Timely, flexible funding is a bottleneck is most if not all humanitarian operations. Daniel Clarke has a solution to that problem. He is the co-author of the book Dull Disasters, and the director of the Center for Disaster Protection. In this conversation with Lars Peter Nissen he discusses how risk based financing and smarter financial instruments such as parametric insurance can enable us to fundamentally change the way in which crises are managed.
You can learn more about the Center for Disaster Protection their website and find Dull Disasters by Daniel Clarke and Stefan Dercon here.
Transcript
Welcome to Trumanitarian. I'm your host Lars Peter Nissen. This week we discuss humanitarian financing. Today, most funding for humanitarian action comes from donors who respond to appeals or project proposals from agencies. And it's no secret that the complex interaction between agencies and donors influence and shape response in ways that has little or nothing to do with the situation of crisis affected populations. Daniel Clarke is the director of the Centre for Disaster Protection and he thinks we can do better. He has a background as an actuary and knows a lot about how to design financial instruments for handling risk. Together with Stefan Dercon, he has written about these ideas in a thought provoking book called Dull Disasters?: How planning ahead will make a difference. The ideas outlined in the book are thought provoking and they would, if put into practice, transform the way in which we work. So enjoy the conversation, read the book, and let's all work together to make disasters dull.
Daniel Clarke, welcome to Trumanitarian.
Daniel Clarke:Thank you. Thank you for having me.
Lars Peter Nissen:You are a somewhat unusual guest to Trumanitarian. You studied math, and then you worked with pensions in the UK, and, how the heck did you end up on a humanitarian podcast?
Daniel Clarke:That's a great question. Well, so when I finished university, I started work in an area where risks are managed pretty well. And it's a pretty boring area. So pensions in the UK is not an area that children, when they're speaking to their parents, when they're young, they say when I grew up, I want to be a pensions actuary, daddy or mommy. You know, it's a bit dull, but there are lots of processes around which try to manage both the politics as well as the practicalities of the risk that people outlive their wealth, their resources, you know, they live too long and run out of money. And so you have to think about, you know, you've got systems in place to deal with that, including a large part of that is planning financially, and planning for the fact that you might outlive your assets. So I had that training in this world, this whole world of risks are managed well. But really, you know that... I'd always seen that as being a training, using my sort of math background to then go into public service of some variety.
Lars Peter Nissen:And just explain to us what is an actuary?
Daniel Clarke:That's a great question. So the the old the old joke is that accountants add and subtract and actuaries also multiply and divide. Or the other one is, actuaries are people who find accountancy too interesting. But I think they're the people who... they do a number of things. They basically deal with finance when there's risk involved. And they're the people who, if you have a pension scheme, in many jurisdictions, they're the people who write the reports that say whether the pension scheme actually has enough money to deliver what they say they're gonna deliver to you. Or if you buy an insurance policy there at the appointed actuary role, the responsibility to make sure the insurance company is going to not run out of money. But they're also, you know, involved in other aspects of risk management. You get trained on a range of, you know, it's applied probability, a lot of property, a lot of finance, lots of economics, and then sort of put it all together into that professionalism, as well. So the integrity and you know...
Lars Peter Nissen:And that of course brings us to the reason why we're here today. You are the director of the Centre for Disaster Protection, a organisation, newly created, I believe a couple of years ago, which focuses on how to find new and innovative financial models or financing models for the humanitarian sector. Can you tell us what's the idea behind the Centre for Disaster Protection?
Daniel Clarke:Yeah, definitely. Well, I mean, our mission is really around trying to shift the world, and specifically countries and international organisations, away from treating disasters like surprises, and then to help them to plan better so that disasters aren't like surprises. And I get to work with a team of inspiring people as well as broader lots of partners and collaborators to help to build the evidence based on what really works and what doesn't work. We offer independent advice to international organisations and countries and we advocate for a much better international system that serves people better and protects people who might be caught up in tomorrow's crisis.
Lars Peter Nissen:So what you're saying is planned better, be smarter, but we know things are coming, we have statistics, we have forecasts, we can actually quantify this risk, and then what should we do differently once we have figured out that there will be an earthquake in the future?
Daniel Clarke:That's a good question. So yeah, so we should be, we should be planning properly. And those plans should be more than just pieces of paper. So one of the challenges, you know... There are lots of plans out there for when... for situations that might overwhelm communities, for disasters for crises, but often those plans aren't consulted. And the reason being, that the financial model, that too often is the way that we pay for crises, is based on waiting until a crisis hits, waiting until a disaster event occurs, and then working out who's going to pay for it. So those plans that may have been developed in advance, so really, maybe stated intentions, but a plan without budget backing it is more of an aspiration. So it's really around trying to get proper planning in place, so that you get fast action, so that you get the right incentives to not just respond, but also prevent and repair for, you know, what might... what the future might bring to provide more dignity. So you know, there's... you know, it's quite a dignified to have to wait until a disaster and then hold out a begging bowl. Having some understanding in advance and proper plans in advance of what will actually happen can be much more dignified and can involve local populations better.
