Climate change has to become the greatest priority for the disaster risk financing space, meaning it is time to “shift the disaster risk architecture”, according to CEO of parametric risk pool and insurer the African Risk Capacity (ARC) Lesley Ndlovu.
With the COP26 climate conference around the corner, Ndlovu believes that the focus needs to be on the devastating impact of climate change.
While at the same time, the industry must continue to push for enhancing resilience to disasters, alongside financial preparation.
Climate change has to become the greatest priority for the disaster risk reduction space, Ndlovu says, adding that Africa must build its resilience to climate risks proactively, if it is to change the disaster risk architecture.
Lesley Ndlovu is the CEO of African Risk Capacity (ARC) Limited, the specialist parametric insurance company that provides climate related coverage and risk pooling to African countries, helping to protect them against extreme weather events and natural disasters.
There is no time to lose, Ndlovu feels, saying that there is a need to “act decisively”.
Currently, the response to disasters is seen as too slow, inefficient, and reactive, according to Ndlovu.
He commented, “It takes far too long for African countries to mobilise the immediate resources they need for relief
efforts, to save lives and livelihoods. The traditional disaster response is extremely slow and inefficient and, by the time governments and NGOs have raised enough money to respond meaningfully, the problem has become much worse, and more funding is needed.”
ARC Group’s role as a parametric insurer is seen as critically important in helping to build climate and disaster resilience in Africa, with rapid payouts and efficient use of reinsurance capital through the pooling of risks helping to ensure a country can bounce back more quickly after a natural disaster.
“We monitor the rainfall of countries in the risk pool and sovereign insurance pay outs from ARC Limited are triggered when the system reveals that there hasn’t been enough rain, before droughts get to a crisis stage, farmers are left with nothing and people are starving,” Ndlovu explained.
The shift Ndlovu wants to see is from a reactive approach to disaster risk management and financing, to a proactive one, with parametric insurance and risk transfer one way that capacity can be built to enable better responses to disasters and climate risks.
He added, “When dealing with risk mitigation and management, one needs to examine the reason why governments don’t act. On the insurance side, one of the issues to address is around premium affordability because it’s quite expensive to insure against natural disasters and payment of premium competes against other national priorities.”
Ndlovu also highlighted the use of contingency plans as a way to ensure payouts from ARC’s parametric insurance are proactively used.
Saying, “Through this plan, we ensure the funds get to the intended beneficiaries. Having a plan increases dramatically the speed of execution because at a point the government received the funding, it already has a plan on how to disburse this.”
Emily Jones, a Climate and Disaster Risk Financing Advisor to the World Food Program (WFP) noted the challenges of convincing authorities to be more proactive than reactive, in order to boost their resilience to climate related risks like drought and better protect their people.
“Unfortunately, no one person or organisation can make the necessary shift alone. Change starts with building resilience and insurance plays a significant role in that, particularly in climate change,” Jones said.
By paying a premium to participate in a parametric insurance scheme like ARC, governments can at least secure some predictable liquidity that will pay out after a disaster.
“This money can then be used to help those people affected, with the remainder of the pay-out going towards covering other consequences that might not have been expected, such as conflict or a loss of progress in terms of important local development projects,” Jones added.
“Humanitarians are working on highlighting the need to predict crises and act before they manifest to avoid human suffering. After all, why wait if you don’t have to?”
The architecture of the disaster risk financing marketplace could do with a rethink, in order to ensure that efficiencies of capital and economies of scale can be realised, while matching the risk with the most appropriate capital providers, using the most effective structures available to the market.
A focus on pre-disaster financing, so securing capacity that will be available to help in response when the worst happens, alongside resilience building plans and disaster risk reduction efforts, can position countries, governments, corporates, or indeed people, to better weather the changing climate and related severe weather or natural catastrophe events.