Policy paper

Preparing finance for a crisis: ‘crisis lookout’ options paper

Published 27 October 2021

1. Overview

Summary

A new ‘Crisis Lookout’ function could play a critical role in understanding and comparing the potential financial cost of crises, and in prioritising, supporting and incentivising countries to put in place the pre-arranged finance needed to better manage them. However, a number of fundamental questions remain about how this would work in practice – what risks will it focus on, what will it provide in practice, why will this make a difference, how will it be set up and run, and who will actually use it? This paper aims to identify these key ‘decision points’, set out a range of viable options for each point, and then propose next steps to advance the Lookout concept.

Context and process

The idea of a ‘Crisis Lookout’ has been discussed widely over the last 2 years. The Centre for Disaster Protection’s (CDP) ‘Future of Crisis Financing’ report argued for a “…global surveillance body or partnership capable of assessing the capacity of delivery systems and testing plans, instruments, and institutions against potential crisis scenarios.” This idea was advanced by the Crisis Lookout Coalition which called for a Lookout “…to increase engagement with risk information and support the prioritisation of crises globally, regionally, and nationally”.

The concept was further considered as part of the UK-Chaired G7 meetings earlier this year, and the G7 Foreign and Development Ministers (FDM) Communiqué published on 5 May 2021 “…welcome(d) the intention of individual G7 members to work with vulnerable countries, including SIDS and Least Developed Countries, and partners to explore options to strengthen disaster risk forecasting and to publish the findings of this work before COP 26.” (paragraph 83).

This paper therefore focuses specifically on the role that a Crisis Lookout could play in the disaster risk forecasting space. It will examine key issues and questions where more clarity is needed in order to determine how to proceed with a Crisis Lookout - the ‘decision points’ around either what could be done in practice, or what is needed to narrow down and inform those decisions. It will then set out a range of options for moving forward, noting its remit is to “explore options” rather than make recommendations. Finally, it will look to identify next steps to take this process forward.

The FDM Communique also directed that we work with “…vulnerable countries, including SIDS and Least Developed Countries, and partners…” in developing these options. This paper draws on extensive consultation by the Crisis Lookout Coalition across a range of partners in developing the Lookout proposal. Questions on the Crisis Lookout were also put to participants at a pre-COP26 roundtable on Disaster Risk Finance and climate change, which was joined by a number of vulnerable countries. The Foreign, Commonwealth and Development Office (FCDO) has also conducted group meetings and bilateral outreach with a range of countries, agencies, donors and other key stakeholders and shared the draft of this text extensively for comment.  

2. What is the Crisis Lookout

While there is a growing body of excellent risk work on which to build, the Crisis Lookout would meet a critical gap in the current Disaster Risk Forecasting, Financing and Management architecture by providing information on disaster risk in a format geared towards financial decision makers. This would enable better prioritisation, planning and positioning of money to manage disasters in advance, in a way that doesn’t currently exist.

A number of existing institutions and initiatives collect and publish multi-hazard crisis risk information and many more have a specific focus on either a particular risk type or geography. Much of this work is both high quality and directly impactful in better managing risks. But currently, no mechanism or system synthesises, quantifies and translates the information these mechanisms produce into a format for actionable crisis planning and proactive disaster risk management in the financial space.

More generally, putting a financial cost on risks has not been widely done in the crisis space. While it is routine for the insurance sector, this is typically only for certain risks, in higher-income economies and data-rich contexts, where the costs relate more to damage to buildings and infrastructure than impacts on people living in poverty. The Crisis Lookout would be an entity or function that collects and communicates the type of crisis risk information that can support financial planning and decision making at national and international level ^{[footnote 1]}. Specifically, it would support the decision-making processes of governments, donors, and the multilateral/international crisis-response system, enabling them to work towards ensuring that the necessary finance and systems are in place to reduce, mitigate and respond rapidly to national, cross-boundary and global hazards.