Lars Peter Nissen:It sounds great. But you know, people would love to get money for this but I mean, politically, are you really want to set millions and millions aside waiting for that earthquake that might happen in 20 years? I mean, there's a reason why it functions like this and it is... we don't know exactly when it happens. So what's the innovation here?
Daniel Clarke:So so the point you made about setting money aside, so it's not always around holding a big pot of money there for a rainy day or a dry day or an earthquake or what have you. If you if you work backwards from what would happen if an earthquake was to strike, what would happen if civil was to break out, what would happen if a pandemic was to hit, you know, how would the money actually flow? And realistically try to assess, you know, what would, in particular, you know, what would countries and what would the international system pay for? What would they pay for? And how would they pay for it? And then think through Well, how could that be done better? And it... And that's the sort of start of real, real planning. How can you make that better, so it's not... so in them... So it's not about finance being the solution, it's about proper planning being the solution, but then, you know, finance being the glue that holds those plans together, and allows you to plan, gives you... empowers you to plan properly, as opposed to just writing pieces of paper than than aren't consulted.
Lars Peter Nissen:So Daniel, I get that, right? I and... I've been in several earthquakes or sudden onset disasters where I would have loved to have a bag of money but instead of trying to figure out how to respond to this crisis, I was writing proposals to the donors spending most of my energy just simply fundraising. What can you do for me in that situation? What's different? I mean, I know I would I need the budget, I would love to have the money, but they don't seem to be there. So what's on the table? What what do you offer?
Daniel Clarke:Yes. So maybe I'll just give a couple of examples. Because I think it's easy. It's easy for all this stuff to be quite abstract. A couple of examples of things that have been implemented I think were pointed to a better future. So one is last year, in June, when rains are about to hit Bangladesh, there was going to be flooding. And the UN specifically WFP, FAO and UN Women had planned in advance to be able to act early in anticipation of a flood, so two days before the flood water actually hits but on the basis of a forecast, to respond to help affected populations. The reason why they're able to do that was because they had worked in advance to come up with proper plans, they'd worked in advance to agree what were the decision points, or what were the triggers that were going to lead to action. If this happens, if the forecast is sufficiently bad, okay, we will act as opposed to sort of waiting for more information. So that trade off around no regrets action. And then also they had the finance arranged in advance, they had pre-agreed finance that was ready to go so they knew they would be able to actually pay for this anticipatory action. And there was... you know, we worked with WFP to evaluate that cash transfer component and lo and behold, that faster response, that faster cash transfer to households before the flood waters, led to fewer children skipping meals, and other other better outcomes.
Lars Peter Nissen:Bangladesh, repeated disasters, right? So we know a lot about how it unfolds and so they sit down and they say, If this much rain come or if this happens, then no matter what, we're gonna do A, B and C. Right? So that's the first part of the plan, that they have some specific events that happen and if that happens, we just go.
Daniel Clarke:Yes
Lars Peter Nissen:And they can do that, because they got some money. Now, where did they get the money from?
Daniel Clarke:Well, in this case, the money came from the CERF. So it was, it was pre agreed through the CERF. So the CERF agreed, if this thing happens, then we, you know, we will provide the money. So they knew the money was able to come and they were able to... but it was... the money was contingent on them doing proper planning. So if they plan in advance and demonstrated the proper paperwork in advance of the flood hitting, then they knew that if the rains looked like there's been a flood of water now, they would be able to get the money in.
Lars Peter Nissen:Great. So in this case, we have a global fund that sort of incentivizes proper planning with no regrets action, We do this no matter what, if this rain falls or if it doesn't fall, for whatever we're talking about, and then that frees up agencies to move really quickly.
Daniel Clarke:Yeah, exactly. So empowers, in this case, UN agencies to plan properly, because they know that their plans aren't just pieces of paper, that this is actually... they will have the money and they will be expected to be able to deliver on those plans if if that contingency arises.
Lars Peter Nissen:And so all it took here, it seems, was for the CERF to change the way it dishes out money.
