Smart Premium and Capital Support: Enhancing Climate and Disaster Risk Finance Effectiveness Through Greater Affordability and Sustainability

Climate and disaster risk finance and insurance (CDRFI) promises substantial resilience benefits. Yet, due to affordability challenges as well as market inefficiencies, to date they are not used to the extent they could. Limited uptake, in turn, threatens the sustainability of their supply. In the wake of fiscal pressures that were exacerbated by the Covid-19 pandemic, the topic of premium financing as a means to financially support CDRFI solutions and address the affordability challenge is gaining importance. In this context, the effectiveness of financial support for CDRFI could be improved by a coordinated, principled approach to premium financing. For this, there is a need to overcome the lack of awareness and evidence-based guidance on the conditions under which affordability and sustainability concerns for insurance solutions in vulnerable countries are best addressed through – inter alia – premium financing or other forms of concessional finance.

This Policy Note presents a common understanding among InsuResilience members and partners regarding recipient eligibility, volume, duration, and form of premium and capital support as well as the conditions under which this support will be provided. The HLCG approved the principles at its 5th meeting on the 27th of October 2021.The SMART Premium and Capital Support Principles presented in Part A provide an overarching framework to address these questions. They offer conceptual guidance for the provision, channelling and use of PCS by donors, implementers, clients and other recipients, and are intended to inspire a principled, coordinated approach on PCS provision and use among stakeholders. Part B presents an overview on how the principles could be applied in programming and designing premium and capital support at the macro- and meso-/micro-levels.