USAID Backs Climate-resilient Insurance Solution

Global risk advisory, insurance brokerage and consulting firm Willis Towers Watson (WTW) has developed a climate-resilience insurance solution that will receive funding from the US Agency for International Development (USAID). The solution aims to unlock climate-focused capital from the private sector and scale up adaption investment in vulnerable countries. With USAID’s funding, WTW will design a pilot facility enabling the US Development Finance Corporation (DFC) to offer a ‘resilience wrapper’ – a parametric insurance solution that will protect and de-risk direct loans to private enterprises from climate-related shocks. Following a trigger event – such as a cyclone, flood, or drought – the subsequent loan repayment would be covered by the insurance payout. The wrapper will also protect borrowers’ debt servicing obligations from the most impactful climate risks, aiming to ensure they can remain operational and avoid default following a shock event. “Vulnerability to climate change and disaster risk can have a direct effect on the cost of borrowing, particularly in lower-income countries,” said Simon Young, Senior Director for disaster risk finance and parametrics at WTW. “This [solution] will be a game-changer for building the financial resilience of communities to extreme weather events by helping to unlock much-needed private sector investment in critical adaptation projects in climate-vulnerable countries.” USAID’s funding was awarded through its Climate Finance for Development Accelerator’s Adaptation Finance Window initiative, in support of President Biden’s Emergency Plan for Adaptation and Resilience (PREPARE) – the US government’s contribution to the global effort to address impacts from the climate crisis.

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