Daniel Clarke:Well, it's interesting. Yeah, I think that was a really important catalyst for this. In practice, if you speak to organisations like WFP, who've been involved in this, but also the Red Cross Red Crescent Movement, the Start Network have been sort of doing this for quite a long time, that is the trigger that allows them to properly plan but actually a lot of the work and a lot of the challenge is in that other aspects of planning, that operational planning. So what would you actually do? When would you actually do it? Who would... How would you target households? What would be the interventions? That sort of proper planning is something which takes a lot of time and effort and and also shifting to make sure you can actually, can actually respond so quickly. Because it's no, no point at all saying, Okay, everything's triggered two days before the flood, let's respond, then it takes seven days before the cash actually gets to households. Those households need that cash now, or in the FO intervention, they need those barrels to be able to put their tools in to protect them for water. That needs to actually happen before the flood. So you need to have everything in place, all the logistics, in place as well. So the challenging bit is not the finance. The finance, it's challenging... to shift that might... to actually get someone to agree to that, I guess, to shift that way of funding, because it's always much more natural to wait until the disaster and then ask for money. You know, you can see it. Fundraising for tomorrow's disasters is harder than fundraising today's. You can get it, the difficult bit is the proper planning the finances often the easy bit
Lars Peter Nissen:Is interesting, because my instinct is almost the opposite, right? We have talked about contingency planning forever. We have run workshops on it, we've done all these things. But we all know that pitching to a donor about something that hasn't happened yet, is borderline impossible.
Daniel Clarke:Well, it was borderline impossible, maybe. I think that is starting to shift. I think there is an increased recognition that we need to change the way disasters and crises are dealt with. And, you know, if we really do want a world where... without crises, we need a world where crisis risks are managed well. And part of that is around paying for some things with money, as opposed to with lives and destroyed livelihoods and environmental degradation. So part of that is about money and then there's a question about, well, how do we arrange the money to get better?
Lars Peter Nissen:So Daniel, it's a great example with with the CERF and with what happened in Bangladesh, right? At the same time, the CERF also is quite a small instrument in the big picture of things, and we should have mentioned in the beginning that part of the reason you're here is also that you've written a great book called Dull Disasters, and so I think my question to you is, great that we had an impact in Bangladesh by working smarter and making money available quicker, but that's not going to make disasters dull as such. How do you apply this in a broader scheme?
Daniel Clarke:Yeah, that's great. So I guess I mentioned the Bangladesh example, because it's quite a clear, concrete example of proper planning. And this is something that governments are also doing it and donors are supporting governments doing as well and governments are doing of their own bat as well. So governments are, for example, increasingly starting to experiment with buying things like insurance policies or taking out contingent loans. So the government of Senegal, for example, purchased parametric drought insurance policy from an organisation called African Risk Capacity and donors, also Germany also, bought the matching policy for the Start Network. And then when drought hit a couple of years ago, or last year, perhaps there was a payout to the government of Senegal to support early action to drought response, as well as a payout to the Start Network. And the interesting thing there was, you know, the government departments knew that that money was coming, they're able to plan properly for, the Start Network was able to plan and they were able to work with government, because the money was going to be coming at the same time to each of them so they can have those conversations about how they're going to plan jointly together.
Lars Peter Nissen:Now, not all of the listeners of humanitarian are actuaries. So maybe we...
Daniel Clarke:[laughing]
Lars Peter Nissen:Yeah, sorry to break the news to you. But maybe we should just spent two minutes on parametric insurance. Just explain that concept to us.
Daniel Clarke:So parametric insurance is an interesting term. Another word for it will be a parametric derivative. So essentially, this is a financial contract, where someone pays some money upfront, like an insurance premium, and then if certain things happen, then they get some money back: a bit like an insurance policy. But traditionally, insurance is based on losses. So you get paid based on the... to rehabilitate the losses you incurred. So indemnity insurance... that if you incur a medical expense, the insurer will pay for that cost, that medical treatment, for example. Parametric insurance is different. It's not based on the losses you you occur, it's based on sort of a proxy. So you have to try to come up with some sort of proxy for loss. Because the problem with traditional insurance for disasters: if a disaster strikes and causes all sorts of destruction, it's very difficult to go around and work out exactly what the losses were, it can be very time intensive going to every single building every single household. But is it possible and it can take time, it can take a couple of years to do that, and then people are left without getting the money. So can you instead choose some proxy like how big was the earthquake, where was the earthquake, how deep was it, how fast did the wind blow, maybe what what was the average crop loss in a particular sub-district or geographical area, how many refugees moved to a particular place, what is the relative price of meat to grain: these... all these things are sort of proxies, that might be an indicator of a shock having occurred and caused potential losses to people. And the trick is to try to design something where the triggers match the needs. And, you know, it's a little bit like targeting generally, if you're developing a social protection system, you might have a number of indicators that use the target households, or if you're developing humanitarian response, you will have an approach to work out who is actually going to receive the support in terms of geographical location and other characteristics. This is just another proxy indicator for all these people in need. You know, has something happened, you know, is there... has this proxy triggered, which suggests that actually that you know, they were worse than you otherwise thought. And then it's a good indicator for targeting.
Lars Peter Nissen:Yeah, so for example, if an earthquake above 7.0 strikes, or whatever, then everybody who's in that area gets $100.
