UK to turn to buying disaster insurance in new aid strategy

London: The United Kingdom will explore using its aid budget to buy insurance against expensive disasters in low-income countries to avoid sudden “spikes” in emergency spending that threaten to derail other programs.

The Foreign, Commonwealth & Development Office, or FCDO, has invited the insurance industry to come up with firm proposals, and the plan will be part of a new development blueprint to be launched by Prime Minister Rishi Sunak next month, Devex has learned.

Government officials see insurance as a way to ease the “unpredictability” of needing to respond to costly crises within a much-reduced humanitarian budget and regret going cold because of a “media outcry” after the idea was first floated six years ago, according to two U.K. officials who requested to remain anonymous.

The U.K. government sees the move as a logical next step after it helped set up regional “risk pools” in Africa, the Caribbean, Southeast Asia, and the Pacific, to drive down costs for nations then able to buy insurance as a group.

“There is no reason in principle why the government could not pay insurance premiums directly,” an official told Devex on the condition of anonymity.

“It is difficult to produce the modeling to show it will be value for money, but if the industry comes up with a proposition, we would definitely consider it. That’s what we are moving towards, but we are not there yet.”
A second source confirmed that a November “white paper” — a new development strategy being put together by Andrew Mitchell, the development minister — will include the proposal.

In a recent opinion article published on Devex, Mitchell highlighted his interest in “pre-disaster risk-financing”, praising a Moroccan government insurance scheme expected to pay out $275 million following the recent devastating earthquake.

However, the sources say FCDO believes there are still significant hurdles to overcome, including the high cost of premiums in Africa and incontrovertible proof that payouts will be made. The office also remains concerned about the “domestic impact” of using aid cash to buy insurance.

In 2017, newspapers criticized the government for spending £30 million ($36.4 million) to set up the Centre for Global Disaster Protection — inaccurately reporting that the U.K. would be paying premiums, although the center only provided advice and expertise at that time.

The official who spoke to Devex described the years since as “two steps forward and two steps back,” saying the media backlash helped explain the lack of progress.