The African Risk Capacity (ARC), Africa’s first sovereign catastrophe insurance pool, has ambitions to grow the size of the risk pool to $1.5 billion by 2020, as it increases the number of countries covered and expands products beyond drought, to include flood and cyclone risk.
Speaking to Reuters yesterday, Director-General of ARC Mohamed Beavogui suggested that the disaster cover provided will expand to cover 30 countries in that time, which should enable the pool to provide $1.5 billion of cover.
A risk pool of $1.5 billion of African catastrophe and weather risk will require significant reinsurance support and the support of both traditional reinsurers and alternative or ILS markets to support ARC’s growth will be essential if it is to meet this goal.
The African Risk Capacity (ARC) has been working on new risk models to support sovereign risk transfer insurance for flood and cyclone risks, the two other main perils faced by member nations of the African Union.
An increase of the cover ARC provides of this magnitude should be considered a significant step forward in the narrowing of Africa’s insurance protection gap, although there will still be a lot of work to do to bring coverage to the people who need it most.
ARC aims to provide disaster insurance that benefits 150m people, as its products expand to provide protection to 30 African nations. Offering replica parametric insurance coverage to other organisations, such as other non-governmental agencies or NGO’s, is one way ARC hopes to reach this goal.
A tropical cyclone insurance product is hoped to be made available later this year, with a flood coverage product targeting 2017, according to Reuters.
Beavogui told Reuters that Zimbabwe, Burkina Faso and Madagascar are expected to be added to existing countries Niger, Senegal, Gambia, Mali, Malawi, Mauritania and Kenya in buying drought insurance at the upcoming renewal in the coming weeks.
A number of collateralised reinsurance or ILS markets will hope to be able to participate in providing the reinsurance needs of the African Risk Capacity (ARC), as its coverage requirements grow. The attractive nature of a diversifying African pool of risk should help to ensure ARC can achieve attractive pricing for its risk transfer, which ultimately will help to keep its products cheaper for the nations and people who need them.