Lloyd's in UN-backed Disaster Financing for Pacific Region

Lloyd's of London, the insurance and reinsurance marketplace, has partnered with the United Nations Capital Development Fund (UNCDF) to create a disaster resilience vehicle for Pacific island nations.

Insurance Technology for Climate Risk

The vehicle, developed with insurance broker Aon, will provide disaster risk financing to Small Island Developing States in the Pacific region. 

This form of insurance releases funds based on pre-agreed triggers rather than waiting for damage assessments after an event.

“The insurance industry has been engaged in disaster risk finance for decades and has an increasingly important role to play in providing capital and tailored investment solutions to build resilience,” says John Neal, CEO of Lloyd's.

The programme will initially cover Fiji, Papua New Guinea and Samoa against natural disasters including tropical cyclones, earthquakes, tsunamis and floods.

It leverages donor funds to provide exposure-based payments, where compensation is calculated based on the level of exposure to a specific risk rather than actual losses.

The mechanism could double the insurance coverage from US$1,000 to US$2,000 per policy annually, with potential compensation of up to 100 per cent per event. 

“Providing access to risk capital to reinforce and augment the work of the UNCDF is an important step in helping the Pacific islands build resilience against natural disasters, and becomes even more important given the potential impacts of climate change,” says Dominic Christian, Global Chairman of Aon Reinsurance Solutions.

Market Development and Implementation

The initiative builds upon a Memorandum of Understanding signed between Lloyd's and UNCDF in September 2023. The vehicle utilises Lloyd's Disaster Risk Facility, a consortium of insurance syndicates that pool capacity for natural catastrophe risks.

The structure aims to expand beyond the Pacific to regions including the Caribbean, Asia and Africa. It will work with local insurance markets to identify resilience requirements and secure necessary capacity from global reinsurance providers.

“Through a combination of grants, guarantees and concessional loans, UNCDF through its climate risk insurance programme partners, aims to support local market ecosystems to deliver solutions at the last mile to build the resilience and preparedness of vulnerable communities,” says Pradeep Kurukulasuriya, Executive Secretary at UNCDF.

The announcement was made during the Commonwealth Heads of Government Meeting in Samoa, where the programme was presented to King Charles III, who founded the Sustainable Markets Initiative as Prince of Wales. 

The initiative supports commitments made at COP26 by the Sustainable Markets Initiative Insurance Task Force to support climate-vulnerable countries.

The programme will leverage capacity from the global reinsurance market, with Lloyd's working in partnership with local industry to identify resilience needs and secure capacity to deliver coverage.

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