African Risk Capacity to pay Senegal $22m after drought triggers policy

The African Risk Capacity (ARC) is set to pay the Government of Senegal $22 million after drought triggered the countries parametric insurance policy.

African Risk Capacity Insurance Limited (ARC Ltd), the insurer arm of the parametric development insurance provider, will pay Senegal the $22 million to cover losses due to crop failures resulting from the severe rainfall deficits and drought during the 2019 agricultural season.

The leadership of African Risk Capacity Group commented on the institution’s strong commitment to working with Member States to build resilience and reduce vulnerability against natural disasters in Africa.

ARC achieves this through the provision of parametric disaster insurance products that are delivered alongside developmental plans that aim to boost resilience.

By pooling the resulting risks, ARC can then access the global reinsurance markets for capacity to support its risks, passing on reinsurance efficiencies to the participating African countries.

“The vision of African Union in establishing ARC was to present a powerful value proposition that will help Member States better understand their disaster risk profiles, access viable early warning tools, and develop a preparedness plan for protecting livelihoods of their vulnerable population from predictable natural disasters,” explained ASG Mohamed Beavogui, the Director-General, African Risk Capacity Agency (ARC Agency).

“The Government of Senegal has been exemplary in participating in various ARC risk pools since 2014. This is the spirit of the ‘Africa We Want’, and it is very laudable,” ASG Beavogui added,

Being a parametric insurance product early warning of the impending payout was possible.

ARC’s software Africa RiskView, which underpins the ARC parametric model, alerted the Government of Senegal to the irregular and insufficient rainfall in the western regions of the country as early as August 2019.

It warned that a minimum of 964,000 people would be affected by the rainfall deficit this year.

Based on the pre-defined risk transfer parameters, the indicated number of people was above the threshold for the triggering of an ARC Ltd insurance payout.

The payout is expected to be made two weeks following the end of the farming season, which is set on 21st November 2019.

The Government of Senegal will receive a minimum amount of US $12million, while NGO consortium the Start Network will receive the balance of US $10million, in line with an existing policy signed with the Government of Senegal for early and expedited response in the event of a drought.

The Government of Senegal and Start Network are set to meet prior to the payout to establish implementation plans for to ensure a coordinated approach to deliver immediate relief to the affected people.

Commenting on the news, Mr. Abdoulaye Noba, Director of Civil Protection, and Programme Supervisor for the Government of Senegal’s work with African Risk Capacity, highlighted the transparency of the parametric insurance process and the speed of payouts.

“We were among the first countries to embrace the African Risk Capacity mechanism for the protection of our people from recurring droughts. This is the second time the Government of Senegal is receiving payout from ARC Insurance Ltd. With the expected payout, we will have the resources to ensure that our people get relief on time to better secure their livelihoods,” he explained.

This latest payout will bring sums disbursed by ARC Ltd to the Government of Senegal to US $38 million since 2014.

It is only through risk pooling and the efficiency of global reinsurance capital that institutions like ARC can be grown from small pilots into effective risk transfer providers. The use of parametric triggers tied to development and recovery planning makes for a more effective solutions that can better respond to African nations disaster needs.