The intention would be to prioritise and incentivise action ahead of crises hitting, and particularly to ensure money is in place and ready to go either in advance of imminent impacts or more rapidly after a disaster. Pre-agreed finance, ideally linked to plans and actors, will ensure vulnerable populations get the help they need more rapidly and effectively, helping to prevent loss of lives and livelihoods, and reducing the impact on infrastructure, key services and development gains.

The Lookout would focus on pre-emptively understanding risks, not monitoring real-time events. So it would not itself carry out risk monitoring or short-term forecasting, nor would it provide early warning on imminent risks, but would offer medium-term (up to 5 years) predictive capacity on exposure to risks. Analysis would be shared in an accessible and action-orientated format.

A global Crisis Lookout would bring consistency of assessment methodologies across hazards, impacts, and geographies. This will aim to enable comparability of results – or at least of methodologies and their inter-relation – to support informed decision-making and more simple, effective prioritisation.

The Lookout’s financing lens will also enable it to quantify and spotlight the “Crisis Protection Gap” – namely the difference (in monetary terms) between the potential cost incurred of responding to a crisis, set against the funds currently available.

Done right, a Crisis Lookout could play a crucial role in helping to assess and understand the likelihood and potential financial cost of crisis risks; synthesising, quantifying and communicating these risks; pricing and comparing potential costs for multiple risks against the funding available to respond in advance; helping countries put in place proactive risk management strategies; and supporting the prioritisation of crises globally, regionally, and nationally to incentivise a more proactive approach.

There are a number of trusted initiatives and institutions currently collecting and publishing data on disaster risk. These each have a different remit than that envisaged for the Lookout but could have an important role to play in developing the Lookout proposal and feeding up analysis. These include:

A sample of trusted risk information initiatives	How is it different?	A part of the puzzle
Inform	Challenging to apply in financial planning	Experience supporting diverse stakeholder needs
GCRP (Global Crisis Risk Platform)	Not designed for public communication	Insight into similar use cases and user groups
GAR (Global Assessment Report)	Issues comparing across risks, regions and impact types	Uses similar data layers and modelling methods
ACAPS Crisis Insight: Global Risk Analysis	Humanitarian focus, doesn’t capture government costs or coverages	Trusted source of global crisis surveillance data
FEWS NET (Famine Early Warning Systems Network)	Single risk, doesn’t capture expenditures, cost or cover	Deep expertise in large-scale drought forecasting

3. Decision points and options

Decision point 1: remit

What is in and out of scope for the Crisis Lookout?

Issue

The Crisis Lookout will collate, compare and communicate information on disaster risks in a way that is actionable by financial decision-makers. Determining what hazard types it covers, the countries and geographies in scope and the timespan it works to will be critical in its design.

Why this matters

Multi-risk surveillance is vital, as shocks and hazards compound, cascade and interact. But if there are no limitations or boundaries and all risks at all levels from micro to macro are in scope, the Lookout may become too ambitious and too complex. Should all regions, geographies and demographics be considered or do we need to narrow down the focus to make it feasible? What timescale is needed so that outputs match financial planning timescales?

Options

Geographic scope:

• the Lookout operates globally, considering disaster risk as it applies to all countries/regions – though some feedback that existing work e.g. from International Financial Institutions, regional bodies etc. better serves higher income countries in this space
• the Lookout works across all countries at risk of crisis – i.e. a shock that exceeds existing local/national coping capacities; or
• the Lookout focuses on a particular country typology, e.g. developing/low income countries, IDA-eligible countries, fragile and conflict-affected countries – or potentially linking geographic focus/prioritisation to Lookout partners, their priorities and their willingness to engage in monitoring risks/funding

Timespan:

The Lookout will not include early warning monitoring or short-term forecasting, which are covered by other initiatives. A medium-term predictive approach emerged as the clearest option, covering the next one-to-five years (with discussion on accuracy in the outer years as below), which would draw on shorter term monitoring, but not look to inform decisions at that level. There will also be an optimum point for outputs to inform financial process and planning cycles, i.e. enough time to process and incorporate information, but sufficiently timely and dependable to shape future planning rather than being ignored or deferred as too far distant – while recognising this will vary notably across hazards and contexts.

