The African Risk Capacity (ARC) aims to double the coverage it provides to as much as $1.5 billion by 2020, by opening up its parametric insurance products to international organisations, such as United Nations agencies and non-governmental organisations (NGO’s).
The African Risk Capacity (ARC), Africa’s first sovereign catastrophe insurance pool, is seen as a model for delivering climate and weather risk transfer and insurance, alongside adaptation measures, to help African nations become more resilient to climate threats.
At the moment ARC’s parametric and weather-index based insurance products are offered only to sovereign governments in Africa. But in order to increase the uptake of this protection, ARC will expand to offer the same product set to these organisations and NGO’s.
Dubbed a “replica coverage initiative” ARC aims to expand the coverage each country benefits from, by encouraging organisations and NGO’s to take out policies that match those already provided directly to African governments.
ARC wants to increase direct sovereign coverage from $180 million in 2015 to $850 million by 2020, as more countries join and its offering expands from just drought to include floods and tropical cyclones.
The addition of replica coverage could double this limit to over $1.5 billion by 2020, ARC believes, insuring up to 30 countries with protection ultimately benefiting as many as 150 million Africans.
With as much as $1.5 billion of insurance limit in play by 2020, all of which will be weather and catastrophe linked through parametric or index triggers, the reinsurance needs of the ARC look set to become a key piece of the global catastrophe reinsurance markets growth.
No doubt ARC will also look to instruments such as catastrophe bonds and will continue to grow its relationships with collateralised and ILS reinsurance markets as the limits it deploys grow.
ARC is working closely with the United Nations World Food Programme’s (WFP) Food Security Climate Resilience Facility (FoodSECuRE) to develop this initiative.
“The humanitarian sector recognises the necessity for much more proactive disaster funding. WFP is working internally to develop new financing mechanisms while also collaborating with partners including the ARC to harness additional innovative early financing capabilities that will increase our ability to support government-led responses,” commented WFP Executive Director Ertharin Cousin.
By taking out the replica insurance products, international organisations and NGOs would be acting alongside the governments in building sovereign capacity to respond to natural disasters. They would also have to submit and have approved a contingency plan, as the governments do and this would need to be approved by the relevant countries Government as part of the plan it submits to ARC.
That assures an alignment between the sovereign government and the international organisations or NGO’s working there, a key piece of ensuring greater resilience is the ultimate effect.
“Through this arrangement, ARC provides an innovative, cost-effective and reliable model of humanitarian finance, integrating all actors into a single government-led risk management system,” commented Mohamed Beavogui, ARC Agency Director General.
ARC has also received a pledge of funding from the United States and support from the African Development Bank Group at the Paris COP21 climate negotiations this week. The additional support and focus on ARC’s risk pooling techniques and parametric, adaptation and resilience linked insurance should see the facility grow through 2016.