Workstream 2: Action & Implementation
Enable effective action and implementation of high-quality Climate and Disaster Risk Finance and Insurance solutions in poor and vulnerable countries
Program Alliance Implementing Partner Update – KfW Development Bank
By KfW Development Bank
Financed by the German Ministry for Economic Cooperation and Development (BMZ), the German Development Bank KfW has developed a cutting-edge project portfolio in the field of climate insurance and disaster risk finance. KfW’s climate-risk insurance portfolio comprises 11 projects with a total investment of EUR 250 million, mainly in equity and grants. Climate-risk insurance programmes financed by KfW include:
In addition, KfW has developed a new disaster risk-finance instrument in the form of Shock Resilient Loans (SRL).
The IIF had its final close in mid-2020. It has attracted investments from established investors in both the public and private sectors, including the European Investment Bank and the Soros Economic Development Fund. With USD 80 million in the Private Equity Sub-fund and up to USD 150 million in the Debt Sub-fund, the fund is pioneering the development and distribution of micro and meso insurance products.
During the second year of operation, the ISF has demonstrated the benefit of its successful operations model even under the challenging circumstances of the pandemic, since the fund has experienced high demand and fast-paced commitment of funding.
The ISF has contributed substantially to the annual achievements of the Tripartite Agreement between the Insurance Development Forum, UNDP and the BMZ, including significant support for the first projects developed under the Tripartite Agreement.
The NDF offers intermediaries parametric protection against climate risks in developing countries. Since 2020, it has been funded by KfW and the UK’s Foreign, Commonwealth and Development Office (FCDO), and backed by leading reinsurer Hannover Re as the first private-sector risk capacity provider in the venture. NDF solutions are part of the holistic advice for financial disaster risk management provided to clients by the NDF’s investment advisor Global Parametrics. It deploys state-of-the-art modelling and structuring to create the most effective financial protection solutions.
ARC successfully extended its drought insurance coverage in 2020 to ten countries in West and Southern Africa, with five new Southern African countries joining the pool. ARC Replica – the ARC insurance coverage for humanitarian actors – has complemented the country coverage in five African countries through the World Food Programme and the Start Network. In response to the Covid-19 pandemic, KfW has implemented a EUR 19.5 million Covid-19 premium subsidy package for African countries. ARC has also launched its first tropical cyclone product. In 2020, ARC triggered payouts in Senegal, Zimbabwe, Madagascar, Mauritania and Cote D’Ivoire. This includes a 23 million payout to the Senegalese Government and the Start Network, which enabled early action and disaster relief for the drought-affected population.
Last but not least, another highlight for KfW has been the development of the new Shock Resilient Loans (SRL) instrument, which is being piloted with the West African Development Bank (BOAD). Loans by BOAD to West African member states are combined with a subsidized insurance policy. If a natural disaster occurs, insurance payouts are used to meet payment obligations for a predefined timeframe. The borrowers are therefore able to use their own financial resources to foot the bill for emergency aid and reconstruction. This reduces the long-term costs of a delayed response and avoids the need for budget cuts or borrowing at high interest rates.