Hazards:

The Centre for Disaster Protection has suggested all extreme hazards in the United Nations Office for Disaster Risk Reduction (UNDRR) and International Science Council (ISC) hazard classification should be in scope, but with the Lookout performing a triage process to identify the hazards most likely to lead to a high-impact crisis.

• should all hazards/risks be considered or more focussed (e.g. natural hazards or climate-related disasters, pandemics)?
• what about the intersection between shocks, for example conflict and climate change?
• both rapid and slower-onset shocks?
• health and/or economic crises?

Risks and challenges

• there are likely to be challenges in relation to the lack of availability of data in some countries as a result of weak or non-existent data collection systems; restrictions on access/monitoring, for example as a result of conflict etc.; or because data is not shared publicly

• there are also risks around unreliable, poor quality or recycled bad data; politicisation of data or political decisions around its availability; and monetization of public data produced with public money by insurance companies

• it will be challenging to compare data across multiple sources, formats and risk types in a consistent and transparent way. Identifying and quantifying crisis risks can be a sensitive, political endeavour and different actors have different incentives to promote or neglect certain risks, e.g. to secure funding or to avoid impacting credit status or tourism

• transparency and sharing of reporting might be resisted

Decision point 2: audience

Who are the intended users?

Issue

The Crisis Lookout is only sustainable if there is a genuine and ongoing demand for its services, so targeting depends on understanding who will be using it and what they need it for.

Why this matters

The level of effort to develop and maintain the Crisis Lookout is sizeable. Ensuring it meets a genuine need and tailoring its output to that need is essential if it is to be tenable, credible and impactful. It needs to reach the right people in the right format and be sufficiently inclusive, without diluting its unique function by trying to be all things to all people.

Options

Users are likely to include some or all of the following (examples in brackets indicative, not exhaustive):

• national governments and/or regional bodies (AU, ASEAN) to improve engagement with risk information in order to close the crisis protection gap and strengthen disaster risk management

• donor Ministries to inform the allocation of funds for risk-based financing approaches

• IFIs/Multilateral development banks (World Bank, IMF, African Development Bank) to encourage better targeting of finances towards the most vulnerable places and people and better advice to client Finance Ministries on how to plan for risk

• existing or future development insurers/sovereign risk pools (ARC, CCRIF) to improve financial planning and strategies for growing the scale and coverage of their products

• the UN system (both humanitarian and development actors) to support national policy development on disaster risk reduction and financial planning for emergency humanitarian response, as well as to protect development gains and reduce the future need for humanitarian assistance

• humanitarian organisations (international/national/local) (IRC/START) to improve financial planning for emergency humanitarian response

• civil society (in donor countries, or within crisis-vulnerable communities) to increase engagement with disaster risk information and create more demand for risk-based financing approaches among vulnerable populations

• academia/ private sector to support practical application of increasingly prolific and advanced disaster risk data for the purposes of disaster management, and to better enable the important role that private sector solutions have to play, for e.g. in catastrophe financing

Risks and challenges

There are multiple potential users either individually or in some combination of the above. This may require information to be produced in several different formats and/or tailored to different users’ needs. There will be a challenge here in getting the right level of detail for specific requirements, offset against the capacity and resource required to produce multiple iterations - and a question as to whether this is predominantly the same information tailored to use requirements, or entirely different sets of information produced for different use groups.

While focussing on financial actors and decision makers across groups helps narrow the lens, producing information that also enables at-risk people and groups to better understand their risks and what level of protection they can expect will require additional consideration.

Decision point 3: output

How will better financial risk information shift the dial on crisis preparedness and management?

Issue

What form should the Lookout’s outputs take and how should they be delivered to ensure they drive real world decision-making?

Why this matters

The Lookout should present information and shared analysis in a relevant, clear, digestible way. Up to date dynamic risk information is critical. The way this is done will be determined by the impact the reports are intended to have (i.e. what information is needed to inform decision-making and when). The emphasis needs to be on providing information that enables and incentivises action rather than simply repackaging or adding to the mass of risk information already available.

