What is the Pandemic Emergency Facility?
The World Bank Group (WBG) is working closely with the World Health Organization (WHO) and many other partners to design a global Pandemic Emergency Financing Facility (PEF) so that when the next global health emergency is declared, the world has the financial resources to quickly deploy trained health workers, equipment, medicines and whatever else is required. G-7 and G-20 leaders requested the WBG to accelerate development of the PEF as a means to strengthen the global response to future potential pandemics.
Why do we need a Pandemic Emergency Facility?
A major lesson from the Ebola epidemic is that the world must be better prepared and respond much more quickly to future disease outbreaks. A weakly coordinated global response and the lack of a fast-disbursing financing mechanism left Ebola-affected countries for too long without much-needed support, worsening and prolonging the crisis. The world is in urgent need of a more agile and effective system for responding to such global health emergencies. The traditional approach of mobilizing resources in the wake of an outbreak is slow, inefficient and fragmented.
How big is the economic risk of a pandemic?
The Ebola crisis has had a crippling effect on the economies and development gains in the hardest hit countries: Guinea, Liberia and Sierra Leone. As of April 2015, the WBG estimated that GDP losses for these countries rose to US$2.2 billion in 2015: US$240 million for Liberia, US$535 million for Guinea and US$1.4 billion for Sierra Leone.
Ebola isn’t our first wake-up call that pandemics are costly. From 1997-2009, six major outbreaks of highly fatal zoonoses—animal-borne diseases that can be transmitted to humans, such as Ebola, SARS, avian and H1N1 flu—caused an estimated $80 billion in economic losses. The human and social costs are incalculable.
The economic and human costs of the next pandemic could be much greater. Estimates suggest that an airborne Spanish flu-like outbreak today would kill more than 33 million people in 250 days. Estimates of the cost of a severe outbreak could be 5% of global GDP – or USD $4 trillion
According to a 2013 survey by Towers Watson of 30,000 insurance industry experts around the world, pandemics topped the list of extreme risks that matter most for the insurance industry over the long term.
What activities would the PEF finance?
The PEF is expected to cover a range of response activities such as: (i) rapid deployment of a trained and ready health workforce (“global health corps” or ‘white coats”); (ii) medical equipment, pharmaceuticals and diagnostic supplies; (iii) logistics and food supplies; and (iv) coordination and communication. The PEF would not cover pandemic preparedness or reconstruction efforts. These would need to be financed through existing channels, domestic resources, bilateral development assistance, and multilateral financing, including IDA, the World Bank Group’s fund for the poorest countries, and IBRD loans for middle-income countries.
Who would receive the money disbursed by the PEF?
The PEF is being designed as an open platform that would make finance available, not for the WBG, but directly to affected countries, international organizations or civil society organizations, such as the World Health Organization (WHO), World Food Program (WFP), United Nations Children’s Fund (UNICEF), Médecins Sans Frontières (MSF) and others that can respond quickly to outbreaks.
How would the PEF work with existing WBG financing instruments?
The PEF would build on existing WBG financing instruments, including the IDA Crisis Response Window and the CAT DDO (catastrophe deferred drawdown option). The IDA CRW provides urgent financing to help the poorest countries to respond to crises. A total of $1 billion is available for all 77 poorest countries through June 2017. The CAT DDO provides a line of credit that allows middle-income countries to access immediate financing following a natural disaster. To access the funds, countries have to develop a disaster risk management program to demonstrate that they have taken the necessary steps.
The PEF is complemented by the Ebola Recovery and Reconstruction Trust Fund (ERRTF). The WBG established the ERRTF to augment IDA support to address the economic and social impact of the Ebola crisis. As of September 2015, donors who have contributed to the ERRTF include: Japan (US$20m); Norway (US$15.2m); Denmark (US$4.9m); UK (US$4.5m); Russia ($3m); and (US$4.5m).
What role would the World Bank Group, WHO and other international institutions play in the PEF?
The WBG is playing a lead role in conceptualizing the facility, working in coordination with international organizations, including the WHO, the private sector and other development partners. The world needs a strong WHO to deal with global health crises, and the PEF will complement the new WHO Contingency Fund. The WBG strongly supports the efforts underway to strengthen the WHO’s capacity to prepare for, and respond to, future disease outbreaks, but additional and complementary financing tools are needed.