Daniel Clarke:Exactly. That's exactly it.
Lars Peter Nissen:And we don't discuss it. You just get $100. Here you go. The trigger is so dead simple and clear that there will be no discussion about whether it happened or not, then you can get a lot of money out really quickly.
Daniel Clarke:Exactly. So you plan in advance, you have this clear decision processes based on objective information, where if this happens, it's like a rocket launch or it's like something... you know, if this happens, then you move to this step. And the money can go directly to households, as often, you know, it probably should, or it can go to organisations that are providing public services, or substituting for over the state provision of those services. But it can be applied all along the chain in terms of providing public services, market services, as well as directly to individuals.
Lars Peter Nissen:So why the heck don't we just do that?
Daniel Clarke:[laughing] Well that's a good question. I think. So firstly, there's status quo bias. It's natural to wait until something happens and then try to fundraise for it. And this is a bad habit, in terms of efficiency and outcomes, but we've built our entire... you know, we build a whole bunch of institutions around that. And it's not just on the humanitarian side, on the development side you also have pots of money that you're sitting there, which can't be allocated until a disaster strikes. I think we also have fear of, you know, doing it differently and doing it badly. So it's all very well to say, let's plan better. But what if your plans fail? What if you plan for the wrong thing? You know, you plan for draught and a flood occurs? And so I think there's this sort of fear of planning badly and then being seen not to have a magical crystal ball. And then finally, I think there's political will. So, you know, we know from research that looks at domestic politics that, you know, politicians do quite well in terms of vote share for responding decisively after a disaster. They don't tend to get many votes for investing in preparedness, for example. So... and the same may will be true for ministers in donor countries. But I think that shouldn't stop us from trying to shift towards a better system that does plan in advance, that does have proper financial planning.
Lars Peter Nissen:Every time you've said to "do planning properly", this little part of me who get a little bit offended, right? Because I've been a practitioner for many years and it's like, Yeah, but what is he talking about? We would if we could. We feel so disempowered from an operational perspective, and I think, probably have quite a deep lack of trust in the people who hold the money and their willingness to let go of the power they have and I think we've all seen allocations being made based on media attention rather than real needs and I think they want to keep their options open. That... I think there's one set of issues around that. And then the other one is probably a fear of not using scarce resources in the most targeted manner that is not those in greatest need who get the most resources. And I think for humanitarian, that's being needs based and really making those difficult priorities is something that's really important for us.
Daniel Clarke:So if you think about fire risk... so fire risk for buildings in high income countries is something that has been a lot of work on over the years about how to make sure that people don't die in, you know, in fires, household fires and industrial fires. And the way that we solved that problem was not by having... the problem was not solved just by working out how we were going to organise the logistics and funding for fire engines to go around the country. So we also have standards in place, you have your, you know, sprinkler systems, and you know, all this sort of prevention... And then you have your annual fire safety inspection which says, you know, here are the risks, here are the things that can happen, based on research and evidence into what has gone wrong, and it's constantly improving. So I think it comes down to the impartiality principle of humanitarian action, which sort of says we should prioritise and meet urgent needs. And I think this agenda is about saying, Yeah, but let's not... we need to think about tomorrow's potential needs as well. So yes, you know, humanitarian action, that is one of the basic principles of humanitarian action, but there needs to be actors out there that have, you know, some of the other humanitarian principles in terms of, you know, trying to prioritise the greatest need, but also thinking about tomorrow's need as well. And if we want to prioritise tomorrow's need, we need to have the equivalent of the sprinkler systems, we need to have the fire safety inspections, we want our fire brigade to be involved in all of that, you know, in sort of, you know... if you've got a good fire safety management, the people who are there fighting the fires and those organisations are involved in trying to help with the risk assessment, help shift the standards. You know, think about, well, what went wrong. And I think the challenge we have an international system is we just don't learn. So take Somalia, for example. 2o1o-2o11, slow onset, slow response to drought led to extreme needs and famine. There were lessons learned. And then when the next large drought hit Somalia, there was faster action, but then we forgot again, because nothing had actually changed. The only thing that changed was that temporarily, there have been people who were still involved in international action in Somalia, who had that institutional memory who had that mindset "never again". And part of the reason why we didn't learn, I think, is because of the funding model. Because the funding model was still based on waiting until something is bad and you can demonstrate that people are in need, and then fundraising as opposed to having things set up in advance.
Lars Peter Nissen:Yeah, I think I think that's a great argument. I also have in the back of my head sort of a... saying, Yeah, okay, it's all well and good in Scandinavia and in the really strong countries where you have a strong institutional setup, but we work with people who... where the government often doesn't want to, or doesn't have the capacity to, really help them. And so I think the question is, can the new financing model help offset the negative impact of a very loose or very weak institutional framework? Right, and it's possible because if money's involved, of course, people will pay more attention.