Options

Format:

• a report could be produced regularly e.g. annually or quarterly, such as the Intergovernmental Panel on Climate Change’s (IPCC) reports, though this may be insufficiently dynamic on its own, in terms of evolving risks

• a live/real time approach is an option, e.g. a website or information tool updated continuously with the most current information, such as https://socialprotection.org

• a panel format, which could meet and report quarterly

• information presented at a steering committee/annual forum/academic symposia; and a more direct engagement between the Lookout and users, e.g. webinars or technical advice; or

• a combination of several of these options to meet different users’ needs

What actions will outputs support? Is the intention to:

• inform allocation of funds across regions and risk types (including for premium subsidy allocation)
• prioritise risks at a national level
• inform policy
• price of risks to support DRF strategies and development/purchase of risk financing products
• ‘wave a red flag’/ highlight the protection gap/ high-level reporting?

Frequency – linked to the question of format, how often should information be updated and pushed?

• how frequently does risk information meaningfully emerge or update and do too high a number of regular updates risk overloading decision makers and diluting impact, particularly if the focus is on the medium term rather than early warning for immediate risk?

• would quarterly or annual updates be too slow to identify emerging and/or high impact risks?

Risks and challenges

Output in a format that allows for comparison is a key aim of the Lookout in terms of allowing users to prioritise between risks at national level and across risks at international level. Is putting a monetary figure on the ‘protection gap’ or quantifying risks in financial terms sufficient to allow this? Is it possible to meaningfully compare risks from conflict, climate, pandemics and more? Critically, how can the Lookout most effectively ensure that the information it is providing leads to actions being taken to deliver better development outcomes, and how will it be able to track, demonstrate and strengthen that causal link?

There may also be political and presentational challenges in collating and making publicly available financial information that may be sensitive, while much risk information will not be produced in a way that will be easy or meaningful to compare. In addition, some existing risk products (e.g. the World Bank’s Global Crisis Risk Platform) do not publish their findings but use them to support institutional awareness of evolving risk conditions.

Decision point 4: build

How is the Lookout put together and run?

Issue

The way the Lookout is set up and run will have significant implications for how it operates and the way it engages with users.

Why this matters

There is a strong and rapidly-growing body of high-quality risk work already in place, but as envisaged, the Lookout could play a unique and currently absent role - communicating and comparing risks in order to incentivise financial decision makers to act ahead of crises. However, the information it provides, and how well it matches this output to the needs of users, will be largely determined by the way it is structured, how it collects and disseminates information, and ultimately how successfully it meets its users’ needs.

Options

• international versus local – The Lookout could draw on existing global exposure, hazard, and modelling data, to allow for comparison across risk types and regions. Or it could instead rely predominantly on locally-informed crisis information, led by national priorities and using national and local information systems, building on those already in existence where needed. Globally comparable information to map the crisis protection gap would arguably be most relevant for the international system (UN, INGOs, Donors etc.) but more locally informed information with a focus on national relevance and accuracy would likely be more relevant if the users were primarily sovereign-level decision makers

• top-down or bottom-up – The Lookout could solely collect, synthesise and present only existing risk information (as, for example, INFORM does. Or it could work to identify information gaps in the current architecture and to create new data, methods, models, metrics, etc. to address these gaps and present a more complete risk picture, building new or licence existing models where these don’t already exist, which in turn may require local ownership and capacity building

• governance – there are also a number of practical considerations for establishing and maintaining a viable Crisis Lookout that are critical to ensuring sustainability, impartiality and credibility. These include questions of responsibility for governance oversight and strategic direction; sources of funding and what a sustainable business model looks like, including the possible role of/engagement with the private sector; staffing; who would contribute information and collaborate with the mechanism; as well as who decides, signs off on and ‘owns’ information released. Many of these link to the following section on positioning

Risks and challenges

A global/international approach would mean information is easier to collect, but it would still require existing information to be mined and synthesised, which would in turn require partnership agreements with a range of institutions. A more top-down approach might also not have the buy-in among sovereign decision-makers compared to locally shaped data. There is potentially scope to use top-down experimenting to identify gaps and inform what a ‘good’ bottom-up process and output looks like. It will also be important to ensure independence of forecast when linked to finance, given possible conflicts of interest and the risk of incentivising negative behaviour around reactive decisions on risk management linked to specific forecasts.

