African Risk Capacity’s parametric drought payout to Senegal hits $23m

The African Risk Capacity (ARC) has now paid out over $23 million after drought triggered Senegal’s parametric insurance policy with the facility.

At first the African Risk Capacity (ARC) had estimated the payout would be closer to $22 million, but this week the facility actually paid $23.1 million in two amounts disbursed to the Government of Senegal and NGO consortium the Start Network.

The payments came due to cover losses caused by crop failures resulting from the severe rainfall deficits and drought during the 2019 agricultural season in Senegal.

ARC aims to deliver resilience and reduce vulnerability to climate risks of its members, achieving this through the provision of parametric disaster insurance products (backed by reinsurance) 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 portfolio, passing on reinsurance efficiencies to the participating African countries.

In the end the Government of Senegal has received $12.5 million and the Start Network $10.6 million, a 5% increase from the first estimate of the claims payout that would be made.

“We are extremely committed to the African Risk Capacity, said Mr. Aly Ngouille Ndiaye, Honourable Minister of Interior of the Republic of Senegal. ARC is an African institution which uses innovative financing to protect the resilience of our populations. We also welcome the involvement of StartNetwork, while we appreciate all that is being done by ARC in Senegal.”

Senegal was a founding Member State of the ARC and was one of the first to take out a parametric drought insurance policy with ARC Insurance Limited in 2014.

Senegal has annually renewed its parametric protection, paying an estimated premium of FCFA 1.5 billion per year.

This payout of $23.1 million was triggered from the country’s 2019 policy, in which the Government and its partner Replica, Start Network, each subscribed to a drought insurance policy for a premium of FCFA 1.9 billion and FCFA 1.6 billion respectively.

“The payout, once again, validates our concept and value proposition and the unwavering commitment of the Government of Senegal. Climate- induced disasters cannot be prevented; but we have consistently proven that we can work with African Governments to enable a more timely and reliable post-disaster response,” explained UN-ASG Mohamed Beavogui, Director-General of ARC Agency.

“Our early response will be critical to how the vulnerable populations will cope within the first three months after harvest. It will ensure quicker recovery, increase local adaptive capacity and strengthen resilience,” Ms. Dolika Banda, the CEO of ARC Insurance Limited also said.

Christina Bennett, the CEO of Start Network’s CEO, also commented, “We are delighted that our work to put this policy in place, will now mean an early release of funding, so we can work alongside the Government to help people who may suffer during this major drought. This way of working is a potential game-changer for the sector. Slow aid funding is one of the biggest structural problems in disaster response efforts, and this costs lives. Studies show that early action means more lives saved. And that’ s exactly what we will be able to do.”