African Risk Capacity expands cover to non-sovereign risk transfer buyers

The African Risk Capacity (ARC), which has so far provided parametric disaster insurance products to countries in Africa, is set to expand its client base to include non-sovereign actors, as it looks to grow and diversify its portfolio of risks.

The African Risk Capacity (ARC) has only provided risk transfer and parametric insurance to government’s so far. But now these products are going to be offered to non-sovereigns as well, enabling ARC to offer coverage to entities such as farmers in a country where the government does not have an ARC policy.

Expansion of the ARC risk pool is key to keeping its product offering viable, as the larger the risk pool becomes and the more diversified it is, the greater the reinsurance synergies and cost-benefits that can be achieved and passed on to its policyholder governments.

Today, African Risk Capacity Limited (ARC Ltd), the commercial insurer subsidiary of ARC, has announced a partnership agreement with an insurtech named Pula as part of its drive to expand offering of its capacity more broadly beyond just governments.

The goal is to deliver best-in-class agriculture index insurance products to protect African farmers from climatic risks, working with Pula which aggregates micro and meso parametric insurance for agricultural risk transfer buyers.

Pula provides the levers to connect participating farmers with regional insurance companies and global reinsurance firms, ARC explained.

Pula will work closely with ARC on product development, marketing, premium collection and claims disbursements.

The insurtech’s strong capabilities in Area Yield Index are expected to complement ARC Ltd’s strength in drought coverage, while relationships between Pula and farmers and other aggregators are expected to benefit from ARC Ltd’s relationships with African governments and industry regulators.

ARC Ltd CEO Lesley Ndlovu commented, “The ARC Group is currently expanding its product offerings to African Member States; and by experience, we have seen that there will always be farmers whose Governments may, by reason of fiscal constraints, not be able to take up an umbrella Sovereign disaster risk policy. Working with Pula will enable us to extend coverage to Member States and these farmers in a timely and targeted manner on a mutually adaptable basis.”

“ARC Limited is the first of its kind in sovereign disaster risk insurance in Africa,” added Thomas Njeru, the Founder and Co-CEO of Pula. “The development insurance approach of the ARC Group resonates with our mission to provide an end-to-end management of the delivery of insurance to farmers, including field operations, farmer onboarding, education and claims assessment and payouts. We envisage a win-win partnership that will leverage our best-in- class index insurance products and technology with ARC’s strong partnerships with Governments to provide ground- breaking products to farmers. In partnering with ARC we expect that we can push the boundaries of product performance to our customers and radically increase the access to insurance for millions of farmers across Africa, giving them access to the tools they need to become resilient in these challenging times.”

ARC had already begun diversifying its counterparties beyond governments with its replica parametric coverage, which allows an NGO or other organisation to buy parametric insurance that replicates the coverage of a government in a country it operates in.

Adding private sector risk transfer buyers could help ARC expand more rapidly, which it needs to do so it can recognise increasing reinsurance synergies and also peril and geographical diversification within its risk pool.

But it also puts ARC into competition with other direct sellers of parametric risk transfer and insurance in Africa, which could raise potential operational challenges as well, given ARC relies so much on private market reinsurance capacity.

As we explained recently, ARC is also looking to expand in terms of perils covered, as well as sources of risk.