It’s not every day you hear something positive about the big, bad insurance industry. But on stage at the Clinton Global Initiative last week, Chelsea Clinton praised a newly launched coalition of insurance and development firms that is set to cut down response time to humanitarian crises by as much as weeks or months. The venture could be the first time the insurance industry is entering the international development field as a major player.
Immediately after a disaster, relief efforts are often faced with a lag time of weeks, or even months, before the bulk of their finances can be pulled from the markets and allocated to the affected area. If they take their plea to the bank, humanitarian groups have a notoriously hard time getting loans to cover the risky work they undertake, even though that could speed up the money flow and have massive on-the-ground impact.
HUGinsure (which was inspired by the concept of a "humanitarian universal guarantee") acts as a middleman step before connecting social entrepreneurs to the insurance and bank industries. It began as a collaboration last year between Hollard Insurance and Dalberg, and is working in partnership with Aon and the Lloyd’s of London market. A team of development investment experts will guide the process to build a risk assessment unit to grade and manage social impact groups before they seek policies within the Lloyd’s of London marketplace.
“What is it we do that can make a meaningful impact in this particular space, other than just donating money or corporate social responsibility?” asks Ian Ross, the executive director at Hollard Insurance.
Humanitarian groups have a notoriously hard time getting loans to cover the risky work they undertake, even though that could have massive on-the-ground impact.
In recent years, after the poor risk assessment that led to the 2008 crash, banks have been under a stricter regulatory environment for those seeking loans. Ross comes up with an example: a social entrepreneur goes to the bank seeking a loan for a malaria net initiative. The bank, possibly unaware of the viability of such a project, may not be willing to make a loan. But a HUG-backed assessment would measure the viability of both the impact and the repayment likelihood, and issues a grade for the loan, which then allows coverage by an insurance policy, and ensures banks will feel confident in lending. Liesbet Peeters, who helped found D. Capital, a Dalberg entity offering financial resources for under-served areas, says HUG is a “comfort wrapper,” which will also give enough security to the banks that they’ll offer a policy with lower interest rates. The insurance coverage will cost an organization a a fee, but the creators say it’s a small price to pay for the impact potential that can be used from the grassroots level to global organizations like the World Bank.
“When these are humanitarian projects, time is actually lives,” Ross says. The concept could be especially impactful for lesser-known and not-as-romantic causes. The amount of time it takes to mobilize funds “depends on the severity and the popularity, strangely enough, of the event,” he says. “Sympathy is a strange thing.”
The concept hasn’t been implemented yet, but has already gotten serious interest from global organization Save the Children. Ross calls the new venture a business to develop a concept he hopes will catch on within the industry to create competition for HUG. He’d like to one day “sit back and say: You know what? This has changed the dynamic of social impact investing."