African Risk Capacity & UN partner to expand climate risk insurance access

The African Risk Capacity (ARC), an organisation providing parametric sovereign disaster risk insurance and resilience building support to African nations, has entered into a partnership with the United Nations Economic Commission for Africa (ECA) aiming to increase uptake and coverage of climate risk insurance in the region.

The African Risk Capacity (ARC) has been providing drought insurance coverage, structured as a parametric contract, to African states since its launch in 2014.

By pooling the risks of the countries that use its parametric insurance products and accessing the global reinsurance markets for risk transfer, ARC provides an efficient insurance product that is linked with resilience building goals as well.

ARC is already expanding its insurance product range to include other natural perils such as flooding and tropical cyclone, as well as developing a parametric outbreak and epidemic insurance product to cover pandemic type risks. The insurer also offers replica coverage to organisations working in African states, such as NGO’s.

The partnership with the United Nations could help to expand ARC’s risk pool further, which will deliver efficiencies through economies of scale to every policyholding member state.

The multilateral partnership deal was announced at the African Union’s Annual Summit in Addis Ababa yesterday, and commits ARC and the UN’s ECA to enhance the capacity of their 33 common Member States to be more resilient to climate risks.

This is expected to be achieved by embedding risk management investments into government planning through policy development, sharing expertise and committing financial resources to analytical on economic and climate risk research in order to promote the use of insurance and risk transfer instruments.

The UN estimates that the adaptation costs of climate change will rise to $50 billion per year by 2050 for Africa.

“This partnership marks a bold new phase of heightened collaboration on combatting the effects of climate change in Africa,” commented Mohamed Beavogui, Director-General of ARC Agency. “The future of disaster risk management is an increasingly urgent economic issue, and ECA’s unique expertise will complement ARC’s work serving its Member States and building preparedness and resilience on the continent.”

ARC has paid out more than $34 million to Member States affected by drought events, through its parametric insurance product and risk pool, helping an estimated two million people who had been affected by climate disaster.

“Climate change is one of the biggest threats to Africa’s economic and social development,” added ECA Executive Secretary Vera Songwe. “We believe that efforts like our partnership with ARC will help move the needle, so that African countries can be well-guarded against these threats, and they can thrive.”

Expansion of the ARC risk pool means a larger reinsurance placement and an increasing likelihood that it will benefit from the efficiencies of ILS and third-party capital in years to come.