Development of the PEF is also being done in consultation with multiple global health security assessment efforts underway-- including those by the UNSG’s High-level Panel on Response to Health Crises, the Institute of Medicine, the Global Health Security Agenda, and the outgoing and incoming G7 chairs Germany and Japan --to ensure the PEF is situated within the evolving recommendations to strengthen pandemic response and preparedness.
What role could the private sector play?
Private sector participation in the PEF will be essential to ensuring that the response to future pandemics is timely and effective. The private sector could be involved in a variety of activities, including developing insurance against pandemic threats, training health care workers, and playing an active role in coordinating the humanitarian response to crises. The private sector could also play a role in preparing communities for future outbreaks.
The PEF would purchase insurance coverage from the private sector, on behalf of developing countries, to cover the costs of containing disease outbreaks. It would deliver financing swiftly to governments and responding organizations, once a pre-agreed trigger is invoked.
What products could the PEF offer?
The PEF’s design builds on the existing suite of crisis response tools, within and outside the WBG, and on the WBG’s experience in kick-starting market mechanisms, and could offer a variety of complementary products:
Private insurance mechanism. The PEF, on behalf of countries, could buy insurance coverage from the private sector to cover risks associated with the outbreak.
Public funding mechanism. The PEF would rely on long-term donor pledges to IBRD, which could, through bonds or the Bank’s liquidity, be disbursed to contain the outbreak.
How would the PEF insurance mechanism work?
The PEF proposal under development includes two options, which are not mutually exclusive: (1) An insurance product developed with private insurance partners that could disburse funds soon after an outbreak occurs; and (2) a financing structure underpinned by contingent long-term pledges from development partners, against which the WBG would frontload funds for the crisis response.
The PEF would purchase insurance coverage from the private sector on behalf of developing countries to cover costs associated with disease outbreak response. When a pre-agreed parametric trigger (based on public and observable data) is activated, the private sector would make the agreed payouts to the PEF, which would disburse resources to eligible implementing partners to finance critical containment measures. Such a mechanism would be able to disburse resources quickly once the trigger is activated, rather than relying on a loss assessment, which typically takes time. The insurance mechanism would need to start small but could be expanded in terms of geography, size, events covered, etc., as the market for pandemic/epidemic risks in developing countries develops.
How would the insurance mechanism be funded?
The leading options to finance the insurance mechanism are through bond markets and insurance companies. These can be very easily combined in a manner to lower the overall cost of premium; this is very frequently done in the private sector to optimize costs and coverage. In both options, the insurance premium would need to be funded largely by donors, but potential beneficiaries may also contribute.
What are the key benefits that the insurance mechanism would bring?
Just as various insurance products for natural disasters have helped create new markets, we expect the PEF will create a new market for pandemic insurance in developing countries that is likely to grow over time; as the market grows, the need for subsidies/public funding will diminish.
If the PEF is designed well, not only will financing be available quickly to respond to the next crisis, but it will bring discipline and rigor into pandemic preparedness as the response strategy is thought out preemptively.
Are there other, similar, insurance mechanisms?
The concept of using insurance to pre-finance sovereign risks is a well-recognized tool to managing climate and disaster risks faced by governments (e.g., Mexico’s MultiCat (for earthquake and hurricane) and the African Risk Capacity (for drought.) Such tools have been well-studied and are considered successes by multilaterals, donors, beneficiary governments and rating agencies.
How would the public funding mechanism complement the insurance mechanism?
To enable the PEF to cover higher frequency events, the WBG is also working with partners on other instruments, including a public funding mechanism, to complement the insurance mechanism. With the public funding mechanism, the WBG could take long-term donor pledges/lines of credit and use its own liquidity or borrow on the capital markets against these pledges once an outbreak happens.
What are the next steps needed to further develop the PEF?
Timeline: Subject to donor fund raising (to finance the insurance premium) and market conditions, in principle, an insurance policy supported by private sector capital drawn from reinsurance and bond investors, could be launched in early 2016. The WBG-WHO team is now seeking feedback on the PEF design and implementation issues, with stakeholder meetings in DC (Sept 21-22, 2015) and Lima, Peru (October 9, 2015), and is establishing a PEF Working Group.
Last Updated: Sep 24, 2015