Exploring a role for triggers and risk-informed financing in complex crises: COVID-19 as a case study

by Conor Meenan, Lead Risk Finance Specialist, Centre for Disaster Protection and Chris Eleftheriades, Innovative Finance Lead, Airbel Impact Lab - Research & Innovation at the IRC

Credit: Corporal Paul Shaw/MOD/FCDO

COVID-19 has sparked a complex, multifaceted, and likely protracted global humanitarian crisis. In the most fragile contexts this could mean years of spikes in health, economic, and other risks related to the virus and associated containment measures. The complex, dynamic, and protracted nature of this crisis calls for an adequately comprehensive, dynamic, and long-term approach to humanitarian strategy, operations, and finance.

During autumn 2020, the Centre for Disaster Protection and the International Rescue Committee (IRC) launched the Decision-making During COVID-19 project, a collaborative effort to test and operationalise crisis risk financing tools in the context of a complex, protracted humanitarian crisis. This partnership aimed to put the Centre’s call to action outlined in their paper ‘The Future of Crisis Financing’ into practice, exploring the role for triggers and generating learning that we hope will be useful for other organisations looking to use risk financing instruments for complex crises.

We recently published the final output from the project - Exploring a role for triggers and risk-informed financing in complex crises: COVID-19 as a case study. The short report presents a retrospective analysis of IRC’s approach to financing the first nine months of the COVID-19 outbreak; and an analysis to identify, develop and appraise possible trigger mechanisms to support decision-makers and lay the foundation for further risk-informed financing.

Throughout the project we engaged in action research, and captured three priority lessons from the explorative analysis and application of risk financing theory inside an operational actor:

1. Crisis risk management and crisis risk financing can enhance timeliness and effectiveness for even the most complex risks

   Our retrospective analysis of IRC’s approach to financing the early months of the COVID-19 crisis demonstrated that pragmatic, tailored, risk-informed financing provided clarity and structure for decision-makers, and accelerated funding and action for crisis-affected communities by months.

2. Design to solve real-world problems - ‘form should follow function’

   We assess that too often financing innovations are solutions in search of problems. Throughout this project, we sought to describe and derive purpose-built triggers and risk-informed financing tools through thorough landscaping and problem definition. We began with an assessment of existing systems, underpinned by a flow-of-funds analysis focused on financing IRC’s COVID-19 response. This sequential approach grounded our recommendations in the organisational context, and allowed us to identify and build on innovations that had emerged organically through operational necessity, rather than impose new, external solutions. We encourage others to consider the opportunity created by COVID-19 as a major stress test of their financial preparedness, and to identify specific decision points that could be supported by more risk-informed and trigger-based financing.

3. Design with humility and learn by doing

   Three key factors enabled our iterative, exploratory process, and provided latitude to course-correct throughout:

1. We assembled a multidisciplinary team, combining the Centre’s risk financing expertise with IRC specialists in humanitarian health, logistics and crisis analysis;

2. We created space for operational colleagues - the real innovators - to contribute their perspectives through generous funding from the Centre;

3. Leaders in both organisations were willing to back an iterative, exploratory process with their insights and challenge, staff time and (in the Centre’s case) funding.

We set out in this project to derive ‘a more comprehensive crisis financing structure’ for complex crisis risks. Six months on and this objective now feels at odds with the problem-driven approach that we found to be critical and that we recommend in this paper. From our research it is clear that no single ‘comprehensive crisis financing structure’ will be applicable in all contexts. Instead, we conclude the paper by presenting the beginnings of a blueprint process for others exploring the role of triggers and risk-informed financing tools in their organisations. We hope that this is a timely contribution, as organisations reflect on the stresses created by COVID-19, and start to strengthen and reform their financing toolkit ahead of the next crisis.