Methodological guidance to determine the ‘size’ of premium and capital support (PCS) at macro level

This document proposes methodological guidance to define the ‘scaling factor’ to determine the size of premium and capital support (PCS) at macro-level. It is based on the ‘SMART PCS Principles’, developed by the InsuResilience Global Partnership (IGP) to scale-up the climate and disaster risk finance and insurance (CDRFI) solutions. Conceptual guidance on what considerations need to be taken to determine the size/amount of PCS is provided across all five SMART PCS Principles. Principle ‘A’ (accessibility) in the SMART PCS concept note argued that ‘transparent, uniform and consistent criteria for needs-based PCS levels should be formulated’ to guide donors in determining an “uptake-enabling” size of PCS intervention (Töpper and Stadtmüller, 2022).

The paper introduces and suggests an indicative formula to calculate externally supported (donor) share of the premium for a government. The formula is proposed as a fraction that reflects need-based considerations, along with a scaling factor that needs to be defined in an evidence-based fashion to suit different country contexts. Based on this formula, the report provides methodological guidance to define the scaling factor. Further, the feasibility of the overall formula, in terms of its practical use, is also reviewed to identify limitations and suggest appropriate remedies.