Let's move out of the Middle Ages in financing disaster response

Monday, 23 May 2016 09:35 GMT

In this 2007 file photo, a beggar extends his hand for money at a street in the southern Indian city of Hyderabad. REUTERS/Krishnendu Halder

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It’s time to put away the begging bowl and turn to insurance

Whenever an earthquake, drought, flood or deadly pandemic hits a poor country, the best of humanity comes out, answering the calls of governments and their stricken citizens. Teams go out to help, governments and non-governmental organisations pledge support, and scores of people from across the world answer appeals by giving generously.

But what happens next is also predictable: soon afterwards, the world learns that the aid is late and not getting through and that its delivery is uncoordinated. Meanwhile, the suffering continues and lives are lost, seemingly needlessly.

Much later, evaluations of the responses have a common refrain: the country was poorly prepared to handle such a disaster, decision making and coordination were poor, and the response was underfunded.

Although each disaster is different, these conclusions can be found in the reports over the last decade on the earthquakes in Nepal and Haiti, droughts in Africa, typhoons in Asia and even after Hurricane Katrina in 2005 in the United States. These natural disasters are hardly surprising: every country knows whether it is at risk of earthquakes, storms, floods and droughts – and each of these hazards has long a history and a predictable pattern.

So why doesn’t the world learn from these lessons?

The core reason is the way in which countries and the global community fund these responses. The standard way is via appeals¾local governments and citizens plead for resources from the central government, whereas developing countries work with the United Nations to launch formal “appeals” to the world to give generously.

However worthy, there is something distinctly medieval about this way of raising funds: it’s something like holding out a begging bowl.  And the evidence shows it is a rather bad fundraising technique: on average, UN appeals raise only about 53 percent of the calculated needs, and many much less.

The result is that countries still have to scramble for resources, and are often forced to switch budgeted funds from other worthy causes, such as roads, health or education, to emergency support, thereby undermining development efforts.

If underfunding is the typical outcome of an appeal, why haven’t countries pursued preparedness planning? But then one might ask, what is the point of preparing carefully if countries have little idea of how much money will be available for a response? Moreover, those willing to help want to ensure that their aid is used for those things they approve of, and that they’re seen as giving it to those most in need.

The result is much flag planting and little coordination. For example, in Nepal after the 2015 earthquake, dozens of governments and up to 7,000 NGOs were active in the country. It is no wonder, then, that coordination was poor, with multiple delivery systems and the resulting inefficiencies.

So what can we do to improve this situation? Changing the funding model is key, ensuring that countries are more in charge of their destiny. Since the Middle Ages, there have been better ways to guarantee that finance is in place for unexpected events than bringing out the begging bowls.

Governments can maintain cash reserves to deal with unexpected events, and yet for large-scale disasters this is hardly possible. Fortunately, insurance companies as well as international organisations such as the World Bank and regional ‘risk pools’ such as the Africa Risk Capacity offer various insurance and insurance-like instruments that allow countries to receive in a predictable way the resources they need to respond to disasters.

These instruments, which depend on various payment schedules for premiums, are underutilised at the moment. But they can fundamentally change the way natural disasters are handled. Because it will become predictable how much finance will be received after a disaster, they make it far more sensible to make plans before disasters strike on how to spend these resources in the aftermath.

They will force discussions on who will be protected and how and what systems will be used, and they will force all possible responders to embrace a common plan. They will also make it clear how expensive responding to disasters can be, and therefore will clarify the benefits from investing in reducing risks, such as better flood defences or building standards.

No doubt, this is quite a change. Insurance and similar financial instruments are at times treated with suspicion, and, based on the recent history of the financial world, perhaps rightly so. But herein lies an important role for the international community: it should ensure that governments in developing countries that might benefit from using such instruments are receiving the best possible independent financial advice.

Donors to the poorest countries should also be willing to contribute to the costs of such insurance and insurance-like instruments - just as they are willing to spend billions on emergency relief post-disaster. And the role of the global humanitarian system should change: rather than being the first port of call, it could become a kind of insurer of last resort: it should remain vigilant and ready to help when these new arrangements cannot resolve matters.

Giving to support people affected by disasters is the most widely accepted form of aid, showing the underlying humanity and solidarity of others across the world. But the way this charity is being solicited, by means of appeals after disasters have struck, is leading to largely ineffective, uncoordinated relief.

In fact, much recent research has shown that moving to a model of financing disaster response after the event - that is, to pre-arranged financing - is cheaper and more effective. It is time to move out of the Middle Ages in the way we prepare and finance disaster responses. The World Humanitarian Summit in Istanbul is an ideal opportunity to begin this transition.

Stefan Dercon is a professor of economic policy at the University of Oxford and chief economist of the UK Department for International Development. Dercon’s new book, Dull Disasters? How Planning Ahead Will Make a Difference, is co-authored with Daniel Clarke and will be published by Oxford University Press in July 2016.

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