Disaster risk financing

More needs to be done to ensure that the funds are available to bridge the gap between the immediate needs of disaster-affected populations and the resources available. A scale-up of climate and disaster risk financing instruments is urgently needed to enable governments and the humanitarian sector to protect the most vulnerable people from the rising frequency and intensity of weather-related shocks.  

In the face of these challenges, the World Food Programme (WFP) helps communities and governments to better prepare for, respond to and recover from climate-related shocks through disaster risk financing solutions. Over the last decade, WFP has led the way in developing and testing innovative disaster risk financing solutions by focusing on two workstreams: inclusive risk financing and macro-level risk financing. 

At the household and community level, WFP supports smallholder farmers, pastoralists, and micro-, small and medium-sized enterprises (MSMEs) across the world to manage climate risks and reduce vulnerabilities using a comprehensive Inclusive Risk Financing (IRF) approach, focused on strengthening resilient food value chains for sustainable food security and nutrition. 

At the regional and national levels, WFP is a leader in promoting macro-level disaster risk financing solutions, such as insurance policies purchased by governments and humanitarian agencies, which offer more cost-effective and predictable funding for emergency response. By connecting disaster risk financing instruments with social protection systems at regional or local levels, these schemes can better reach and target the needs of vulnerable people in response to climate shocks. These instruments ensure that when disasters strike, rapid finance is available to support affected communities, either through government-led shock-responsive or adaptive social protection systems or through WFP’s direct assistance programmes.  

To appropriately capture the different levels of risks, WFP adopts a risk-layering approach, combining different risk financing tools according to the frequency and severity of shocks. At the household level, WFP is focusing on integrating savings and loans mechanisms with insurance to help families better manage shocks using a range of financial instruments. Savings and loans provide a buffer for more frequent, less severe shocks, while insurance offers protection against less frequent but more catastrophic events.  This integrated approach strengthens households’ financial resilience and capacity to cope with compounding shocks 

At the macro level, to optimise resources, WFP is adopting a risk-layering approach—combining different financing instruments based on the severity and frequency of shocks in a given country. WFP is integrating insurance protection for less frequent, more catastrophic risks with complementary risk financing instruments, including an index-based contingency fund to address localized shocks that impact only a few districts within a country, and catastrophe layer for extreme, low-frequency shocks. By diversifying its risk financing instruments, WFP aims to strengthen its response capacity and enable timelier assistance to reach vulnerable populations faster and more effectively than ever before.