Lloyd’s of London has partnered with the United Nations Capital Development Fund (UNCDF) to introduce a new disaster resilience vehicle. This initiative provides disaster risk financing. Lloyd’s and Aon are committed to expanding UNCDF’s existing programs to close protection gaps and strengthen resilience across the Pacific Islands.
Supported by members of Lloyd’s Disaster Risk Facility, the Global Disaster Resilience Vehicle will enhance recovery and resilience, utilising the global reinsurance market as a capacity provider
The vehicle will use donor funds allocated to the region and local networks to distribute exposure-based payments directly to those affected.
Launched in collaboration with UNCDF and Aon, this initiative aligns with commitments made by the Insurance Task Force of the Sustainable Markets Initiative (SMI) at COP26, reinforcing efforts to support countries vulnerable to climate change.
Initially covering Fiji, Papua New Guinea and Samoa, the vehicle will respond to disasters caused by natural perils including tropical cyclone, earthquake, tsunami and flood – with the long-term aim of scaling and replicating the vehicle throughout the Pacific region as well as the Caribbean, Asia and Africa.
The vehicle will leverage donor funds committed to the region and utilise local networks to provide exposure-based payments directly to climate-vulnerable communities.
Working alongside local industries, Lloyd’s aims to identify and meet local resilience needs, ensuring sufficient coverage by securing necessary capacity. This approach could potentially double insurance coverage, increasing insured amounts from $1,000 to $2,000 per policy annually, with full compensation per event.
The vehicle focuses on delivering direct payments to households impacted by natural disasters, with payout amounts determined by the event’s severity.
As Chair of the Sustainable Markets Initiative’s Insurance Task Force (ITF), Lloyd’s will be representing the voice of the insurance industry at the Commonwealth Business Forum to showcase the innovative risk transfer mechanisms in existence and under development within the insurance industry to provide disaster resilience in climate-vulnerable communities.
Key benefits of the new vehicle for the local economy
- Policyholders: Access to more efficiently priced products that provide relief. Access to affordable loan financing (0-1%). Capability to focus on resilience building with security of funding for post disaster recovery.
– Immediate access to funding has proven to improve the rate of recovery post disaster - Local insurers: Support to build capacity and markets; access to more efficient capital; improve product penetration
- UNCDF: Support to leverage current programme to improve impact with private sector support that will be sustainable
- Donors: greater impact for the committed funds through localisation of funding; and donor budget smoothing as private sector will provide response to unexpected disaster / needs; leverage the disaster risk funding to provide premium loan financing
- Local Governments: allow for more efficient budgeting and resilience building – removing the need for disaster response allocation
- Global Disaster Resilience Vehicle enables access to additional financial resources and mobilises capital during periods of extraordinary need or crisis.
Lloyd’s CEO, John Neal, emphasized the critical role of the insurance industry in disaster risk financing and resilience building. This new vehicle demonstrates the significant contribution Lloyd’s and the insurance sector make in helping Pacific Island communities recover faster from disasters.
The insurance industry has been engaged in disaster risk finance for decades and has an increasingly important role to play in providing capital and tailored investment solutions to build resilience. Establishing this new vehicle reinforces the crucial role Lloyd’s and the (re)insurance industry plays in supporting communities within the Pacific Islands to respond and recover quicker from disaster
John Neal, Lloyd’s CEO
The announcement comes as part of the Commonwealth Heads of Government Meeting (CHOGM) in Samoa, where private sector leaders gathered this week to discuss the sustainability and resilience challenges facing Commonwealth countries, and the practical solutions to support resilience-building initiatives in the communities most affected by climate change.
During CHOGM, Lloyd’s will join fellow SMI CEOs to present the vehicle to His Majesty King Charles III, founder of the SMI as The Prince of Wales, and outline further support of lighthouse project initiatives led by the group.
“UNCDF has a unique mandate to provide blended financing instruments to emerging economies, including climate-vulnerable SIDS to development challenges like impact of climate change and extreme weather events. Through a combination of grants, guarantees and concessional loans, UNCDF through its climate risk insurance programme partners, aims to support local market ecosystems to deliver sustainable solutions at the last mile to build the resilience and preparedness of vulnerable communities.
Pradeep Kurukulasuriya, Executive Secretary, UNCDF
Dominic Christian, Global Chairman of Aon Reinsurance Solutions, highlighted the importance of providing risk capital to help Pacific islands build resilience, particularly in the face of climate change. He praised the collaboration between UNCDF, Lloyd’s, and the Disaster Risk Facility (DRF) as an effective way to develop a disaster risk financing system for communities in need.
Lloyd’s of London has reaffirmed its projection of the insurance industry’s pandemic-related losses at $107 bn.
During a recent webinar, John Neal, CEO of Lloyd’s of London, remarked: “Markets are reporting their losses from COVID-19, and I believe there is still much to be done concerning the recession’s impact. So, I genuinely think that when everything concludes, the figure will be close to $100 bn.”
Lloyd’s estimate is higher than that of most other reinsurers, likely because markets are slowly updating their COVID-19 loss figures.
Lloyd’s also stated that it expects to pay up to £5 bn in COVID-19 claims, with £2 bn, or roughly 40%, covered by reinsurance.
by Yana Keller