Daniel Clarke:Yeah. So I think definitely the international system has the potential to really help countries that are willing, and in some sense are able to, to get better at managing these risks, and for international action and international support and international funding, to support governments provision of those essential services around, you know, disaster response crisis results, but also everything to do with prevention, preparedness, and getting those better institutions to manage those risks. There is also a role for the international system's role as substituting for state provision of those services, I think in improving that function. And, you know, the possibility for better financial planning to lead to actually better action and reduced produce needs.
Lars Peter Nissen:Great. So the core idea we've been discussing so far is that actually, we could do much better with what we have, if we have more... have smarter financing, basically. If... that idea of this simple parameter, which will trigger money, so we know they're coming if we have a problem, and then we can respond quickly, you gave the example from Bangladesh, we've talked about how the private sector can provide that to insurance and how that can really help some of the most vulnerable people. But I think what all of this relies on is, on one side, of course, a clear trigger, which I think we can find, but the other side of that equation, is I would think, quite a deep understanding of the actual risk and the consequences they would have, right? So it's, before you pick that dead simple trigger, you actually need to really, really dig into What is the hazard here and what would be the consequences if this scenario played out?
Daniel Clarke:Yes [laughing] totally agree.
Lars Peter Nissen:So here comes the question, What the heck do we do when we have Ebola in West Africa? Or if we have a pandemic, a global pandemic, like we've had? It's not like we didn't know that these risks existed. They've been talked about a lot avian flu, what what what, but I don't think any of us understood the consequences of this. If you look at the disruption to the global supply chain now, I mean, we would not have been able to study this well enough to have a simple trigger for it, would we?
Daniel Clarke:Well, I mean, you don't need to know everything to be able to do an awful lot better at managing risks. And COVID is an interesting one, because disease X not was not new to a lot of people, the idea that this may come... I mean, there must have been lots of reports... the World Bank went through this exercise, setting up this thing called the Pandemic Emergency Financing Facility, where they tried to think about, you know, what kind of pandemics could occur and what the likelihood is. And one of the interesting things in the exercise is they hire one of these catastrophe modelling firms to try to put numbers on the likelihood of different kinds of pandemics. And what was interesting, to me, was those numbers are actually really quite high. So over a three year period, they're estimating, actually it's quite high chance there would be, you know, one of these kinds of pandemics that would affect more than two countries. So I think this was a risk that the experts knew about, but we didn't plan for. And if you look at what's happened with, for example, international funding for COVID, less than 2% of international funding was arranged in advance, you find that something like 104... for countries where the increase in poverty, right, dollars a... consumption poverty, as a result of COVID was very small, they received $118 per person, $108, sorry, per person, on average. Countries, which had the biggest increase in poverty, so increase in two percentage points, increase in poverty, they only receive $41 per person. So it's the wrong way around. The countries that had the biggest impact of COVID, in terms of poverty outcomes, received only 40% of the money of the countries that were least hit. And the reason why is we have an international system, financial system, which is based on banks and bank accounts and loans. And the simple fact is a lot of the countries that are most in need, couldn't borrow. So there were loans that were able to able to be provided to the countries that were... happened to be least least hit in terms of poverty increases. But what happens about those countries are already in debt suppressed who can't borrow? What we saw in COVID was they weren't able to get more money. Now, that was something that we could have thought through in advance. It's something which, yes, we wouldn't know exactly how... yeah and there were whole... speaking to disease experts, there are all sorts of types of pandemics we should be thinking about and planning for. And you wouldn't necessarily need to know all the knock on consequences of what's actually happened with COVID to know, well, we should have done a much better job of planning, particularly for those countries who already in debt distress and couldn't borrow more.
Lars Peter Nissen:But how would you do that? You said yourself that there's a fairly high risk of this. And that, I mean, we're talking about staggering numbers here. Isn't this one of the ones that are too expensive to insure?
Daniel Clarke:Too expensive to insure is an interesting one. So I think we need to ask the question... Firstly, do we want to pay for crises with lives and... or do we want to pay with money? If we're paying with money? What should we be planning for? And I definitely pitch for saying anything that's predictable or modelable of all we should be planning for, then you need to work out, for that... for where we're planning for, how much money do you need to arrange in advance ready to go? And then you get to the question of insurance and where, where the money is gonna come from. And there are a number of options. So when it comes to... when countries have big risks that face them... So take take the UK, for example. You know, in the wake of terrorist incidents in London, in the 70s, businesses said to the government, if you don't provide me with terrorism insurance, I'm leaving the UK and I'm taking my business somewhere else, because it's just too unsafe for me. So the government works with the insurance industry, sets up an insurance scheme, where actually the UK Government and the UK taxpayer is on the hook for a lot of that risk. So if they're big instance, or a number of smaller instance, the UK Government takes on that risks. They've basically agreed in advance, they're willing to take that risk onto the government's balance, onto the government's balance sheet, on behalf of the taxpayer. Donors could offer to do that with crisis risks. That would be a, you know, relatively... you know, the economists would tell you, that's quite a cost effective way of doing it. If you can't do that, you could set up systems whereby if crises happen, you automatically have budget reallocations, either donors automatically reallocate budgets from one thing to another, or international organisations like the World Bank, IDA would automatically reallocate its money from what it was planned to other things, and you'd have that set up in advance. Or you can do things like, you know, buy insurance where, you know, there you would be paying something in advance, and then the money would come from private capital.
