A new financial mechanism that frees up emergency funding to ward off a pandemic has been activated for the first time, in response to an outbreak of Ebola virus in the Democratic Republic of Congo.
Efforts to halt the outbreak received an injection of $12 million from the new World Bank fund and, if Ebola spreads to other countries and infects more people, hundreds of millions more could be released from a sister insurance scheme.
The Pandemic Emergency Financing Facility, or PEF, was set up after the 2013-2016 West Africa Ebola epidemic, which was only brought under control at a cost of more than 11,000 lives and about $3 billion, and after late and insufficient response efforts failed to stem the disease.
The World Bank says the PEF’s combination of donor cash and capital from the insurance markets provides a new model for epidemic response.
News of Congo’s outbreak in Bikoro, an area in northwestern Equateur Province, reached the World Health Organisation on 8 May. Its spread to Mbandaka, a city of more than a million inhabitants with river transport links to the capital, Kinshasa, greatly increased fears of a major epidemic. As of 27 May, 35 cases of Ebola had been confirmed, including 12 deaths.
Efforts to contain the outbreak are focusing on: an experimental vaccination campaign; boosting surveillance – locating cases of infection and people they have been in contact with; preventing further infections, particularly by encouraging safe burials; raising awareness of the risks among local communities; and stepping up readiness in neighbouring countries.
The day after the 22 May release of a three-month response plan devised by Kinshasa with international aid groups, the new emergency financing facility agreed to disburse $12 million. This contributed towards an overall fundraising target for the plan of $56 million.
“I’m very excited,” Mukesh Chawla, coordinator of the PEF, said in an interview with IRIN, adding that the facility aimed to work “as fast as possible, as early as necessary”.
A spokesperson for the Congolese Ministry of Health said the PEF cash injection had closed a significant funding gap and allowed the government to concentrate on responding. In an email referring to the response plan, Jessica Ilunga said the government had received fresh commitments from other donors of about $25 million, as well as an agreement to redirect more funding towards Ebola from another $15 million World Bank project.
How does PEF work?
The facility has two elements (or “windows”): cash and insurance.
The cash window, from where the DRC Ebola funds come, operates much like other pooled donor funds such as the UN’s Central Emergency Response Fund. Grants can be released to any of 77 low-income countries based on the decision of a steering group of the donors, advised by the WHO and other experts. The World Bank manages the funds and disbursements. Any affected country can apply for funds and, if the outbreak meets the PEF’s criteria and a response plan is given a green light by the WHO, the steering group can then release the cash.
In the case of Congo, the PEF has committed to $12 million, some of which will be spent by the government, and some by relief agencies, according to its operational rules.
Chawla told IRIN that so far three UN agencies, the WHO, UNICEF, and the UN Fund for Population Activities (UNFPA), had agreements with the PEF. Other agencies would be added, he said. These allow for expedited “one-liner” grants to be made once other criteria are met.
The Ministry of Health spokesperson, Ilunga, said the funding for Congo would be split between the government and UN agencies. Chawla said a third donor may soon step in to replenish the cash fund, so far funded by Germany and Japan.
Economist Stefan Dercon, co-author of a book on disaster insurance “Dull Disasters”, welcomed the launch of the PEF. “Releasing, now, 10, 20, 30 million is worth quite a few billion later on if we don’t do this early,” he said.
Dercon described pandemics as good candidates for this class of rules-driven “contingent” finance (since there is past data to work with and for calculating risk), but cautioned that, as the PEF concentrates only on surge response, it fails to take the opportunity to build national systems and preparedness.
Dercon says the other part of the PEF, the insurance window, is more “imaginative”. It’s effectively a giant insurance policy, covering the 77 poorest member countries of the World Bank. Payouts are triggered if certain types of disease outbreaks spread to multiple countries and pass preset thresholds of death toll and speed.
If, in the case of Ebola for example, there were 250 deaths across two countries (more than 20 times the current confirmed death toll), significant payouts would flow. Private investors earn interest on bonds that back the policy, but can lose all or part of their capital in the event of major outbreaks.
Donor countries Japan and Germany and the World Bank’s own International Development Assistance (IDA) grant-making arm pay the premiums. The three-year policy (details in this 386-page term sheet) was designed by the Bank along with insurance heavyweights Munich Re and Swiss Re.
The price tag? Chawla says it’s $37 million a year, paid by the IDA, Japan, and Germany to secure a worst-case payout of $500 million. It’s equivalent to two cents per insured person per year, Chawla argues.
The PEF insurance window can only cover outbreaks of the following diseases: pandemic Influenza (new or novel influenza A virus), Coronaviruses (e.g. SARS, MERS), Filoviruses (Ebola, Marburg), Crimean Congo haemorrhagic fever, Rift Valley fever, and Lassa fever.
The likelihood of each disease and the resultant pricing were calculated from past event data using models developed by a third-party analyst, Air Worldwide Corporation.
The World Bank does warn that at its extreme, in the event of a major global outbreak of influenza for example, investors could lose their shirts: “the principal amount due to the bondholders under a Pandemic Bond will be reduced in its entirety to zero”.
However, the balance of risk versus return has not scared off investors: the offering, which pays between 6.9 percent in addition to the inter-bank interest rate LIBOR and 11.5 percent (plus LIBOR), depending on the riskiness, is 200 percent oversubscribed. In a world of low interest rates, that’s “pretty decent money”, acknowledged Chawla.
Given the appetite in the market, and with the experience of the PEF’s first outing, Chawla said work was already underway to design the next phase, and that the cost to donors could drop further.
Dercon said the enthusiasm in the market might suggest the PEF bonds appear “quite expensive”. He also believes that the epidemiological model data behind the pricing should ideally be open and public, to ensure some transparency. In his conversations with insurers Lloyds of London, he was told they could insure anything – and that “everything has a price”.
Humanitarian finance analyst Lydia Poole said the PEF should spur humanitarians to consider which other situations that face “unpredictable, late, and inadequate funding” could suit similar solutions. “It’s long past time we lifted our ambitions above incremental financing reforms and designed financing solutions for system-level structural financing problems,” she said.
Confident in its ability to marry data, markets, and donor appetites on pandemics, the World Bank has started work to design a similar insurance model for another human scourge: famine.
(TOP PHOTO: A health official uses a thermometer to measure the temperature of disembarking passengers at the airport at Mbandaka in DRCongo on 19 May 2018. CREDIT: Junior Kannah/AFP)