Background facts Natural Disaster Fund (NDF)
Global Parametrics manages the NDF, covering the entire value chain from risk modelling all the way to risk coverage in the NDF. Global Parametrics seeks to build close partnerships with its clients from the private sector, developing holistic, multi-year approaches.
The NDF offers protection through adapted weather derivatives used by intermediaries to get coverage for their own activities and for their poor and vulnerable beneficiaries in developing countries. Weather derivatives are an indirect form of coverage that is similar to insurance. Intermediaries can be microfinance institutions, non-governmental organisations (NGOs) and companies that work with the target group. Following a trigger event, the NDF disburses the predefined payment to the intermediaries, which use it to assist the target group. As disbursement is triggered based on the measurement of specific parameters (such as wind speed), there is no need to assess the damage, as would be necessary with traditional insurance. This facilitates quick disbursement of benefits, enabling survivors to improve their living conditions swiftly.
At COP25 in 2019, “NDF Deutschland” was founded by the BMZ, KfW, Global Parametrics and Hannover Re, one of the world's leading reinsurance companies. The Fund works closely with NDF UK, which was set up by the United Kingdom in January 2018. Hannover Re has shouldered 50 per cent of the risk up to an amount of 100 million US dollars – a strong lever for the mobilisation of private capital. The NDF thus provides an option for private-sector investors (such as reinsurance companies) to contribute to covering disaster risks in markets which they have not entered yet. This is a promising new form of public-private partnership.
The purpose of the NDF is to provide protection against climate risks for an additional 66 to 105 million poor and vulnerable people by 2025.