Lloyd’s launches new parametric disaster resilience vehicle in partnership with UNCDF and Aon

Lloyd’s of London, the specialist insurance and reinsurance marketplace, in collaboration with the United Nations Capital Development Fund (UNCDF), has launched a new disaster resilience vehicle that will provide crucial disaster risk finance to Small Island States in Development (SIDS) in the Pacific region.

Using the global reinsurance market as a source of capacity, the Global Disaster Resilience Vehicle, supported by members of the Lloyd’s Disaster Risk Facility, aims to improve recovery and increase resilience.

The vehicle will leverage funds from donors committed to the region and utilize local networks to deliver exposure-based payments directly to climate-vulnerable communities.

Leveraging the capacity of the global reinsurance market, Lloyd’s will work in partnership with local industry to identify local industry resilience needs, ensuring the availability of suitable cover, ensuring the necessary capacity.

This could mean doubling the total sum insured from $1,000 to $2,000 per policy per year, with up to 100% compensation per event.

According to Lloyd’s, the underlying insurance policies sold in the region are parametric, while the reinsurance program is indemnity-based.

The Global Disaster Resilience Vehicle is focused on creating local impact through payments directly to people affected by natural disasters.

Families will receive varying amounts of payments directly from a basic insurance product, which will be determined by the severity of the event.

The vehicle will initially cover Fiji, Papua New Guinea and Samoa, and will respond to disasters caused by natural hazards, including tropical cyclones, earthquakes, tsunamis and floods.

The long-term goal is to scale up and replicate the vehicle across the Pacific region, as well as the Caribbean, Asia and Africa.

John Neal, CEO of Lloyd’s, commented: “The insurance industry has been involved in disaster risk financing for decades and has an increasingly important role to play in providing capital and tailored investment solutions to build resilience.

“The establishment of this new vehicle reinforces the crucial role that Lloyd’s and the (re)insurance industry play in supporting Pacific Island communities to respond to and recover more quickly from disasters.”

In partnership with Lloyd’s, UNCDF and Aon, the launch of this ‘pioneering’ vehicle aligns with the commitment made by the Sustainable Markets Initiative (SMI) Insurance Working Group at COP26 to support tangible actions that increase the resilience of countries vulnerable to climate change.

In continuation of Lloyd’s commitments set out in the Memorandum of Understanding (MoU) with UNCDF in September 2023, Lloyd’s and Aon will collaboratively support the expansion of UNCDF’s existing programs.

This partnership aims to close the protection gap and increase the resilience of populations in the Pacific Islands.

Dominic Christian, Global President of Aon Reinsurance Solutions, said: “Providing access to venture capital to reinforce and grow the work of UNCDF is an important step in helping Pacific Islands build resilience against natural disasters, and becomes even more important given the potential impacts of climate change.

“Working with UNCDF, Lloyd’s and DRF represents an exciting collaboration and supports our belief that combining our resources and expertise is the most efficient and effective way to develop a disaster risk finance ecosystem that can benefit countries and communities that need it are the majority.”

Pradeep Kurukulasuriya, Executive Secretary of UNCDF, added: “UNCDF has a unique mandate to provide blended financing instruments to emerging economies, including climate-vulnerable SIDS, for development challenges such as the impact of climate change and extreme weather events.

“Through a combination of grants, guarantees and concessional loans, UNCDF, through its climate risk insurance program partners, aims to support local market ecosystems to provide sustainable last-mile solutions to build resilience and preparation of vulnerable communities. We are committed to working with the insurance and reinsurance industry to establish this investment vehicle that will be tested in the Pacific, replicated and scaled to other markets.”