When weather events and climatic processes collide with society, an array of setbacks can occur like injury or loss of life or health, damaged infrastructure, and interruption to livelihoods, education, and other parts of normal life. Financial resources can help society deal with these setbacks—a vital part of resilience—and there are a variety of different types of funding used today. Read more

Traditionally, funding is provided to country recipients by bilateral, multilateral, and international organizations. Funding may be provided directly by bilateral donors or through multilateral funds or development banks that have created special facilities, trust funds or programmes to channel available resources. These types of funding may not always be best suited to the needs of country recipients, which suggests space for innovation.

The comprehensive risk management cycle (assessment, reduction, transfer, retention) is important. Adopting a holistic view to funding for risk management can help decision makers plan for, pre-empt and reduce risks and make contingency arrangements which can further contribute to a better coordinated and optimal response to impacts.

Across this risk management continuum different financial instruments and tools can be applied to finance activities and to avoid potential financing gaps in case of disaster occurring, such as grants, (concessional) loans, contingent credit or loans for external contingency finance, capital contributions, subsidies for risk transfer solutions, technical assistance, etc.

Risk transfer redistributes the financial consequences of risk to those entities better able to bear the costs, in exchange for a premium to cover the potential resources needed to pay out to beneficiaries when a hazard occurs.

Some ways that funding can be applied to address climate-related risks are:

Short description

Premium support is direct or indirect support that lowers the cost of insurance premiums.

Direct premium support provides financial resources to the purchasers of insurance. The support can cover both the mark-up part and the risk based part of insurance premiums.

Insurance premium support can come in various forms, with two key distinctions being:

  • Targeted or not: Premium support can either be targeted at a particular recipient, or given to the premium pool;
  • Fixed support, fixed premium, relative support: Support can set at a fixed level per insured, as a percentage of the sustainable premium level, or to cap the premium level at a defined level.