Methodological guidance to assess the value for money of premium and capital support towards climate and disaster risk finance and insurance

This report contributes to the practical implementation of the ‘Value for Money’ (VfM) principle, which describes the impact each dollar of premium and capital subsidies (PCS) has on the resilience of poor and vulnerable countries and people. Aiming to inform allocation decisions, it provides a framework and methodology for the ex-ante assessment of the VfM of PCS options. This includes allowing decision-makers to compare premium versus capital support towards climate and disaster risk and finance insurance (CDRFI) solutions, synthesising the effects of the different support options within one country, or of the same option across different countries.

The report was produced in partnership with the InsuResilience Global Partnership (IGP) secretariat, as part of a set of three advisory reports exploring issues in relation to the design and use of PCS, to help guide the further development of climate and disaster risk financing and insurance (CDRFI). These reports also contribute to the Global Shield against Climate Risks, a major initiative launched at COP27 in Sharm el-Sheikh. The Global Shield aims to increase ‘pre-arranged finance’, which can be disbursed quickly and reliably in anticipation of - or just after - a disaster occurs, to protect people and governments in developing countries against climate change impacts. You can find out more about the other reports here.

Key Messages

Aiming to inform allocation decisions, this guidance framework provides a framework and methodology for the ex-ante assessment of the VfM of PCS options. This includes allowing decision-makers to compare premium versus capital support towards CDRFI, synthesising the effects of the different support options within one country, or of the same option across different countries.
The SMART PCS approach to VfM proposed here presents a middle way between the two conventional cost-effectiveness and cost–benefit analysis approaches, as it measures the cost of delivering a synthetic multi-dimensional set of outcomes. This metric is similar to a cost-effectiveness metric in the sense that the outcomes are expressed in non-monetary terms: for instance, number of people covered. At the same time, it is similar to a cost–benefit analysis metric, as it recognises that an expansion of a CDRFI scheme that is supported by PCS delivers multiple outputs and outcomes of value and that these need to be aggregated in some way.
To quantify the ‘value’ component of the equation, this guidance note proposes a five-step process: 1. Pre-screen CDRFI scheme; 2. Determine criteria; 3. Design scoring methodology; 4. Weight criteria; 5. Aggregate scores and weights.
The ‘money’ part of the equation represents the grant equivalent of donor funding towards PCS. This means that the resulting assessment is not an assessment of overall benefits and costs to society, but rather of the benefits derived from each euro or dollar of donor spending.
The approach to assessing VfM proposed in this guidance note requires a relatively large amount of judgement. Therefore, it is important that the analysis is conducted by an impartial party so that it can be truly transparent and comparable, and that outputs from the analysis are peer-reviewed by suitably qualified people with relevant experience, expertise and local knowledge.
The results from applying this approach to assessing the value for money of PCS are synthetic and do not have a ‘real-world’ interpretation. This means that using the approach for funding decisions would need to involve setting thresholds to give meaning to the scored outcomes. The specific cut-off points for these decisions will need to be determined in a next step of developing and rolling out the approach presented in this guidance note.

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Authors

John Ward

Lena Nur

Vikrant Panwar