Drought Triggers ARC Insurance Payout In Africa’s Sahel Region

ARC Insurance Company Limited will pay $25 million in drought insurance claims to three countries in the Sahel this month. Mauritania, Niger and Senegal, which paid a combined premium of $8 million, will use the payout to mobilize early interventions in response to drought based on pre-approved contingency plans.

The catastrophe insurance model is tailored to African climate issues, developed by the African Risk Capacity (ARC), a Specialized Agency of the African Union, and its affiliated mutual insurance company, ARC Ltd. The inaugural pool was set up in 2014 to help Member States build resilience to extreme weather events and protect food insecure populations. Coverage for tropical cyclones and floods will be available in 2016.

“This African-owned approach is addressing specific country-level climate change concerns, decreasing reliance on external aid, and promoting a sustainable solution to one of our continent’s biggest challenges,” said Dr. Ngozi Okonjo-Iweala, Nigeria’s minister of Finance and chair of ARC’s Governing Board.

By purchasing parametric drought insurance policies last year, Kenya, Mauritania, Niger and Senegal became the first African countries to embrace this new model of innovative funding, taking a major step in transforming the disaster response paradigm on the continent.

“For African governments, extreme weather events require significant response capacities and are often associated with large fiscal costs. With the payment of $16.5 million coming into the Treasury, we are fully convinced that it is possible to move from managing crises to managing risks,” said Amadou Ba, minister of Economy and Finance for Senegal.

Payouts are made based on calculations using the company’s in-house drought monitoring and loss calculation software, Africa RiskView. ARC and its Member States work in partnership to develop country-level contingency plans based on existing and scalable government programs. Prior to payouts being made, governments must submit a Final Implementation Plan, which is certified by the ARC Governing Board’s Peer Review Mechanism.

ARC Ltd. was capitalized through financing of $200 million by the United Kingdom’s Department for International Development (DFID) and Germany’s KfW development bank on behalf of BMZ, the German Ministry for Economic Cooperation and Development. Additional partners include the International Fund for Agricultural Development (IFAD), Rockefeller Foundation, Swiss Agency for Development and Cooperation (SDC), Swedish International Development Cooperation (SIDA), and the World Food Programme (WFP).

Source: African Risk Capacity Agency