Lars Peter Nissen:And has any of this been discussed seriously in the aftermath of COVID? I mean, that figure, you mentioned that the ones who needed the most get 40% of the ones who need it less. That's really compelling.
Daniel Clarke:It is. And I think the answer is it, it has been, it will take some time to work through so. So early on this year, we were, The Centre for Disaster Protection, were proud to be with 45 other organisations and individuals from six UN agencies to, locally, their networks, academics, researchers, to call for the G7, amongst other things, to shift to arrange fund... financing in advance, instead of waiting until disaster strikes. So we want, by 2O3O that if it can be pre-arranged, in terms of financing, it should be. So by 2O3O, we shouldn't be in a situation where we have predictable risks that we knew about where the money wasn't there in advance.
Lars Peter Nissen:So if you are successful in your mission of advocating for these new and smarter ways of financing crisis, by 2O3O, we will see a fundamentally different way of doing humanitarian action, because the money will actually be available upfront. Is that what you're saying?
Daniel Clarke:Yes, I mean, but not just humanitarian action, this would also be in terms of working with governments as well. So, I mean, we talk about crisis financing. So financing for people who might be affected by crises tomorrow as well. And really, what you'd find then, is this isn't just about aid and the international system, it's about... there needs to be changed in every country across the world, as well. And what I want to say is that the international system is a beacon that shows not just how you can overcome some of the technical challenges, but some of the political challenges that lead to, you know, waiting until disaster strike and then raising money. And that can work through some of those kinks, and then help encourage, motivate support, and provide a provide a better way that countries can then take up, as some countries already are, obviously, at the moment. But too often, in a country level, you wait until a disaster or crisis strikes, and then everyone looks to whoever's the head of state to work out, you know, what they're going to pay for and what they're not going to pay for. And, you know, that's really where we should be heading towards to really... the shift in the industrial system to... with with a focus on those most in need, as being part of an agenda to shift this at a country level as well.
Lars Peter Nissen:And so what's your role as The Centre for Disaster Protection? What's your theory of change, right? You're trying to unstick some things here which could have a massive impact if we actually managed to get this in place, but obviously, there are all sorts of obstacles. What... What's your theory of change? How are you changing the world?
Daniel Clarke:So we've got a number of things that we do. So one of the things that we do is we provide advice to governments, to donors, international organisations who are who are interested in trying to develop better plans based on pre agreed finance. And we help them to bring evidence to those discussions, they're having to try to make sure that what they're developing is actually great, and will actually deliver. So it's one thing we do.
Lars Peter Nissen:And why is that not done by the private sector? They must have an interest in... this is a big market risk, will grow in the future, there must be massive amounts of money to be made on offering new products from the private sector. Why do we need a center for that?
Daniel Clarke:I think the I think the the issue is that the solution doesn't lie with any particular kind of expertise. So people from the financial sector might be very good at assessing risk. And they might be very good at working out the financial consequences of risk and how to design a financial instrument that would address that. But they're not the people who are going to know what emergency related needs might look like, they're not going to people who are going to know what response should look like, or how much response should cost, and they're not the people who are going to be able to craft political deals that pull together political leaders, with most at risk communities, and all the different organisations involved that need to help to deliver this. So I think that that skill set is important to have at the table. But that is not... I mean, the solution is going to lie in the right kinds of collaboration, as opposed to someone coming in "I've got this some sort of whizzy solution that's going to solve everything."
Lars Peter Nissen:So you provide the advice...
Daniel Clarke:So we provide the advice. We also invest in the evidence, because actually [laughing] although sort of to date been proselytising about the benefits of pre-agreed finance, there's actually very little evidence that this increases... that this leads to better outcomes for people. There is some evidence, and there's [laughing]... it seems logical. But we should be checking that we're not just full of stories. So today, there are only about three robust evaluations that find... that actually asked the question, did this actually have a positive impact on people and try to answer the question.
Lars Peter Nissen:Have any evaluations been done asking that question that says no, this actually did not work?
