World Bank Group has created the first-ever insurance market for pandemic risk by launching a new global financing mechanism, the Pandemic Emergency Facility (PEF).
The mechanism is designed to protect the world against deadly pandemics.
The first $50 million in funding towards the initiative was committed by Japan, which holds the G7 Presidency.
The PEF was built and designed in collaboration with the World Health Organization and the private sector, introducing a new level of rigor into both the financing and the response. It will accelerate both global and national responses to future outbreaks with pandemic potential.
The facility includes an insurance window, which combines funding from the reinsurance markets with the proceeds of World Bank-issued pandemic (catastrophe, or cat) bonds, as well as a complementary cash window. This will be the first time World Bank Cat Bonds have been used to combat infectious diseases.
The PEF will release funds quickly to countries and qualified international responding agencies, in the event of an outbreak.
The insurance window will provide coverage up to $500 million for an initial period of three years for outbreaks of infectious diseases most likely to cause major epidemics, including new Orthomyxoviruses (e.g. new influenza pandemic virus A, B and C),Coronaviridae (eg SARS, MERS), Filoviridae (e.g. Ebola, Marburg) and other zoonotic diseases (eg Crimean Congo, Rift Valley, Lassa fever).
Parametric triggers designed with publicly available data will determine when the money would be released, based on the size, severity and spread of the outbreak.
The complementary cash window will provide more flexible funding to address a larger set of emerging pathogens, which may not yet meet the activation criteria for the insurance window.
77 countries eligible for financing from the International Development Association (IDA), the World Bank Group’s fund for the poorest countries, will be eligible to receive coverage from the PEF. The PEF is expected to be operational later this year.
The announcement was made a week ahead of the May 26-27 Summit of Group of Seven Leaders in Ise-Shima, Japan. G7 leaders had urged the World Bank Group to develop the initiative during their May 2015 summit in Schloss-Elmau, Germany.
Jim Yong Kim, president of the World Bank Group, said: “Pandemics pose some of the biggest threats in the world to people’s lives and to economies, and for the first time we will have a system that can move funding and teams of experts to the sites of outbreaks before they spin out of control.”
“This facility addresses a long, collective failure in dealing with pandemics. The Ebola crisis in Guinea, Liberia and Sierra Leone taught all of us that we must be much more vigilant to outbreaks and respond immediately to save lives and also to protect economic growth.”
Taro Aso, Deputy Prime Minister and Minister of Finance of Japan, added: “Japan is proud to support the Pandemic Emergency Financing Facility, which prevents pandemics from undermining important development achievements.
“Innovative financing for crisis responses by the PEF, together with financing for preparedness and prevention in peacetime including through IDA, are important to mitigate human and social losses and to help quickly recover in the event of a crisis. It is cost-effective and should be emphasized at all stages of economic development.”
Margaret Chan, director-general of the World Health Organization (WHO), commented: “Recent years have seen a dramatic resurgence of the threat from emerging and re-emerging infectious diseases.
“WHO fully supports the Pandemic Emergency Financing Facility as a critical contribution to global health security and a crucial line of defence against high-threat pathogens.”
Recent economic analysis suggests that the annual global cost of moderately severe to severe pandemics is roughly $570 billion, or 0.7 percent of global GDP. A very severe pandemic like the 1918 Spanish flu could cost as much as 5 percent of global GDP, or nearly $4 trillion.
During the past two years alone, pandemic threats have included the devastating Ebola crisis in West Africa—which crippled the economies of Guinea, Liberia and Sierra Leone, and cost them an estimated $2.8 billion in GDP losses ($600 million in Guinea, $300 million in Liberia and $1.9 billion in Sierra Leone); the MERS outbreak, which took a toll on the South Korean economy; and the Zika virus that is spreading in the Americas and putting thousands of unborn children at risk.
Four global expert panels that were convened over the past year in the wake of the Ebola crisis concluded that the world must urgently step up its capacity for a swift response to outbreaks before they become more deadly and costly pandemics.
The PEF will take various forms of action to prevent another Ebola crisis. It will insure the world’s poorest countries against the threat of a pandemic. In the event of a severe infectious disease outbreak, it will release funds quickly to the countries and/or to international responders, to accelerate the response—saving lives and reducing human suffering.
By mobilising an earlier, faster, better planned and coordinated response, it will reduce the costs to countries and their people for response and recovery and it will promote greater global and national investments in preparing for future outbreaks and strengthening national health systems.
The PEF will also combine public and private resources to advance global health security, and create a new insurance market for managing pandemic risk.
The World Bank Group estimates that if the PEF had existed in mid-2014 as the Ebola outbreak was spreading rapidly in West Africa, it could have mobilised an initial $100 million as early as July to severely limit the spread and severity of the epidemic.
Instead, money at that scale did not begin to flow until three months later. During that three month period, the number of Ebola cases increased tenfold. The Ebola epidemic has claimed more than 11,300 lives and cost at least $10 billion to date. International assistance has totalled more than $7 billion for Ebola response and recovery.
World Bank Group, Insurance, Pandemic Risk, Pandemic Emergency Facility, World Health Organisation, Bermuda, Global