African Risk Capacity Bolsters Insurance Coverage through UN Partnership and Ground-Breaking New Products

One of several exciting advancements for the African Risk Capacity (ARC) was announced earlier this year at the African Union’s Annual Summit – a new partnership with the United Nations Economic Commission for Africa (ECA), working together to increase insurance coverage against climate risks for African states.

The partnership, which heralds a new era of collaboration on fighting the devastating effects of climate change, commits ARC and ECA to further build the capacity of their 33 common Member States by embedding risk management investments into government planning through policy development. ARC and ECA also will share expertise and commit financial resources to joint analytical work in areas of economic and climate risk research in order to promote risk transfer instruments.

With the UN estimating that Africa will see the adaptation costs of climate change rise to a staggering $50 billion per year by 2050, ARC’s partnership with the UN is of real significance.

Separately, ARC is working on innovative new products aimed at helping African nations guard themselves against some of the most urgent threats facing the continent. Having successfully built an insurance and support model to protect millions of lives and livelihoods against the impact of drought, ARC was called upon by African finance ministers to develop similar programmes to cope with disease, tropical cyclones, and river flooding.

The Outbreak & Epidemic (O&E) risk insurance will play a vital role in combatting the devastating impact of diseases such as Ebola. Many nations have experienced the severe human and economic impact of outbreaks in recent years, and creating fast access to funding, while building an environment of improved preparedness and response capabilities, is an important priority. Not only will O&E save lives (it is estimated that had the Ebola response begun two months earlier, the total number of deaths could have been reduced by 80%), it will greatly reduce the socio-economic impact. ARC has designed a project to pilot three pathogens, which is being tested in two African countries, Guinea and Uganda, chosen due to their previous experience with epidemic-prone diseases and for regional balance.

In addition, ARC is developing Tropical Cyclones Insurance and this year will be working to identify a model to incorporate coverage of the excessive rainfall component of cyclones. The product is much needed across the continent and will use the same technology and methodology as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) model, which was of paramount importance in the wake of Hurricanes Irma and Maria.

Further expanding its insurance remit, ARC is developing River Flood Insurance. Many African nations define flood risk as high priority and ARC’s model will be the first of its kind in the world. A river flood pilot was launched last year in Ghana and, since then, preparations for testing the model has begun in Ivory Coast and The Gambia.

In an effort to directly address climate risk, ARC also is developing an Extreme Climate Facility (XCF) initiative. This was formally launched in 2014 and is envisioned as a data-driven, multi-year financial vehicle that tracks the frequency and magnitude of extreme climate shocks in Africa, and provides additional financing for countries already managing their current weather risks through ARC. The XCF relies on a new specially developed index called the Extreme Climate Index (ECI), which can track changes in the frequency and/or magnitude of extreme weather events in African countries. ARC will be releasing a policy brief on XCF imminently, with further information also available in ARC’s upcoming newsletter.

Through its partnership with the UN and the ground-breaking products and projects mentioned above, ARC looks forward to bolstering the insurance protection offered to Member States and helping to combat some of today’s biggest challenges, all the while supporting African nations develop their capacity to be better prepared and more resilient in the fight against climate change.

About African Risk Capacity (ARC)

ARC consists of ARC Agency and ARC Insurance Company Limited (ARC Ltd). ARC Agency was established in 2012 as a Specialised Agency of the African Union to help Member States improve their capacities to better plan, prepare and respond to weather-related disasters. ARC Ltd is a mutual insurance facility providing risk transfer services to Member States through risk pooling and access to reinsurance markets; it is owned by Member States with active insurance policies as well as KfW Development Bank and the UK Department of International Development (DfiD), as capital contributors.

ARC plays an important role in responding to countries’ needs at times of crisis by providing fast access to funding for pre-agreed-upon, rapid response plans developed in conjunction with governments. ARC’s financing complements other forms of local and international support.

In the few years since ARC began, it has proved to be an effective and vital model – paying out USD $36 million to four countries (Senegal, Niger, Mauritania, and Malawi) affected by drought events. Those resources provided assistance for over two million people and approximately one million cattle.

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