Issue:

The International Federation of the Red Cross and Red Crescent Societies (IFRC) is the world’s largest humanitarian network, comprising 191 National Societies and bringing together more than 16 million volunteers around the world working to save lives and build community resilience and dignity.

Established in 1979, the IFRC’s Disaster Relief Emergency Fund (DREF) is a proven, quick, efficient and transparent mechanism for donors to channel global short-term emergency funding directly for local community-based action when needs surpass the resources available at the national level. Since its inception, more than 220 million people in crisis have benefited from DREF support.

However, over recent years there has been an alarming increase in small and medium-scale emergencies, particularly through the growing impact of climate change. As a result, funding may not always be available when it is needed.

Solution:

The IFRC, in collaboration with professional services firm Aon, Lloyd’s Disaster Risk Facility, InsuResilience Solutions Fund, and the Centre for Disaster Protection (the Centre), developed a pioneering approach to disaster response.

An innovative insurance mechanism was designed with a tailor-made structure (including the incorporation of a new Guernsey cell structure to provide the insurance cover), drawing on DREF’s 40 years of experience in supporting IFRC National Societies worldwide. Importantly, this has been achieved without requiring any changes to DREF’s current operational process.

The Centre supports countries to manage better these risks and is funded through the UK government.

Reed Smith advised the IFRC on the pioneering partnership, providing structuring, corporate, finance, trust, insurance, tax and sanctions advice, with support from Swiss law firm Lenz & Staehelin and international law firm Ogier.

Outcome:

The groundbreaking risk transformation mechanism ensures swift and agile support and emergency funding is available when a disaster occurs, providing a vital backstop to the DREF.

The mechanism provides DREF with contingency funding of up to 20 million Swiss Francs (US$23 million, €21 million, £18 million). Essentially, once DREF’s allocated funding for natural hazards hits 33 million Swiss Francs (US$38 million, €34 million, £29 million), the reinsurance is triggered to replenish DREF’s reserves.

The reinsurance acts as a safety net for DREF’s life-saving work, ensuring that extra funds are available even during periods of increased demand.

The IFRC’s ambition is to grow the DREF to reach 100 million Swiss Francs by 2025 (US$116 million, €104 million, £89 million).

Andrew Mitchell, Minister of State for Development and Africa, UK Foreign, Commonwealth and Development Office, said: “Climate change is devastating the lives of millions around the world. With natural disasters on the rise, this innovative new insurance will provide extra funding for life-saving emergency assistance. This is UK expertise at its best – funding from the UK, insurance purchased through the City of London and technical support from the Centre for Disaster Protection.”

The Reed Smith team:

The London-based Reed Smith team was led by partners Claude Brown, Andrzej Janiszewski, Panos Katsambas and Mark Pring with support from partners Leigh Hansson and Caspar Fox; counsel Kelly Knight; associates Olivia Grant, Tom Morgan, and Katherine Varney; and trainees Angelina Shum and Claudia Gwinn.

Panos Katsambas, Reed Smith’s Financial Industry Group co-chair, commented: “We are delighted to have worked with the IFRC and their partners on this impactful and pioneering new insurance product that will allow funds to quickly be allocated to those that need it most in the face of disaster.

Comment from Jagan Chapagain, IFRC Secretary General:

“Strategic partnerships with the private sector are essential to address rising humanitarian needs and the humanitarian funding gap. We have a responsibility to respond rapidly and at scale, in the most effective and sustainable manner and to ensure that our actions are locally led and community-centred. Our partnership with Aon and the Centre, and through the bespoke insurance solution for DREF, allows exactly that.”

For further information, please visit our ESG capability page.