Daniel Clarke:Oh, yes. I mean, but it's not so much... I don't think it's a question of it didn't have a... maybe I'm too much of a zealot. I don't think... I don't interpret the evaluations that found no positive impact as meaning that this doesn't work. I think it's... I think you need... I think they help us to understand what kind of planning can work, what kind of planning doesn't work, and also how do we get better and help to chart a way towards What are the... Where are the areas that we need to get better at if we want this to work?
Lars Peter Nissen:So you... what you're saying is that in the situations where it didn't work, you can see why and how to fix it.
Daniel Clarke:Yeah, so there's a great example. So African risk capacity, this organisation that sits under the African Union that provides drought insurance and other kinds of insurance products to governments across Africa, they sold an insurance policy to the governor of Niger were a while back. And they they're one of the few organisations in this space that's committed to an independent evaluation, so that that independent valuation came out. And what we learned was that there was a payout from this product in Niger, which we knew, but because of the way that the government of Niger budgets... that their budgets worked, that money basically sat there for six months before it could actually be allocated and spent. So they got quick money, but it didn't actually go out the door. So this point around, you can have the best financial instrument in the world that pings money in. But if you don't have those systems for getting money out to the right people, then what's the point? Now, does that mean, pre-refinance was a failure or does that mean, Well, we just need to make sure that, you know, it's not just around getting the money in you also have sufficient attention that planning and getting the money out?
Lars Peter Nissen:Great. So you provide this technical advice, not just on the financing instrument, but for example, also, on budgeting procedures, you develop evidence, study how and where does it work? What else do you do?
Daniel Clarke:Well, we also advocate for a better international system. And this is around... this is the point that I was talking about earlier about the international system wasn't built... well, a lot of it was built around this idea that the job of the international system, when a disaster strikes is to make sure we can respond quickly, as opposed to the job of the international system is to get things set up in advance so that we have reliable policies so everyone knows what they're going to be able to do and that's all backed by prearranged finance and then we also learn as we go along to improve... So we want to... We want a better international system that provides better options to countries that allows humanitarian organisations and civil society organisations to do more, that shines a light on needs and make sure that no one is left behind, and that learns as we go along and learns from the experience and this isn't just some sort of nice story that was written in a book five years ago that sounded nice on paper, but actually is something that is tested and is developed in such a way that it really does deliver.
Lars Peter Nissen:How much are these new ideas for Africa with drought or storms in the Caribbean and how much is it also, for example, Germany (after the floods we had, with surprisingly high casualty numbers) for Germany to rethink the way they do... or Sweden or, you know, highly developed countries that with a very strong track record of risk management and civil protection? Are they also thinking about this?
Daniel Clarke:So they need to be? And I think they are, and I think it's very difficult for any country, you know, even New Zealand to sort of stand back and say, Okay, now we're great at disaster risk management, we have nothing left to learn. I mean, if even if you look at Japan... so Japan is a country that is faced by a range of existential threats and their citizens know it and there's real political accountability in the country around disasters and disaster risks. And it's, you know, it's sort of embedded in Japanese culture and society that, you know, you have proper understanding of, you know, what the risks are and you have a good understanding of whether the solutions that are, you know, government and private sector and people are engaging, are actually going to work or not. And yet, you know, the 2O11 earthquake and tsunami was outside of the realm of what scientists thought was possible, the wave height was larger than they had thought. And there had been a lot of thought that had gone into it by a lot of people with a lot of credentials, and it was outside the realm of what they thought. So there are these things that are outside the, you know, this is sort of Black Swan type...
Lars Peter Nissen:Yeah, I was gonna say we call them black swans.
Daniel Clarke:but COVID was definitely not Black Swan territory. So some of the implications of it, it's sort of difficult to difficult to predict, but the idea that there might be a disease X that might have these kinds of characteristics, was firmly within the realm of... what was what was predicted as being possible, if not fairly likely, over a decade long time horizon.
Lars Peter Nissen:So I'm going to pick up on that business about COVID Not being a black swan. Because I... what I agree with is that the primary effects of the pandemic, it's not a black swan. That can be predicted and mitigated against. But I think what you see in the secondary impact, and the cascading risks that can be created, and again, back to the supply chain, back to the famous story of lipstick, and eye makeup, skyrocketing and plummeting, respectively, because of use of masks and zoom, those things, and the way they interact with each other, I don't think you can actually protect I think, I think that is Black Swan territory.
Daniel Clarke:Yeah, I actually totally agree with you. I think those primary impacts were to large extent predictable, we could have done an awful lot better planning them. And the point is risk management, particularly in the context of complex cascading crises, risk management has to be an iterative thing. So it's not the case that in advance of COVID, everyone needs to have a precise understanding of all the different things that might happen, including knock on effects. No, you need to have pretty good sense of what might happen, pretty good plans in place. And then when something kicks off, then you update your plans, then, you know... and also in the context of a crisis, you don't then just think, Okay, now I'm... I did... today, I'm just focused on today. You also have some people somewhere in society in the world who also think about, Well, how could it get worse? How could this conflict situation get worse? How could this drought get worse? What would make it worse? And have we thought through what we would have to do in those situations? And is there better planning that should be should be been done?
