Howden – Disaster relief financing

Howden supports a range of innovative disaster relief finance products for the humanitarian aid sector. The products cover a number of scenarios that include cover for refugees movements, coastal erosion, drought, famine and heatwaves. The goal is to increase the scale at which risk transfer solutions can assist the humanitarian aid sector.

The frequency and severity of large natural catastrophe events are increasing due to factors such as climate change, disproportionally impacting the world’s most vulnerable people.

Increasing insurance penetration, and the involvement of capital markets generally, is the key to building resilience. These products significantly add to the range of the humanitarian sector’s financing options in response to disasters brought about by climate change.

In March 2021, Howden, REplexus, and risk modelling agency Mitiga Solutions worked with the Danish Red Cross to enhance the deployment of their funds by creating the world’s first volcano catastrophe bond.

Instead of putting money aside to cover disaster relief costs, the Danish Red Cross paid a premium in an ILS arrangement that will payout in the event of an eruption for a group of ten volcanoes.

The first part of the payout is defined by the occurrence of an eruption as measured by the column height of the ash plume, the second part is determined by the wind direction impacting the ash cloud’s dispersion and the proximity to a nearby dense population.