Decision point 5: positioning

Where is the Lookout function best sited?

Issue

Should the Lookout be established as a new institution or housed within an existing one - and if so, what are the candidates?

Why this matters

The information generated by the Crisis Lookout must be impartial and trusted by national governments, regional fora and civil society. It will therefore need to be consistent, transparent, open to scrutiny and free from conflicts of interest. Given it will be operating internationally and between countries, it will need to be arms-length from government with an independent governance structure, but how it is set up will have significant implications for how it is perceived and utilised. Where and how it is set up may also be taken as an indicator of its intended users.

Options

• new entity – the Lookout could be set up as an entirely new standalone entity, although this would be a labour (and cost) intensive approach

• embedded - it could be embedded within an existing institution like the UN or the World Bank, which would likely result in a higher degree of ownership and thus a higher chance of output directly influencing action/decisions. But there is a risk of institutional capture, with the function by default conforming with the methodologies and priorities of the host and being tied to its processes. The World Bank’s systems, for example, are geared towards informing its own programming and engagement, making it difficult to shift to more outward-facing risk communication.

• partnership - of organisations, with a governance structure comprising representatives from risk data organisations (including the private sector), organisations that provide crisis financing, vulnerable country governments and regional fora, and civil society; a small independent Secretariat; and an in-house analytical capability – overseen by an independent board

• an alternative formulation of this could be to build a coalition of bodies or a network of regional hubs – potentially linking for example with the Regional Climate Outlook Forums and regional bodies such as Southern African Development Community (SADC) and the Inter-Governmental Authority on Development (IGAD) - with a co-ordination centre/Secretariat

• host organisation – the Lookout (or its Secretariat, for example as in the scenarios above) could be housed in, but separate from, a UN/financial institution, i.e. a standalone body with an inclusive governance structure. One suggestion that emerged from discussion was to place the function with the United Nations Office for Disaster Risk Reduction (UNDRR) given its expertise in this space, though it may lack the financial lens/positioning envisaged for the Lookout

• third party – situating the Lookout in a third-party organisation was also suggested, for example INFORM at the European Commission’s Joint Research Centre (JRC), though there is the possibility that this would be too far removed from actual end users of the risk information. Another promising suggestion could be to build it out of the new Complex Risks Analytic Fund (CRAF’d), given its focus on using data to better anticipate, prevent, and respond to complex risks

Risks and challenges

Establishing an entirely new function/body is likely to be perceived as adding to the proliferation of organisations already extant, though housing the Lookout in an existing organisation carries some perceptual and potential trust risks from different potential users.

Regardless, the link with a range of other initiatives – INFORM, the IASC assessment of risk, the Centre for Humanitarian Data, UNDRR’s Global Assessment Report etc. - will need to be carefully managed and the Lookout’s envisaged point of difference as a source of actionable financial information for risk management decisions made clear. It will also be important to get the balance right between independence and ability to impact the behaviour of donors and their clients.

4. The way forward

This paper sets out options against key decision points needed to progress the Lookout. It does not make recommendations for any particular option, but it is intended to provide a basis from which to narrow these options down and identify concrete options for next steps. To that end, five areas have emerged from consultation in developing this paper, which collectively should help us resolve some of the outstanding questions and identify the most productive way forward. These are:

1) Development of a Crisis Lookout ‘demonstrator’

During 2022, the Centre for Disaster Protection will undertake a pilot exercise – a ‘demonstrator’ - to show in practical terms how a global Crisis Lookout function could navigate some of these considerations, to deliver risk information in a way that drives more and better engagement with the disaster risk financing agenda. As a pilot, the demonstrator will focus on one region rather than taking a global approach and will aim to work through in practice some of the key challenges around comparability of different hazards, how to incorporate existing data and from which sources, and how to identify and effectively engage with users.

