(Adds confirmation by DFID, detail of investment)
LONDON, Feb 23 (Reuters) - Britain is backing a hedge fund that aims to raise $200 million to give developing countries access to climate risk insurance.
Britain's Department for International Development (DFID) is investing 25 million pounds ($35 million) over a 20-year period in the Natural Disaster Fund, managed by Global Parametrics, a DFID spokeswoman said on Friday.
G7 governments are looking to address a lack of access to insurance in the developing world, with a goal to insure an additional 400 million people against climate disasters by 2020.
Insurance could cover up to $6.8 billion of the losses from natural disasters if more insurance structures were used, a report prepared for DFID last year showed.
These include so-called "parametric" structures, where insurance payments are triggered by a predetermined factor, such as an increase in water height, at a specified location - a quicker and cheaper process than waiting for insurers to calculate exact losses.
Meanwhile, investors have flocked to so-called insurance-linked securities (ILS) such as catastrophe bonds in recent years because of their high returns.
German development bank KfW said it may also invest in the Global Parametrics ILS hedge fund, which is being marketed to pension funds and reinsurers.
We are considering a direct investment, said Stefan Hirche, a project manager for financial sector development at KfW, though he added that the amount had not yet been decided.
Global Parametrics has a unique model of transferring weather risk out of developing countries. The model could also be used in other areas such as renewable energy and infrastructure," he said.
The fund expects to raise $200 million within the next two to three years, a source with direct knowledge of the matter said.
KfW's Insuresilience Investment Fund and DFID also contributed a combined 3 million pounds to the set-up of Global Parametrics, Hirche said.
The Global Parametrics fund launch joins a number of other ILS fund launches after insurance rate rises after the fires, floods, hurricanes and earthquakes that led to record insurance losses of $135 billion last year.
Global Parametrics is working with World Vision's microfinance unit to provide climate insurance for up to four million people in six countries in Africa and Asia, the two organisations said last month. ($1 = 0.7151 pounds) (Reporting by Maiya Keidan and Carolyn Cohn; Editing by Alexander Smith and David Goodman)