Swiss Re helps establish the Pandemic Emergency Financing Facility

The World Bank recently launched a new insurance vehicle, the Pandemic Emergency Financing Facility (PEF), a ground-breaking initiative which will use both reinsurance and capital markets tools to help mobilise funds during a disease outbreak. Backed by the G7 countries, the PEF is jointly structured by reinsurers companies Swiss Re and Munich Re.

The PEF forms part of a joint funding effort with the World Health Organization (WHO) in response to the Ebola crisis of 2014, where donor response funds only became available months into the outbreak. Swift access to funds to respond effectively to outbreaks and health emergencies is among the most pressing challenges facing the international community. The PEF will allow governments and health officials to prevent the disease from spreading, save more lives, and limit damage to their economies. The report "Pandemics in a Changing Climate – Evolving Risk and the Global Response" by Swiss Re and the Johns Hopkins University's Paul H. Nitze School of Advanced International Studies in Washington, D.C., explores how the global insurance system can contribute to reducing the cost of disease outbreaks, especially for climate change-linked diseases.

How the PEF works

The PEF consists of two financing pillars: a parametric insurance mechanism, and a cash reserve composed of long-term pledges from development partners that will allow for additional flexibility.

The parametric insurance mechanism provides pre-approved international responders such as response organisations, emergency task forces or national governments with a quick deployment of cash to cover immediate needs in the event of a major outbreak.

Payouts will be triggered when an outbreak meets a set of pre-determined thresholds (e.g. number of deaths or infections within a given timeframe), which have been set in advance based on the characteristics of each of the covered diseases. Critically, this mechanism will allow funds to reach affected countries in as little as ten days, avoiding lengthy contractual delays and other bureaucratic hurdles. In this way, the PEF is intended to prevent a potentially serious outbreak from becoming a larger international crisis.

Equally important, as Nikhil da Victoria Lobo, Head of Global Partnerships Americas, explains, the PEF for the first time puts a "price tag" on pandemic risk and offers private sector analysis to a problem which has, so far, largely been addressed by the public sector.

This transparency will allow public sector institutions to make better-informed decisions around risk mitigation and will provide incentives, through lower premiums, for pandemic prevention and preparation.

Swiss Re is proud to work with the World Bank, WHO and G7 on this groundbreaking initiative, expected to enter into operation by late 2016.

Photo: Courtesy of The Johns Hopkins University School of Advanced International Studies.

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