African Risk Capacity (ARC) sells Ghana its first parametric drought insurance policy

African Risk Capacity Limited (ARC Ltd.), the financial affiliate and parametric insurance underwriting entity of the African Risk Capacity (ARC) Group, is continuing to expand its risk pool, with the latest addition being Ghana, whose government has just purchased its first sovereign parametric drought insurance policy.

ARC Ltd. has been steadily expanding its sovereign and non-sovereign parametric insurance and risk transfer risk pool over recent years, growing to protect 26.4 million by the end of 2023 with a footprint that extended to 39 member states.

“Through an inclusive, country-led process coordinated by the Global Shield Secretariat, the African Risk Capacity (ARC) Ltd. issued the policy for the benefit of the Government of Ghana, financed with US$1 million by KfW Development Bank on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and the Global Shield Solutions Platform (GSSP), managed by Frankfurt School of Finance & Management,” ARC explained.

The parametric insurance policy is designed to protect Ghana’s agricultural sector against the risk of drought, with any payout of the policy set to be specifically directed towards safeguarding food security and stabilizing its agricultural sector.

Helping Ghana to access the benefits of parametric risk transfer protection, KfW Development Bank and the Global Shield Solutions Platform (GSSP), jointly provided US $1 million in financing.

“The Government of Ghana has shown foresight and initiative by implementing this first-ever drought policy,” says Malvern Chirume, Chief Underwriting Officer, ARC Ltd. “Within the context of climate change where drought events will increase in frequency and severity, the country is now protected against a potential crisis.” Furthermore, Chirume emphasises that the policy extends beyond financial protection: “It ensures that vulnerable communities in Ghana can continue to thrive despite increasingly erratic weather patterns due to the early warning tools available to the government. This policy is also a key component of our broader efforts to enhance climate resilience across Africa.”

“We are delighted to see the implementation of the Global Shield process come to fruition in Ghana, through multi-stakeholder, collective action, marking the completion of the first in-country process. We know that disasters don’t wait to happen – they strike with little warning, so the importance of pre-arranged finance mechanisms cannot be stressed enough. With the ARC policy in place, we are assuring the resilience of vulnerable livelihoods amid the ever-growing threats posed by climate change”, says Nilesh Prakash, Co-Director of the Global Shield Secretariat.

“The GSSP is very pleased to financially support the purchase of ARC drought insurance by the Government of Ghana for the benefit of vulnerable populations”, says Karsten Löffler, Co-Head of GSSP. “It is a good example of what pooling funds for pre-agreed risk financing solutions and international coordination can achieve.”

“KfW Development Bank is very happy that Ghana is becoming an active member of the ARC family”, states Malte Marek, Senior Portfolio Manager at KfW. “Being the second largest economy in western Africa, Ghana can set the scene for other countries joining ARC in the future.”

“Ghana’s participation in the ARC risk pool is evidence of the proactive approach that the government is taking to protect the lives and livelihoods of the population that relies on agriculture as a source of livelihoods” according to Charlotte Norman, Government Coordinator for the ARC Programme. “This protection is one of many initiatives that the Government of Ghana is taking to boost its capacity to respond to various climatic shocks that affect its population.”