What is the Disaster Risk Facility?
The Disaster Risk Facility at Lloyd’s was formed to look at closing insurance gaps around the world through development and provision of contingent risk financing solutions to mitigate the human and financial impacts of natural hazard and other catastrophic risks.
Seven Lloyd’s syndicates - AXA XL, Hiscox, Beazley, RenaissanceRe, Chaucer, MS Amlin, Nephila – have joined forces to develop new solutions to help developing economies tackle underinsurance and improve their resilience against the economic impact of natural catastrophes.
The group engages with governments, municipalities, and non-governmental organisations, in addition to Lloyd’s usual, valued client base, and supports the Insurance Development Forum (IDF).
Why is the Facility important?
In recent years, we have seen a considerable increase in disasters, both in their frequency and severities. Overall economic losses from such disasters have serious consequences in limiting economic and social development. In many countries current measures do not go far enough to adequately protect people, infrastructures from the effects of disasters.
Emerging markets tend to be more likely to encounter natural catastrophes due to their geographical locations. Today’s emerging markets across Latin America, Africa, and Asia are frequently underinsured to cover the potential loss as they only represent 16% of global insurance premiums.
Global economic losses from disasters are substantial and growing. The severity of impact can be reduced by investing in greater resilience. Lloyd’s Corporation is raising awareness on the issue – the Lloyd’s report: Innovative finance for resilient infrastructure – identifies four innovative financial mechanisms that help monetise the resilience dividend for investors, providing a financial incentive for investing in greater resilience. The Lloyd’s City Risk Index quantifies how much economic output 279 cities would lose annually on average (GDP@Risk) from 22 man-made and natural threats. The research shows that these cities represent half (41%) of the world’s GDP and $546.50bn of expected annual losses. The Lloyd’s Global Underinsurance report is looking at the annual gap of $168 billion between the levels of insurance needed and the actual cost to businesses and governments of rebuilding and recovering from major catastrophes.
The Disaster Risk Facility is committed to developing innovative solutions for populations that suffer some of the most serious losses, which currently have little or no access to insurance. The Facility focuses on trying to fill the protection gap.