The African Risk Capacity (ARC), an organisation providing parametric sovereign disaster risk insurance and resilience building support to African nations, has sold its first replica coverage policies for drought to the World Food Programme (WFP) and the Start Network.
ARC launched the so-called “replica coverage initiative” back in 2015, hoping to expand the parametric risk transfer coverage each policy-holding African country benefits from, by selling replica policies to organisations and NGO’s to match those already provided directly to African governments.
These replica policies are seen as a way that international organisations and NGOs can act alongside the African governments in building sovereign risk capacity to respond to natural disasters.
Now the first two of these policies have been sold, with the World Food Programme (WFP) and the Start Network the purchasers of parametric climate risk insurance policies that could between them provide as much as US $49.5 million of drought coverage across the five African nations of Senegal, Mali, Mauritania, Burkina Faso and the Gambia.
The replica parametric climate risk insurance policies are designed to complement those taken out by the government’s of the African countries, providing a growing pool of rapid financing should extreme drought events occur.
“ARC Replica is strengthening the insurance coverage offered by ARC by increasing the sum insured for Mali,” explained WFP Country Director, Silvia Caruso. “This increases the number of people that will benefit from a payout in the case of a major drought.”
To enhance the resilience of the countries in question, the Start Network and WFP have worked with each insured country to identify how resources and assistance can most efficiently be delivered under the policies.
“Many developing countries face the risk of disasters without being sufficiently prepared for them. When a disaster strikes, humanitarian organisations often respond too late, leaving affected populations vulnerable to further risk,” explained KfW Development Bank project manager, Veronika Bertram-Hümmer. “We are very pleased to finance ARC Replica and work with the Start Network and the WFP to improve national preparedness and risk management efforts which ultimately allow us to help people affected by drought in West Africa and the Sahel.”
Mr. Abdoulaye Noba, Director of Civil Protection, Supervisor of the ARC Programme in Senegal, also said, “ARC Replica is an innovative project that enables ARC Member States and humanitarian partners to respond more effectively to disaster risks through funding mechanisms such as insurance.”
The ARC and ARC Replica drought insurance policies use pre-agreed triggers such as rainfall satellite data which allow for rapid response and payouts to be made.
ARC is backed by reinsurance capital, which given the pooling of multi-country risks can be more efficient for all those involved.
There has been an element of insurance-linked securities (ILS) market capacity involved in the reinsurance renewal for ARC in recent years, we understand.
Importantly though, liaison with covered countries to ensure they know what to expect from these policies and that the financing is considered alongside resilience measures is key.
“We will keep working closely with the Government of Senegal, Start Network members in country and their partners to ensure that if a drought is detected, funds become available promptly to deliver support to vulnerable people,” said Anna Farina, Risk Financing Operations Lead at Start.
Thanks to the parametric triggers used, pay-outs can be made as early as two weeks after a failed harvest occurs, much quicker than traditional humanitarian aid is typically delivered.
The growth of the African Risk Capacity (ARC) risk pool continues as a result of these new replica policies, which in time will mean additional reinsurance capacity is required to back the facility as it continues to expand.