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African Risk Capacity targets addition of Somalia to parametric risk pool


The African Risk Capacity (ARC), a provider of parametric disaster insurance products to countries and now other entities in Africa, is targeting adding Somalia to its risk pool, signing an MoU with the Government to help it work through the onboarding process.

african-risk-capacity-logoThe Government of the Federal Republic of Somalia has signed a Treaty and Memorandum of Understanding (MoU) with the African Risk Capacity (ARC), with the organisation set to help the country better prepare, plan and respond to extreme weather events and natural disasters.

Somalia is exposed to a range of severe weather and natural disaster risks, making the use of planning and resilience tools vital, but also financial preparation, with the use of parametric disaster insurance likely an ultimate goal of the signing.

Hon. Khadija M Diriye, the Minister of Humanitarian Affairs and Disaster Management, Federal Republic of Somalia, commented, “Somalia’s hazard profile is dominated by droughts, floods, tropical cyclones, desert locust, diseases (epidemic/pandemic), and terrorism that disrupt people’s livelihoods, destroy the infrastructure, divert planned use of resources, interrupt economic activities and retard development.

“The impacts of natural hazards do not occur in isolation; but recognition of such cause and effect on a national scale has encouraged the Government of Somalia in taking on a paradigm shift from crisis management to risk management. This will enable us to utilise our finite resources in a more efficient and timely manner towards assisting the vulnerable populations in the event of disasters. Therefore, we are proud to sign the ARC Establishment Agreement,asits35th Member,as well as the MoU, with a strong commitment to taking the necessary steps to ensure that the collaboration leads to building of our national response capacities against the adverse impacts of natural disasters.”

UN-ASG and ARC Group-Director General, Ibrahima Cheikh Diong also said, “As the nature and intensity of natural catastrophes evolve across the region, we maintain that the continent will be better protected through a pooled-risk approach bringing together countries and leveraging smart partnerships. Today, the ARC Group proudly welcomes the Federal Republic of Somalia as its 35th Member State. By simultaneously signing the ARC Treaty and MoU, the Government (of Somalia) has demonstrated a clear commitment to strengthening the country’s disaster risk reduction capacities; and thereby joining a growing number of African Union Member States that are accessing our tools to create coordinated contingency plans before catastrophes strike.

“We would like to particularly convey our readiness to work with the (Somalian) Authorities in accurately profiling their natural disaster risks and designing quantified response plans to better secure the lives and livelihoods of vulnerable populations in the event of a peril.”

A framework will be developed to facilitate cooperation between African Risk Capacity (ARC) and the Somali Government to address the impact of extreme weather events.

This will include provision of training to support Government personnel, as well as preparing Somalia’s potential participation in future parametric (drought/flood/tropical cyclone) insurance risk pools operated by ARC.

Since 2014, 65 policies have been signed by African countries, providing cumulative parametric insurance coverage of US $719 million.

ARC relies on efficient access to global reinsurance markets to underpin its ability to pay claims against the growing risk pool, meaning that expansion and diversification of the risk pool are both key to recognise economies of scale.

Recent developments at ARC add diversification to the risk pool, such as plans to expand into flood risk, an expansion of the ARC client base to include non-sovereign actors, ARC’s recent plan to further expand its risk pool by underwriting inwards reinsurance, and the writing of its first parametric tropical cyclone cover.

These efforts and continued work to ready other countries in Africa, such as Somalia, to take up parametric disaster insurance promise to further expand ARC’s risk pool and therefore its ability to access reinsurance markets more efficiently.

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