7 habits of highly effective DRF
by Ruth Hill, Chief Economist and Zoë Scott, Head of Multilateral Programmes [1]
Bringing water to the crops thanks to an irrigation project. Photo: Marcos Villalta / Save the Children
At the Centre for Disaster Protection, we spend a lot of time considering what ‘good’ disaster risk financing (DRF) looks like in practice. Here we share our current working list, our ‘7 habits of highly effective DRF’ [2]. Some have been more neglected than others, and we are releasing guidance notes for the most overlooked, which aim to provide very practical guidance, tools and examples of how to build these keys into your DRF initiative.
The evidence base is still emerging in this area, and as we learn more about what really works and why, we may need to add some extra habits, or realise that some are not as important as we first thought. Others have also done excellent work on this topic, for example InsuResilience produced the Pro-poor Principles of the InsuResilience Global Partnership with five principles and 24 sub-principles. The aim of this blog is not to duplicate earlier work, or to write an exhaustive list of criteria that any DRF initiative must follow, but to share what we think are the most important habits (not listed in order of priority) if DRF is to have an impact on people’s lives.
Habit #1: Effective DRF focuses on poverty
Disasters disproportionately affect the poorest people, so it makes sense that DRF should be focused on the risks that are of greatest importance to poor households, or those that are just one disaster away from being in poverty, and that the financial support reaches them in a way that best meets their needs. An example might be insurance payouts financing cash transfers through a social protection programme that targets poor households, or specifically rebuilding the roads or services that poor people most rely on. See our new guidance note, Focusing on poverty: reducing vulnerability with disaster risk financing, for practical suggestions and resources on poverty-focused DRF.
Habit #2: Effective DRF is timely
DRF should provide support when it is needed. This may be before a crisis, to reduce impacts. It is important to ensure that finance will be triggered at an appropriate time for the actions that it is supposed to fund. For example, there is no point in finance being triggered by severe crop failure, if the action being financed is the distribution of drought-resistant seeds that will take months to come to harvest. At the Centre we often see a mismatch between triggers and proposed actions, which can easily undermine the development impact of DRF. See our new guidance note, Being timely: creating good triggers and plans in disaster risk financing, for practical suggestions and resources on how to improve timeliness.
Habit #3: Effective DRF improves constantly
DRF is a new area and initiatives should aim to constantly track their performance and find ways to improve. This can happen through technical scrutiny at key points as well as by embedding a monitoring and evaluation (M&E) system. M&E can provide an important accountability function and facilitate learning, but this is greatest when information on performance is publicly shared. Unfortunately, most DRF evaluations are still not widely available, limiting global learning in this area. With more data and information on what works in the public domain, we can make sure that it is not just individual DRF projects that are constantly improving, but that this is also true on a global level. See our new guidance note, Improving constantly: embedding scrutiny and learning in disaster risk financing, for practical suggestions and resources on how to embed scrutiny and learning in DRF.
Habit #4: Effective DRF creates power for people facing risk
The best DRF puts power in the hands of at-risk people and communities, giving them a choice over how they manage their risks. This is just as true for sovereign risk financing instruments as it is for humanitarian interventions or individual insurance policies. Examples of empowering DRF include: prioritising the use of country-owned safety nets or domestic financial markets that work well; meaningful participation in government DRF programmes during design, implementation, monitoring and evaluation; and building the financial capacity of NGOs to respond to disasters. It also includes more choice over financial risk management products at the individual level, and consumer rights protection that protect the rights of buyers. How to engage at-risk communities in DRF initiatives is often overlooked—see our new guidance note, Creating power for people facing risk: the role of participation in disaster risk financing, for practical suggestions and resources on how to engage people facing risk.
Habit #5: Effective DRF provides a trusted guarantee
If it is unclear whether people will receive support when there is a crisis, they alter their behaviour in ways that have long-term economic and wellbeing impacts, for example, reducing food intake or selling assets. Even if the crisis doesn’t occur, without confidence in support arriving when needed, households will lack the peace of mind needed to make the right investments, such as in their children’s schooling or in agricultural investments at the start of the season. This quiet cost of uninsured risk that occurs every year, whether a disaster occurs or not, has a substantial impact on a household’s ability to move out of poverty. Great DRF gives households confidence that they will be covered should a crisis develop. It provides certainty of support, even while people continue to face much uncertainty about the future. Confidence can be built through a strengthening of ‘the social contract’ (with the government communicating and proving over time that it will be there with safety net support when households need it, for example), or through the provision of understandable and credible financial contracts with clear payout terms.
Habit #6: Effective DRF offers good value
There are lots of different instruments and approaches that could be used for DRF and it makes sense to use financial products that provide the most cost-effective protection, taking into account costs for maintenance and development. Sometimes people get excited by using scientific or financial innovations when a much simpler, more cost-effective solution may exist. The cost of reducing risk may be less than the cost of managing risk— for example, flood insurance versus the additional costs of building embankments—if this is the case then financing should be directed to risk reduction.
Habit #7: Effective DRF aligns with the bigger picture
DRF shouldn’t happen in a vacuum. It needs to work in relation to other risks, including long-term changing risks from climate change, and it should build on existing approaches in a country with an eye on building broader resilience. An example would be a DRF initiative that aligns with the government’s DRF strategy and disaster risk management policy, utilises systems that already exist in a country (maybe early warning or social protection systems) and builds in ways of reducing risk rather than just responding to it (perhaps by improving planning and preparedness). See our new guidance note, ‘Aligning with the bigger picture: thinking strategically in disaster risk financing’, for practical suggestions and resources for taking a strategic approach in DRF.
This is not a hierarchical list, and there will be trade-offs between different habits. But if we start to pay more attention overall to embedding these habits in our daily DRF work then we will have more impact on people’s lives.
The 7 habits are reflected throughout the Centre’s quality assurance methodology, which is organised around the idea that DRF should be effective across four elements: how money comes in, how money gets out to those who need it, whether the approach fits the context, and whether there are suitable supporting processes. The habit of ‘creating power for people facing risk’, for example, is assessed across each of these elements. The 7 habits are also grounding our review of the evidence on DRF: what evidence do we have that DRF instruments are performing well against these habits and having a positive impact on people’s lives? Future work on these habits will be linked here. Subscribe here to receive updates via email.
Footnotes
[1] The ordering of author names was randomised, as is the case in all Centre blogs.
[2] These are now known as the ‘7 keys to unlock effective DRF’ and we will continue to build on them.