African Development Bank launches disaster risk facility, ARC to assist

The African Development Bank has announced the launch of a disaster risk facility that will aim to increase the use of climate risk financing and insurance, including parametric risk transfer solutions, for African countries.

The African Development Bank (ADB) announced the approval and launch of the Africa Disaster Risks Financing (ADRiFi) Programme yesterday.

In delivering the programme, the ADB will be working with the assistance of the The African Risk Capacity, which will assist in delivering climate risk insurance and other parametric risk transfer solutions.

The programme is designed to be open to ADB member countries and it aims to improve their capability to evaluate climate-related risks and costs, respond to disasters and review adaptation or financing measures at both national and sub-national levels.

The ADRiFi programme will also help countries with their initial financing needs, where support is required, through an initial programme run from 2019 to 2023.

By helping member countries increase their resilience, while at the same time leveraging insurance and reinsurance techniques to provide disaster risk insurance cover, the programme aims to reduce the exposure of the poor in the region to climate change and help to protect them against loss of livelihoods.

Burkina Faso, Chad, Gambia, Madagascar, Malawi, Mali, Mauritania, Niger and Senegal have all expressed initial interest in joining the programme.

The ADRiFi programme will promote the use of sovereign parametric index-based insurance, hence the involvement of The African Risk Capacity (ARC), with risk transfer products that offer fast or automatic payouts seen as key for resilience building.

As a result, a Memorandum of Understanding has been signed between the ADB and The African Risk Capacity, who will assist in developing and implementing climate change and risk resilience projects in member countries, as well as the provision of parametric insurance. ARC will also assist programme participants with policies on drought risk pools and other sovereign disaster risk measures, the ADB said.

“Africa is the most vulnerable continent to climate change, prone to a wide variety of natural disasters including droughts, floods and tropical cyclones. However, disaster risk management suffers from inadequate financing and challenges in the deployment of available funds,” explained Atsuko Toda, Bank Director for Agricultural Finance and Rural Development.

Adding, “This programme is a significant step to help reduce exposure and vulnerability of African countries, and will create a system to absorb, adapt and aid recovery of these countries from climate shocks.”

This programme will therefore likely result in an expansion of the ARC risk pool, resulting in the facility requiring increasing amounts of reinsurance capital to back it and help it provide parametric coverage to a growing number of countries in Africa.