The World Bank Group has launched the Pandemic Emergency Financing Facility, a global financing mechanism that will create the first insurance market for pandemic risk.

The new facility will accelerate both global and national responses to future outbreaks with pandemic potential, the World Bank said. It was built and designed in collaboration with the World Health Organization and the private sector.

“This facility addresses a long, collective failure in dealing with pandemics,” World Bank Group President Jim Yong Kim said in a Saturday statement. “The Ebola crisis in Guinea, Liberia and Sierra Leone taught all of us that we must be much more vigilant to outbreaks and respond immediately to save lives and also to protect economic growth.”

The PEF will be financed with insurance and cash. Funding under the insurance window will be provided by resources from the reinsurance market combined with the proceeds of catastrophe bonds, or capital-at-risk notes, issued by the World Bank's International Bank for Reconstruction and Development.

Development partner contributions will cover the cost of the premiums and bond coupons for the insurance window.

The insurance window will provide coverage up to $500 million for an initial period of three years for outbreaks of infectious diseases most likely to cause major epidemics, including Ebola, and Middle East Respiratory Syndrome (MERS) and Severe acute respiratory syndrome (SARS).

To complement the insurance window, a cash window will provide more flexible funding to address a larger set of emerging pathogens.

A World Bank Group spokeswoman said the Zika virus, which can cause serious birth defects, has not been mentioned because it is a fairly recent phenomenon, and outbreaks will be addressed through the PEF's cash window.

Parametric triggers designed with publicly available data will determine when the money would be released, based on the size, severity and spread of the outbreak, the World Bank Group said.

In the event of an outbreak, the PEF will release funds quickly to countries and qualified international responding agencies. This will be the first time World Bank Cat Bonds have been used to combat infectious diseases, the World Bank said.

The World Bank Group said that during the past two years alone, pandemic threats have included the devastating Ebola crisis in West Africa — which crippled the economies of Guinea, Liberia and Sierra Leone, and cost them an estimated $2.8 billion in GDP losses.

Recent economic analysis suggests that the annual global cost of moderately severe to severe pandemics is roughly $570 billion, or 0.7% of global GDP.

Japan, which holds the G7 Presidency, committed the first $50 million in funding to the PEF. The announcement comes a short time before this week's Summit of Group of Seven Leaders in Japan.