Published on Investing in Health

Disease Outbreaks are Still a Certainty, But No Longer Uninsured

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You may not have noticed it, but the planet grew a bit safer over the weekend. Starting last Saturday, the world finally became formally insured against pandemics like the dreadful Ebola outbreak that caused so much loss and suffering three years ago.

This insurance has arrived through the World Bank Group’s Pandemic Emergency Financing Facility (PEF). It’s the first of its kind. And it’s been a long time coming for global public health.
Over the past several decades, countries have built a growing number of cooperative arrangements in the wake of global disasters. After the Great Depression and world wars, institutions arose to bolster collective security, expand free and fair trade, foster financial stability, and invest in development. In more recent years, common threats to the planet have spawned new agreements to protect the oceans, preserve the climate, and mitigate the impact of natural disasters such as hurricanes. Today there are rapid deployment mechanisms for more threats than ever.
But our rising readiness for military, monetary, and meteorological shocks has thus far neglected microbial ones. In particular, there has been no reliable way of providing fast funding when an infectious disease outbreak occurs. As a result, in every one of the major epidemics in the past quarter-century—HIV, SARS, avian flu, swine flu, Ebola—it has taken months or even years to muster the kind of money that an effective emergency response requires. Many countries have ultimately given generously, but budget processes make it impossible to mobilize funding in the short time frame that makes the difference between life and death. 
This has been both needless and tragic.
What made it needless is that epidemics, while infrequent, are recurrent and severe events. That makes them ideal for covering through insurance. In fact, pandemics are probably the most certain uninsured risks in the world today. And as with other natural disasters, both their incidence and their intensity has been on the rise the past thirty years. It’s not a question of “if” – only “when?”
What made it tragic is that the absence of insurance is far more damaging in an epidemic than it is in other natural disasters. That’s because unlike a storm or a seismic event, epidemics grow exponentially over time and in response to our own behavior. We can’t change the wind speed of a hurricane or the magnitude of an earthquake. But we can alter the arc of an epidemic through early and aggressive intervention. That makes it far more akin to a financial crisis, where the goal is to contain the spread and not just compensate damage after the fact. As Larry Brilliant has said, “Outbreaks are inevitable. Epidemics are optional.”
But timing is everything.
Consider Ebola. Three years ago this week it had infected a few hundred people in West Africa and triggered global alarm. Yet serious money ($100 million) did not mobilize for three lethal months after that, during which the number of infections increased tenfold. In the end Ebola killed 11,000 people in Guinea, Liberia, and Sierra Leone—far more than all previous Ebola outbreaks combined—and cost these affected countries at least $10 billion. Had the PEF existed at the time, $100 million would have been disbursed that same week to those countries and to first responders, enabling a far more muscular response that might well have slowed or stopped this killer. (Contrast Nigeria, which did mount such a response and kept the outbreak in check.)
How will the PEF work? There’s a lot of elegant engineering in its financing, built on lessons drawn from earlier such facilities, which you can read about here. But simply put, it’s an insurance policy that pays out while the emergency is happening. It covers six viruses most likely to cause a pandemic, in the 77 poorest countries. Donors pay premiums, and the insurers bear a legal duty to disburse pre-agreed amounts once an outbreak reaches a certain size, spread, and speed (as determined by publicly available data from WHO). The money would flow within days, and it could ultimately pay out as much as $500 million if needed. If a new or unforeseen virus emerges—i.e. something that can’t be modeled for insurance purposes—PEF will have a complementary “cash window” (operational in 2018) that can be used more flexibly.
PEF also represents another first. It’s a public-private initiative where investors are putting private capital at risk. These investors buy bonds under PEF. If there is no eligible outbreak, they earn a reasonable return. But if there is an outbreak, they stand to lose some or all of their money. So besides channeling surge finance to responders, PEF will also help kickstart the creation of a global market for pandemic insurance. Similar things happened with catastrophic risk finance in the Caribbean, the Pacific, and elsewhere. As those markets have matured, costs have come down and our modeling and understanding of such events has steadily improved, which has helped enhance readiness.
Of course, insurance alone is not enough. It’s just one brick in the larger defensive wall the world needs to build against pandemics. Other bricks include strong public health systems and primary care, robust surveillance (including animal health), early warning systems, rapid response plans, greater vaccine research and rollout capacity, and regional epidemiologic data networks. The World Bank Group is increasing its support to all these aspects of preparedness, in concert with WHO and other development partners.
But even with all this, outbreaks are inevitable and insurance is imperative. Even with smoke alarms, sprinklers, and a fire extinguisher, few homeowners would choose to forego fire insurance—especially if it could pay out in time to limit the size of the blaze.
That’s why the Washington Post has called the PEF “a promising and innovative step forward.” If anything positive can be said to have come in the wake of the Ebola disaster, it’s that the world has finally recognized how unprepared we are for such threats, and has at long last begun taking the collective actions required to redress them.
Outbreaks remain a certainty, and probably always will. But as of this week, at least they are no longer dangerously uninsured. 


Keith Hansen

World Bank Country Director for Kenya, Somalia, Rwanda and Uganda

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