Looking Beyond The Horizon

Innovative Technologies & Services

A new kind of market empowered social innovation

Posted by evolvingwheel on March 9, 2008

While on my way to work last week I was just browsing through my fresh copy of BusinessWeek magazine and came across a small article. On the first pass, the publication seemed insignificant lying almost at the middle of the magazine, in a less than obvious spread. As I kept on reading line after line, a sudden scintillation struck my nerves! Something sounded very very right with a fantastic potential. Before I go any further, here’s the article: A New Kind of First Responder.

So what’s so special in that one page publication. Not going into too much detail, which you will find anyways in the link, I will briefly touch on some key notes. One of the global insurers, Swiss RE, has created an innovative insurance mechanism that covers catastrophic environmental disasters in a particular geographical area of the world. In this particular case, the company has launched a product called Globecat that provides insurance to cover early response to earthquakes in El Salvador. The coverage buyer puts a couple of millions of dollars into a special investment instrument. Globecat then sells bonds to the financial market and raises funds to cover the disbursement if an earthquake of a specific magnitude hits the area. Investors bet on the possibility of an environmental disaster. If there is no earthquake of the specifications demanded by the fund, then the investors makes interest which is paid out by the premium. ‘Bingo‘!! – what a innovative approach to connect the free market with social innovative pursuits to help the poor and the needy affected by natural calamities. bangladesh_flood.jpg

Now think of the potential of these kinds of instruments –

  1. Provides a very fast way to deliver resources to an affected area – not waiting for charities to raise money and taking days if not weeks to provide help to the people. So, that’s the logistical aspect of the equation.
  2. The instrument is allowing investors to bet on natural uncertainties – a more complicated futures market for incidents quite out of our control. What does that do? It creates several opportunities. One, it emphasizes research in atmospheric sciences and earth sciences that provides the ability to forecast such events. May be that is another way to raise the R&D money outside the blessings of NSF, DOD, NASA, and NOAA. Second, the future will create a rating system of different regions prone to activities by analyzing historical data. This natural disaster instrument will then directly affect the agricultural futures in those particular regions. Considering macroeconomic factors directly connected with such attributes, the hedging can control the distribution of agricultural investments in different geographical areas.
  3. Next, I assume, this investment will enrich the market of social innovation by bringing real talent and resources to the plate. Analysts, scientists, and economists could bring a new vigor into the game too. More such innovative approaches will allow the foundations work parallel to the market in orchestrating mechanisms to deliver help to the underserved communities in a more efficient manner.

The hope is ON!

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