The state of pre-arranged financing for disasters 2024
The state of pre-arranged financing for disasters
2024
In an era marked by an increasing frequency and severity of climate-related disasters, the ability to respond swiftly and effectively has never been more critical. The Centre for Disaster Protection’s report, The State of Pre-Arranged Financing for Disasters 2024, offers a detailed analysis of to what extent pre-arranged financing is shaping disaster response across the globe.
International development financing for pre-arranged financing for disasters fell in 2022, dropping from USD1.9 billion in 2021 to just USD852 million — amounting to just 1.1% of total crisis financing provided by donors.
This reduction, however, does not necessarily indicate a downward trend. Instead, it reflects the event-linked nature of pre-arranged financing, where financing fluctuates based on the occurrence of qualifying disasters. Notably, 2022 was the first post-covid year in the dataset, and early indications suggest that 2023 saw an increase in development financing levels for pre-arranged financing for crises.
Aid for pre-arranged financing remains heavily concentrated in middle-income countries, with only 3.1% (USD183.8 million) reaching low-income countries between 2018 and 2022. This geographic concentration points to a persistent challenge in ensuring equitable access to pre-arranged financing.
While international development financing support for pre-arranged financing has not shown any clear upward trend in recent years, there are signs that countries are, in fact, putting in place more financial protection. Coverage provided by pre-arranged financing instruments—that is, the maximum amount that would be paid out if all pre-agreed conditions were met—reached an unprecedented USD9.8 billion. This figure represents a third consecutive year of growth and resulted in coverage expanding by 27%, from 183 million people in 2022 to 232 million in 2023, which indicates a clear trajectory toward broader protection.
However, this increase in coverage should be interpreted with caution. For example, a country might report that its entire population is covered due to specific financial arrangements, even if the actual risk of an event affecting everyone is low.
While there have been significant strides in pre-arranged financing, the report highlights the ongoing challenge of affordability and uptake, particularly in low-income countries. Despite efforts by multilateral development banks to improve the attractiveness of the terms on which pre-arranged financing instruments are offered and growing use of premium support, current high costs of reinsurance and risk transfer, and fiscal constraints faced by many governments, including substantial debt burdens, continue to hamper accessibility for the most vulnerable countries.
Despite the challenges of fluctuating aid levels for pre-arranged financing, there are clear signs of progress. Multilateral development banks remain leading providers of crisis financing, and while only a small proportion of this is in the form of pre-arranged financing, their instrument toolkit has continued to improve, with the introduction of new tools such as climate resilient debt clauses (CRDCs) , which are already entering the offerings of these donors. These advances reflect a broader commitment to making disaster financing more effective and adaptive to the growing climate risks faced by low- and middle-income countries.
The 2024 State of Pre-Arranged Financing for Disasters report delivers a clear message: while pre-arranged financing coverage has grown substantially, particularly in middle-income countries, significant gaps remain in protecting the most vulnerable populations.
Calls for reform of the international financial architecture have created a unique opportunity to scale up pre-arranged financing, shifting global focus toward pre-arranged financing solutions. However, progress in this area falls short of the transformation needed to fully shock-proof vulnerable economies.
The international community must continue pushing for reforms that make pre-arranged financing more affordable and accessible, ensuring that no one is left behind in the face of disaster.
Monitoring international development financing investments in pre-arranged financing provides a key tool to drive change towards better outcomes for climate- and crisis-vulnerable people. The Centre has been working closely with partners to advocate for and improve data quality and coverage over time. To learn more about this research project and discuss how you and your organisation can get involved get in touch at info@disasterprotection.org.
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