Lars Peter Nissen:And who is best in class here? Who actually gets this right? Where where's the country or the organisation where you think, "Yeah, I really admire them. They know how to do this"? Is it the oil industry? Is it the Finland? Who is it? The military?
Daniel Clarke:It's a good question, I think... So good risk management, a lot of good risk management, isn't around the technical work of risk management, it's around getting the governance and the accountability right. And I'm actually going to say I think one area where I think does it quite well is in the regulated... (I'm going to get in trouble for this) inside the insurance industry. And a lot of people think that insurance, the sort of the magic bullet, the silver bullet, is some some sort of whizzy insurance product. No the sort of silver bullet for the insurance industry is the insurance regulator. Where across the world insurance regulators have two functions, firstly, to make sure that outcomes are fair after the fact. And secondly, to make sure that communications in advance are not misleading. And that... it's that watchdog. It's you know, it's those contexts where you actually have someone who cares about the risk, and people are really being held to account. So Japan, I've mentioned before, is a is a country where politicians and companies are held to account. And that is what leads to good risk management. Similarly, you know, insurance industry, is, is held to account in terms of good risk management.
Lars Peter Nissen:So I think this is such a powerful idea and I really like it and I think it can be very impactful. But I think the biggest reservation I have is maybe the... I'll tell you a story about a meeting I once had with the World Bank, where I had a meeting with, I think they were probably sort of your kind sort of actuaries, and we were there talking about some some of the work ACAPS was was doing with the Bank. And before we began, one of them said, I did this beautiful analysis for social protection systems in (I can't remember the country, maybe it was Sri Lanka, maybe... I can't remember, somewhere in Asia)... and he said, "And it was such a great analysis. But then, then there was a coup, and nothing happened." And when we then started the meeting, the first thing we discussed was, if you want to get into fragile contexts, which is what we're talking about here, that's cool. That thing that kills your perfect, beautiful analysis. That's not a bug. That's a feature. That is how it is. And so when you say the insurance industry does it well, Japan does it well and the regulator... isn't that exactly the things that we don't have in the context where we work. And that's probably my biggest question. So yeah, I can see this lifting up work in a bunch of middle income countries with resources and strengthening institutions. But the places where we as humanitarians work, I'm worried that the framework and the preconditions are not in place, and that they always will be that cool.
Daniel Clarke:Yeah, and I think we don't have a lot of examples that I can come to you and say that here's an example of something like this working... proper planning, including financial planning work in that situation. And actually, this is one of the things that The Centre for Disaster Protection wants to work on in the coming years in terms of, Is this kind of idea, Is this kind of concept, Is this applicable in those contexts? And it may be that there are some risks where there's some aspects of those risks or some implications of those hazard events, which this doesn't work for, but maybe the there are some things where it can so refugee refugee movements, maybe something that can actually be planned for much better than we do at the moment, there may be some aspects of, you know, what the international system does, and supportive providers provides, which can be better planned for where pre-agreed finance can be part of the... needs to be part of the mix, if you want to have a better... if you want to have better outcomes.
Lars Peter Nissen:So you wrote a book called Dull Disasters?
Daniel Clarke:I did [laughing] With Stefan Dercon, I should say.
Lars Peter Nissen:So if we are successful, how dull can we get? Can we take care of 90% of the suffering? Can we can we substitute 90% of the payment in lives, as you have put it a couple of times, with payment in money to smarter financial... Or is it 50% reduction? What what are we talking about?
Daniel Clarke:So there's a numbers floating around there for that. I think the Start Network, I can't remember the exact number... But something like 60% of.. I think 60% of humanitarian crises are predictable to the extent that they can be planned and have pre-arranged finance. But I think it comes back to you know, we should be constantly trying to push the boundaries on what we're able to predict might be a possibility and plan for it. So it's not just around planning better for things we already can under... the risks we can understand, it's also uncovering those other risks that we don't understand, but may have a potentially big impact. And then getting to understand them to the extent that we can then put them in a bucket. It's about shifting those unknown risks into the modelable bucket and planning for them. And in terms of how far we can make this, I mean, I started out my professional life and UK pensions, I think we can make it pretty dull.
Lars Peter Nissen:Daniel Clarke, all the best of luck making the world a bit taller. I think we would all be relieved if that was possible. It's a fascinating idea that you're working on with The Centre for Disaster Protection and I really look forward to seeing how how that will develop in the coming years and thank you for coming on Trumanitarian.
Daniel Clarke:Thank you so much.