This new insurance model could transform disaster response funding

During the summer of 2024, President Biden decided not to run for re-election, the violence in Gaza was escalating under the brutal summer sun and Taylor Swift was mid-way through her record-breaking European tour. Amid the noise of these major stories in late July 2024, few headlines were written about Cyclone Gaemi as it unleashed chaos in the Philippines.

But that didn’t diminish its impact. Leonica Ibanez, her husband and two sons were four of those swept from their homes. For hours, the family clung to a tree, rising floodwaters lapping at their feet. When the waters receded, the family’s house was gone – “only the toilet bowl remained” she told my colleague later. With the loss of two motorbikes, the family’s livelihood as street food vendors was also shattered.

The world’s attention may have been elsewhere, but Philippine Red Cross teams were ready to act. Thanks, in part, to a swift contribution from the Disaster Response Emergency Fund of the International Federation of Red Cross and Red Crescent Societies (IFRC-DREF), the National Society in the Philippines had the resources to help Ibanez’s family, and thousands of others, to rebuild.

For 45 years, IFRC-DREF has served as a lifeline for small- and medium-scale disasters that don’t make international headlines. Designed to provide quick, flexible and unearmarked funding, it ensures Red Cross and Red Crescent Societies can respond rapidly, without waiting for appeals or fundraising campaigns to gain traction.

But there has always been a catch: the fund is dependent on annual donors and therefore finite. When disasters pile up, the money could run out. Communities left reeling from climate-related disasters towards the end of year might not get any help.

Recognising this, in 2023 the IFRC, with the professional services support of insurance broker Aon, introduced a world-first innovation: an indemnity insurance policy for the fund. The concept was simple yet groundbreaking — when the DREF’s annual spending exceeded a set threshold, the policy would pay out, providing additional resources for disaster response.

I wrote about this earlier this year. But back then it was still a theoretical innovation. Little did I know that in just a few months it would be needed in practice.

This year has been one of the most catastrophic on record, with an unprecedented number of disasters pushing the IFRC-DREF to its limits. From Cyclone Gaemi to Cape Verde’s dengue outbreak, from Iran’s droughts to Rwanda’s landslides, the fund faced immense pressure. So much so that the insurance policy was triggered in September for the first time.

So far, the insurance policy has provided a payout of over 10 million Swiss francs. This funding has reached millions of people across affected regions. It helped when wildfires hit Bolivia in late September and again during floods in Sri Lanka in October and Honduras in November. Insurance money and the resources it bought has helped countless others too. Throughout late 2024, this commercial finance instrument has been picking up a significant part of the tab for disaster relief funding.

This insurance policy works because there’s immense trust between partners and because, in establishing it, there was rigorous auditing of IFRC-DREF’s record. Our insurers must always have confidence that we’re not spending profligately – cushioned by “moral hazard” – just because we’re insured. They are confident in us because we have decades of records proving what we’ve allocated and in which circumstances in the past.

Our insurance-backed IFRC-DREF is now inspiring other humanitarian organizations and government development agencies to explore similar models. For the insurance industry, this represents not only a humanitarian milestone but a business opportunity and a way to contribute to societal and economic resilience too. A world-first indemnity insurance product has proven its worth, showing that innovative finance can align social impact with sustainable business.

As climate change accelerates the frequency and severity of disasters, traditional funding mechanisms will struggle to keep pace. Insurance offers a scalable, sustainable solution to this growing challenge. And for donors, there’s the very real possibility that a dollar, franc or euro contributed to our premium could be quadrupled in a year of particularly high demand.

The IFRC plans to expand our use of innovative finance. With support from partners and donors, we aim to raise the fund’s annual capacity to beyond 100 million Swiss francs. As much as a quarter of the fund's capacity will come from insurance. That will ensure it remains a reliable lifeline for overlooked disasters, even as the world faces new and unpredictable challenges.

For Leonica Ibanez, IFRC-DREF meant a lifeline in her darkest hour. For millions like her, it represents hope amid despair, ensuring that no one facing disaster feels forgotten or alone. But the fund’s success depends on continued support from governments, donors and the private sector.

IFRC-DREF shows what’s possible when compassion, creativity and financial nous are combined. It is proof that even as the world gets more chaotic, we can innovate our way to ideas that start to address that chaos. We can ensure that help is there – fast – when it’s needed most.