LONDON (Thomson Reuters Foundation) - In the wake of the Ebola crisis, a quiet revolution is taking place that is set to transform the way governments and aid agencies respond to major disease outbreaks.
Analysts are developing insurance schemes that could turn the humanitarian system on its head, by paying out money as soon as a disease breaks out to stop it becoming an international crisis, rather than trying to raise funds after the event.
The World Bank, the African Union, a consortium of aid agencies and experts in the private sector are starting to do the sums and figure out what such schemes could look like.
"This is a really exciting time. What the crisis of last year has done is to cause an upheaval in the whole of the humanitarian sector in terms of thinking of how to mitigate disasters, rather than just respond afterwards," Gordon Woo, a catastrophist specializing in pandemics at Risk Management Solutions, said in a telephone interview.
Unlike events like earthquakes, the spread of a contagious disease rapidly pushes up the cost of halting it, the death toll and the economic damage unless swift action is taken.
The World Health Organization's (WHO) first major Ebola appeal was for $71 million in August last year, months after Guinea had reported the Ebola outbreak in March. By mid-September $1 billion was needed, the United Nations said, and the costs have risen steeply since then.
Even though Ebola was deemed a global threat, donor funds were slow to materialize.
"It's like having a fire in your kitchen. If you don't deal with it, your whole house could burn down ... it's not the time to start haggling over who should be putting out the fire," Woo said.
Pandemics top the list of extreme risks that matter most for the insurance industry over the long term, according to a 2013 survey of 30,000 insurance industry experts by Towers Watson.
Typically, insurers pay out after losses have occurred. "The novelty here is to try and come up with financial instruments which trigger when there are signs that something bad is on the horizon. It's like early warning," Woo said.
The African Union recently set up an insurance fund for countries affected by natural disasters, and is exploring insurance for epidemics.
The African Risk Capacity began with a $200 million fund, donated by British and German development institutions. Countries pay premiums into the fund and receive payouts when certain measurable criteria are met.
For countries to qualify for the insurance scheme, they have to develop rigorous contingency plans to ensure payouts from the fund reach the most vulnerable people quickly in the event of a crisis.
The World Bank is consulting with the African Union, the United Nations and national governments to develop a Pandemic Emergency Facility, which could include an insurance scheme that would pay out to governments and international bodies like the WHO.
"The better our response, the greater our ability to save lives and safeguard development gains," Joachim von Amsberg, vice president of development finance at the World Bank, told the Thomson Reuters Foundation.
The Bank has said the Ebola outbreak may cost West Africa up to $15 billion over the next three years in lost trade, investment and tourism.
"A key part of this response is to make sure the money is available at the first sign of a health crisis," von Amsberg said.
Aid agencies are also exploring insurance schemes they could draw on in the event of a pandemic.
"The potential is brilliant, but the question is whether we can convert it into something affordable and workable," said Emily Montier, crisis anticipation advisor for the Start Network of 19 humanitarian agencies.
The Network is exploring with Risk Management Solutions the possibility of issuing bonds, which can leverage a greater pay-out. But because of the risk to investors, the premiums would be expensive, so the insurance scheme would only be suitable for the rare occasion when a large payout was needed.
As with governments, NGOs would need rigorous plans in place and the capacity to scale up their work quickly to qualify for a payout from an insurance scheme.
African Risk Capacity is using bonds to leverage private capital for an insurance scheme it is developing to help countries manage the risks of climate change. It hopes to issue more than $1 billion of African climate change bonds over a period of 30 years, starting in 2016.
Woo said pandemic insurance schemes could play a pivotal role in protecting countries against major outbreaks.
"Essentially it's providing a safety net for the whole world. It's nothing short of that," he said.
(Reporting by Alex Whiting, Editing by Tim Pearce)
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