WTW to develop parametric insurance solution to protect DFC loans from climate risks

Global insurance broking group WTW will receive funding from the U.S. Agency for International Development (USAID) to develop a pilot facility that will enable the U.S. Development Finance Corporation (DFC) to offer parametric insurance designed to protect its direct loans to private enterprises from climate risks.

This new climate-resilient insurance solution, the Resilience Wrapper, aims to unlock climate adaptation investment from the private sector.

In the aftermath of a triggering event, such as flooding, cyclones, or droughts, the subsequent loan repayment will by covered by the parametric insurance payout. Essentially, the Resilience Wrapper will protect the borrowers’ debt servicing obligations from impactful climate risks, enabling them to remain operational and avoid default following an event.

Simon Young, Senior Director, Disaster Risk Finance & Parametrics, WTW, said, “Vulnerability to climate change and disaster risk can have a direct effect on the cost of borrowing, particularly in lower-income countries. This adds additional pressure on debt servicing capacity and increases the likelihood of debt default, which can lead to credit rating downgrades.

“With USAID funding, the WTW parametric solution will be a game changer for building the financial resilience of communities to extreme weather events by helping to unlock much- needed private sector investment in critical adaptation projects in climate vulnerable countries.”

The broker explains that the short-term funding was awarded through the USAID Climate Finance for Development Accelerator’s Adaptation Finance Window initiative, in support of the President’s Emergency Plan for Adaptation and Resilience.

The initiative leverages catalytic grant funding to de-risk the development and scaling of private sector-led climate adaptation approaches in frontier and emerging markets, and includes an investment from the USAID Enterprises for Development, Growth, and Empowerment (EDGE) Fund.

“A disaster can bankrupt a business overnight. Innovations like the WTW Resilience Wrapper make communities better equipped to withstand disaster by supporting the local companies they depend on, while incentivising lenders to work in places they might otherwise consider too risky for investment. I commend WTW’s leadership in this area as it signals both the need and the opportunity for greater private investment in resilience,” commented Gillian Caldwell, USAID Chief Climate Officer.