In so doing it will help to map the existing forecasting, monitoring and risk information landscape and identify current gaps, as well as developing conceptual model frameworks to quantify impact of crises on welfare, assets and economies. It will incorporate an expenditure lens to support risk financing decisions and provide a mechanism for forecasting and monitoring the protection gap. It will also work to build interest and understanding of this project among key decision-makers across the international system, as well as with potential users of the Lookout itself to strengthen an understanding of their needs and how best to meet these. The FCDO will work with the Centre team on this and would welcome engagement from other stakeholders.

2) Use case studies

While the demonstrator will help develop a clearer sense of how the Lookout will operate in practice, there was also appetite during the consultation for a better sense of what it would actually do and in what way this would add value, with a series of short ‘use cases’ developed for historic shocks.

This could include a variety of geographies and shocks such as flooding in Bangladesh or drought in Somalia, for example, or potentially more complex scenarios. FCDO will consider the most informative range of scenarios and produce several short (1-2 page) case studies that set out the role a Lookout could have played in each historic example if it had been in place. This will include scope for identifying and weighting particular risks, highlighting the protection gap, determining the relevant actors who would most benefit from receiving clear, actionable information, and suggesting specific measures and actions that could have been taken in advance of these crises in order to mitigate their impact and manage them more rapidly and effectively.

3) Continued outreach to potential end users

The FCDO has consulted extensively both in the process of developing the concept of a Crisis Lookout and more specifically as directed by the G7 Communiqué, including with vulnerable countries. However, we are keen to continue to engage with key stakeholders and potential users of the information produced by a Lookout to better understand how the Lookout could support them and meet their needs.

That includes what information and in what format would most usefully inform and incentivise financial decision making ahead of crises, and which actors and users we should be engaging with at national and international level in designing and developing the functionality of the Lookout. To that end, we would welcome further discussion on this, most particularly with any countries that see a particular gap in the current risk financing monitoring and management landscape or would have particular requirements or preferences from a Crisis Lookout.

4) Consult on possible hosts

Along with consideration of the role and functionality of the Lookout in consultations, one particular focus has been the structure and governance set-up, and particularly how and where the Lookout would actually be established and housed. Some contributors considered this a secondary issue that could more easily be determined once the Lookout’s role and output had been determined. However, considering this in parallel provides an opportunity to potentially engage and involve any future host in the co-design and development of the Lookout, as well as to consider any possible implications from different hosts for the information the Lookout could draw on, how it may be perceived and where it might fit into wider systems.

A number of options for possible ‘homes’ for the Lookout have been raised, including the United Nations Office for Disaster Risk Reduction, INFORM, the Complex Risks Analytic Fund, the Risk Informed Early Action Partnership (REAP) and the Global Multi-hazard Alert System (GMAS). Following the publication of this paper, the FCDO will engage further with these organisations and functions directly in order to explore their appetite for involvement, as well as practicalities and possible synergies with other initiatives.

5) Continue the discussion

Finally, we will look to engage and advance the Lookout proposal through relevant upcoming fora, where there is an opportunity to further develop the issues set out in this paper. Given discussions in the UK-chaired G7 this year, we would welcome the opportunity to further explore this proposal with other G7 members, both in the run up to and during next year’s Germany-chaired G7.

The FCDO will take forward the steps outlined above but would welcome any expressions of interest in engaging with this work, or any further comments or suggestions on any of the points raised in this paper.

We will also identify other opportunities – high level meetings, events, new initiatives and working groups – to further develop this proposal and to update on progress. These could include the (ongoing) IGP High Level Consultative Group, the 9th Global Dialogue Platform in December, the Insurance Development Forum, and more widely in the Disaster Risk Financing, Anticipatory Action, early warning and preparedness, forecasting and risk management space.

For more information and to discuss, contact: Chris.Kiggell@fcdo.gov.uk.

1. Noting that the Crisis Lookout Coalition itself has advocated for a Crisis Lookout but is not proposed as the group or body that would itself provide this function. ↩