UN Food and Agriculture Organization to raise $100 million for reinsurance-backed crisis facility

By Henry Gale

July 2 - (The Insurer) - The U.N. Food and Agriculture Organization has designed a parametric reinsurance-backed financing facility for 12 hazards that threaten food security.

The Financing for Shock-Driven Food Crisis Facility aims to build on existing initiatives to anticipate and prevent escalating food emergencies before they occur, the FAO said.

It announced the facility at its ministerial conference in Rome this week and said it is actively working with partners to operationalise and expand it in a statement on July 1.

"Each year, millions of people are pushed into hunger due to droughts, floods, conflict and economic shocks," said FAO director general Qu Dongyu.

"The FSFC enables us to act before disaster strikes, saving lives and preserving livelihoods."

The facility aims to raise $100 million initially, which FAO says will be divided equally between solutions for risks it calls "insurable" and "non-insurable".

The seed funding will be held in a multidonor trust fund, which will purchase parametric insurance for insurable hazards and hold cash for other hazards, with cash payouts to be made based on pre-agreed, "science-based" triggers.

FAO lists drought, excess precipitation, flood, tropical cyclones, earthquakes and animal health as insurable hazards. The uninsurable hazards include ENSO and other teleconnections, heatwaves, locusts, volcanoes, political risks and conflict.

The facility aims to convert many of these uninsurable risks into insurable risks in the longer term, with FAO saying it will use insurance principles in the early stages to trigger payouts for uninsurable risks.

FAO said that it believes if it can bring the reinsurance market on board with the solution, the $100 million investment will fund $1 billion of coverage.

Payouts would be made to other U.N. pooled anticipatory action and rapid response funds. These include the Central Emergency Response Fund, FAO's Special Fund for Emergency and Resilience Activities and the World Food Programme's Immediate Response Fund.

They would then fund action plans implemented by FAO, WFP, international NGOs and governments.

Another part of the initiative is what FAO calls its first integrated Food Security Risk Intelligence and Early Warning Room, housed at its headquarters in Rome.

This will monitor food insecurity risks in real time to coordinate early detection, warning and response.