Humanitarian aid is pledged only after it is apparent that a major crisis is occurring. There is often uncertainty about the size and timing of eventual aid payments from governments. It is well-documented that months or even years may pass with promised aid never arriving. This means humanitarian aid alone should not be relied on for pre-planning a disaster response. Delays to aid payments mean losses escalate, compounding economic and humanitarian impacts.
By contrast, insurance payments are determined and paid with much greater certainty and speed, especially if the trigger for payments is parametric. This means the parameters of the disaster (e.g., earthquake magnitude, hurricane strength, flood depth) would automatically lead to payment, without lengthy loss assessment.
Early, reliable payments have been shown to reduce loss escalation. RMS estimated that early intervention can have 3.5 times the impact of aid payments that are delayed. Insurance schemes can therefore provide a more reliable and cost-effective supplement (or alternative) to humanitarian aid.