The African nation of Mozambique is seeking sovereign disaster insurance solutions to help better protect its economy and people against the impacts of drought, floods and tropical cyclones.
The country is working with the parametric development insurance provider the African Risk Capacity (ARC), as well as other agencies including the World Bank, in order to help it develop appropriate protection structures and finance the necessary premium payments as well.
The African Risk Capacity (ARC) Agency and the Government of Mozambique have signed a Memorandum of Understanding (MoU) on this subject, aiming to provide mid to long-term solutions including parametric insurance that will respond to the main perils Mozambique faces.
ARC said that the MoU provides, “A framework to facilitate cooperation and collaboration between the ARC Agency and the Government, and to define the terms and conditions under which the Government and the ARC Agency will work together to address the impact of Extreme Climate Events on Mozambique, including through support provided by the ARC Agency for Mozambique, training of Government officials and other efforts in support of Mozambique objectives.”
Mozambique is particularly vulnerable to climate change, extreme weather and natural disasters, given its coastline is exposed to tropical cyclones, while severe droughts every few years as well as river and coastal storm surge flooding are also a threat.
With 2,470 km of coastline, Mozambique’s exposure to these natural events creates socioeconomic fragility and puts its infrastructure, coastal agriculture, key ecosystems and fisheries at risk.
The United Nations Assistant Secretary-General and Director-General of ARC, Mohamed Beavogui, explained that ARC’s aim is to work with the Government of Mozambique to understand its own risk profile for each of the various perils facing the country and to develop customised response plans, which will likely include insurance arrangements.
“ARC is a Development Insurance Mechanism which links risk profiling, contingency planning and a payout. Although insurance will never cover all the risks associated with a peril in each country, the ARC approach allows for the risks to be managed in a way that multiplies the benefits from limited resources available to Government. Therefore, helping to save more lives and livelihoods at the early stage of a disaster…before the arrival of humanitarian assistance,” Beavogui explained.
“The Government of the Mozambique appreciates the onset of formal collaboration with the African Risk Capacity,” HE Adriano Afonso Maleiane, Mozambique’s Minister of Economy and Finance, commented. “We expect that the MoU will initial a well-coordinated take-off of activities towards strengthening the capacities of our climate management authority officials as well as other personnel to better understand our risk profile and provide quicker responses in the event of natural disasters.”
Under the MoU the Government of Mozambique and ARC will now prepare for the country’s potential participation as an ARC Ltd member, thus enabling it to benefit from the parametric insurance coverage ARC provides.
Involvement in the MoU does not commit the Government to insurance use, but is designed to inform it of the options available to it and the decision to participate in ARC Ltd. is its own.
ARC is also working alongside the African Development Bank and World Bank towards the design of premium financing support to help Mozambique access sovereign disaster risk insurance coverage.
Mozambique has been slammed by cyclone’s Idai and Kenneth in recent weeks, both of which have cause significant impacts to communities in the country and its neighbours.
Causing billions of dollars of damage to infrastructure, industry and coastal communities in particular, the cyclones of recent weeks have clearly demonstrated the need for insurance that can pay out rapidly, as this financing immediately after a disaster strikes would have provided vital aid.
ARC provides parametric disaster insurance alongside resilience and contingency planning, leveraging the efficiency of reinsurance markets to pool risk from African nations and transfer the exposure in bulk to reinsurance and ILS players.
This approach provides economies of scale for the users of its products, as the expanding risk pool benefits from increasingly attractive reinsurance pricing and conditions.
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