This article is part of the World Economic Forum Annual Meeting

Each year, humanitarian aid organizations save and protect tens of millions of people caught up in crises across the world.

Their interventions are more timely, relevant and effective than ever. But humanitarian action is not always as fast as it should be, and needs are unevenly met. Even as record sums are raised, growing levels of vulnerability worldwide have resulted in a stubborn and harmful gap between need and response. Historically, donors have financed a little more than half of what the United Nations asks for each year. So, what do we need to do better?

To boost the percentage of coverage, humanitarian agencies need to break out of traditional funding models that are no longer sufficient for the complex and protracted crises we face. Humanitarian organizations – and their backers – will need to embrace one of the most important drivers of success: the ability to adapt and innovate their way out of problems.

I propose three approaches to closing the funding gap and revamping humanitarian financing: first, we need to shift from responding only when a crisis is visibly costing lives and suffering, to a default position of anticipatory prevention, as well as early action. Second, we must create new, sustainable revenue streams by expanding our collaboration with the private sector. And third, we must promote development that can build resilience and shrink need, while also improving the targeting, efficiency and coordination of humanitarian responses so that we maximize the value of every dollar.

1. Anticipatory and contingency financing

Many disasters and emergencies are predictable, with early warning signals mounting over many months. The drought-prone and chronically food-insecure Sahel and Horn of Africa regions are two examples. In these scenarios, we need to boost both early action and response through predictable funding.

In May 2018, when early signs of a drought and food crisis emerged in the Sahel, the Central Emergency Response Fund (CERF) channelled $30 million to Burkina Faso, Chad, Mali and Mauritania to help agencies initiate a swift response. Tying this kind of funding to pre-agreed triggers and implementation plans can go a long way to improving program design and impact, cutting response times and costs, and reducing suffering. By pre-agreeing contingency financing, the money can arrive in days, not months. One of the most important developments in crisis financing has been the creation of the World Bank’s crisis response window in international development assistance.

Now agencies and investors are going further, to provide assistance even earlier with anticipatory financing. The International Federation of Red Cross and Red Crescent Societies’ forecast-based fund, Start Fund’s anticipation window and the World Bank-UN's Famine Action Mechanism (FAM) are just three examples. FAM draws on early warning data and predictive analytics to predict acute food insecurity and famine, linking thresholds to pre-agreed automatic funding. By introducing automaticity, this approach lessens the impact of irrational decision-making on response priorities, refocusing them on need. The World Bank estimates that FAM can not only save lives, but also cut response costs by as much as 30%. By monitoring the progress and impact of predictive financing models, we can start to understand what works, with a view to mapping out how to take the models to scale.

2. Market-based funding streams

The humanitarian system is still overly reliant on a traditional, donor-driven funding model. Humanitarian groups are starting to collaborate with the private sector on investment solutions to take revenue to scale and to pioneer alternative funding models and paradigms, but we have a lot to learn.

Some divide investors into two categories: scale investors, such as insurance firms; and pioneer investors, such as the philanthropists willing to take a gamble on a humanitarian impact bond.

On insurance, we’re seeing firms like Swiss Re and Munich Re increasingly forge alliances with governments and, in some cases, humanitarian responders, to provide a degree of protection in the face of natural disasters. The Caribbean Catastrophe Risk Insurance Facility, which makes payouts when earthquakes, flooding or storms hit, is a good example. Insurance also features in the World Bank’s Pandemic Emergency Financing Facility, which made its first payout in 2018 to help the government of the Democratic Republic of the Congo’s efforts in fighting the Ebola virus. I would like to see insurance play a growing role in emergency protection in at-risk countries, as well as an exploration of using insurance even in conflict zones.

Greater engagement with private sector models such as these will mean humanitarians improving our data collection and analytics, and boosting our financial analysis. We will also need to find ways to de-risk investments to improve the chances of investors seeing the impact of money spent in volatile settings. But of course, barriers to insurance remain, and not everything is insurable. Just as important to pursue alongside these innovations to humanitarian financing is finding better ways to reduce the number of people who need assistance in the first place.

3. Shrinking needs and improved effectiveness

Shrinking vulnerability and need is central to the UN secretary-general’s system-wide emphasis on prevention. Doing so requires us to work in a more joined-up way with development organizations to ensure their efforts include even the most marginalized, crisis-affected people in their development investments and plans.

At the same time, the humanitarian system must show that it can maximize the value of every single dollar invested. We must ensure that our systems and processes are flexible, efficient, transparent and well coordinated. Central to this is improving the quality of needs assessments, so we develop a more nuanced understanding of the priority requirements of each affected community or group of people. OCHA is charged with, among other things, coordinating needs assessments, mobilizing humanitarian financing and coordinating effective response. We just launched the 2019 Global Humanitarian Overview, which is the most comprehensive, authoritative assessment of global humanitarian needs and what it will take to respond to them. Quality needs assessments are the backbone of the publication, and we must continue to improve their accuracy and rigor. We also manage CERF and 17 country-based pooled funds, which cut management costs, achieve economies of scale and incentivize collaboration. As humanitarian needs grow, these funds must do the same.

The response plans of today need to be complemented by the forward-looking approaches outlined above to escape chronic underfunding. These approaches, if undertaken, connected and scaled up, can go a long way to building a more sustainable and nimble financial model that is fit for the future of humanitarianism.

Written by

Mark Lowcock, Undersecretary-General for Humanitarian Affairs and Emergency Relief Coordinator, United Nations Office for the Coordination of Humanitarian Affairs (OCHA)

The views expressed in this article are those of the author alone and not the World Economic Forum.