Methodological guidance to determine the 'size' of premium and capital support (PCS) at macro level

This advisory report based on the SMART Principles for premium and capital support (PCS), developed in 2021 by the InsuResilience Global Partnership (IGP) for the purposes of scaling up climate and disaster risk and finance insurance solutions. It proposes methodological guidance to define the ‘scaling factor’ to determine the size/amount of premium support allocations. This guidance aims to support actors who are part of the IGP (such as the Programme Alliance) and policymakers and practitioners who are responsible for such allocation decisions.

The key messages of this report, include:

• Based on the indicative formula provided in a policy note for SMART PCS by Töpper and Stadtmüller (2022), to calculate externally supported (donor) share of the premium for a government, this report provides methodological guidance to define the scaling factor.
• The proposed approach is based on a multi-criteria decision model, involving the selection and prioritisation of multiple factors/objectives. It primarily builds on the performance-based allocation systems used by multilateral development institutions and funds to allocate financial resources.
• The proposed approach is predominantly quantitative and considers factors that are readily quantifiable and widely available for a large set of countries. It includes discussion of (i) the selection of critical factors (along with appropriate indicators) that could be used to determine the size of premium support; (ii) the preliminary guidance on weighting the selected factors; (iii) the calculation of a composite or final score/value; and (iv) the duration of premium support.
• With necessary adjustments, the approach depicted in this document could also be applied to directly derive (i.e. without the fraction) the ‘allocation share’ by country, in cases where decisions need to be made regarding the allocation of a fixed donor fund among recipients. In addition, the feasibility of the overall formula, in terms of its practical use, is also reviewed to identify limitations and suggest appropriate remedies.