing is essential for making valid comparisons. Irregularly shared, aggregated data makes assessing the actual cost-benefit for different scenarios difficult from a country’s perspective. A lack of cost transparency, including concessionality levels, prevents countries from comparing instruments. Leaving countries struggling to identify the best instruments for different scenarios and to determine cost-effective triggers, which prevents them from negotiating terms that align with their specific risks. This can lead to serious repercussions: Countries may end up with deals that do not provide the financial crisis protection that they need, leaving populations unprotected in scenarios where they are most vulnerable.
Without transparency and instrument-agnostic support from donors and providers to pre-arrange finance, countries can find themselves forced to choose instruments based on donor-defined terms or funding priorities rather than their own needs. This undermines the principle of country ownership.
Why transparency is the key to informed decisions
By providing clear, up-to-date information on the costs of instruments and concessionally levels, donors and providers enable countries to:
Evaluate options effectively: Countries can compare instruments like insurance, loans, or contingency funds based on their actual costs and benefits and assess when to use which instrument.
Make informed decisions: With accurate data, countries can choose instruments that complement their financial strategies and best address their funding protection gaps, specific risks and scenarios. Reliable, granular data also helps them determine the most appropriate disbursement triggers, as well as the optimal timing for tapping contingency lending lines (pre-arranged credit that a country can draw on if and when certain specified conditions are met). Better information underpins medium and longer-term financial planning, allowing policymakers to weigh the balance between national resources and international support.
Negotiate better terms: Countries can articulate their needs clearly to international partners and advocate for terms and durations of international support that best address their priorities and development path.
Transparency also benefits providers. When they share data openly, they can better align their offerings and reduce overlaps – contributing to the principle of complementarity.
Fragmentation undermines progress
Over the past two decades, international support for insurance premiums has expanded from a niche part of funding from development banks, like the World Bank’s IDA and International Bank for Reconstruction and Development (IBRD) financing agreements, to a range of different funding pots, including several grant facilities by risk pools, the Global Shield financing facilities, and a dedicated programme by the African Development Bank.
While this diversification has expanded access to funding, in particular for insurance products, it has also created silos. Providers are hesitant to share detailed information about subsidies with other providers of premium support and with countries. This hesitancy may stem from competitiveness among providers; the additional effort and required resources; and a long-held scepticism from donors towards subsidies, for instance, due to the risks of setting disincentives for countries to manage the risk or to finance disaster risk finance instruments in the medium or long term.
The combination of increased fragmentation and a hesitance to share data has held back donors and risk finance providers from aligning concessional support. Hampering countries from choosing instruments based on suitability to their risk profile and specific crisis protection gaps.
Call to action: Dare to share!
Levelling the playing field in disaster risk finance starts with transparency. Donors, development banks, and risk pools must become active and commit to sharing clear, detailed cost and concessionality data at the country level. This includes:
Providing up-to-date information on subsidy levels for each instrument.
Conducting or supporting comparative assessments of financing options to guide decision-making.
Aligning offers across institutions to ensure complementary support to countries.
By sharing information openly, we can create a system where countries are not merely recipients of pre-defined terms but actively shape their financial protection. Transparency builds trust and holds donors and providers of risk finance instruments accountable (see our guidance note on making disaster risk financing work for risk-affected people). This not only strengthens country ownership but also builds reliable financial resilience.