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Germany helps fund parametric risk transfer premiums for ARC member nations


The German government is helping African countries to continue benefiting from parametric drought insurance protection under the African Risk Capacity (ARC), with around EUR 19 million being donated to help fund their participation during a time when fiscal budgets may be stretched by the pandemic.

african-risk-capacity-logoThe German government is assuming responsibility for around EUR 19 million of premium payments for parametric drought insurance offered by the African Risk Capacity (ARC), through which up to 20 million poor and vulnerable people in Africa will be protected against drought through the coming agricultural season.

Given the challenges being faced due to the Covid-19 pandemic, African nations likely require additional support in paying premiums to persist with their parametric insurance coverage this year, so Germany has stepped up to assist.

Ngozi Okonjo-Iweala, Chairperson of the African Risk Capacity (ARC) Governing Board, said that Germany’s provision of donor funding to help insure African countries against the risk of drought, “Could not have come at a better time.”

Further explaining that it will, “Help avert a situation of compounded effect of the Coronavirus pandemic and drought in any of the beneficiary countries thereby saving the continent from extended negative health and socioeconomic problems.”

African Risk Capacity (ARC) provides African nations with an index-based parametric drought insurance product, that guarantees payouts if precipitation falls below certain level through the growing season.

ARC leverages risk pooling and aims to generate efficiencies for the countries using its parametric risk transfer products by taking their risk to the reinsurance market in one pool.

Reinsurance capacity and its availability is a key lever for ARC, helping it to generate risk pool diversification efficiencies for its members and keeping the cost of coverage as low as it can.

But so too are donor contributions to assist in paying the risk premiums for African nations, which under the current Covid-19 uncertainty has become even more important to enable them to have continuity of their parametric drought coverage.

ARC explained, “African governments are often faced with the challenge of providing solid financing for the annual insurance premiums. With the COVID-19 pandemic, this problem has become even more acute in the current year.”

As part of this premium assistance, Zimbabwe and five West African countries will also benefit from EUR 8.5 million for premium payments under the ARC Replica product.

This will enable the World Food Programme and the START Network to also take out ARC parametric drought insurance policies that replica the main policy holding countries coverage.

This will be for Burkina Faso, The Gambia, Mali, Mauritania, Senegal, and Zimbabwe.

Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) is also providing a further EUR 10.5 million for premium subsidies to countries in the south and east of Africa, where the insurance policy will not be taken out until the second half of the year due to the planting season beginning later in the year.

Maria Flachsbarth, Parliamentary State Secretary at Germany’s BMZ commented, “Firstly, we are deliberately creating liquidity for our partners’ particularly urgent COVID-19 measures. Secondly, we are ensuring that the drought insurance, which is of vital importance to so many people, is not lost in the already difficult situation. And thirdly, we are contributing towards stability for ARC member countries.”

The African Risk Capacity (ARC) recently said it hopes to add coronavirus protection to its planned outbreaks and epidemics parametric insurance product, which it aims to have available from 2021.

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