G7 Endorses African Risk Capacity Program as Model for Climate Insurance

July 7, 2015

An announcement from African Risk Capacity (ARC) notes that “G7 leaders have singled out Africa’s first parametric catastrophe insurance pool, as a model upon which to develop catastrophe insurance solutions in vulnerable regions.

“During the 41st G7 summit in June, leaders pledged to insure up to 400 million more people in developing countries against climate change risk by 2020 and to support the development of early warning systems in these regions.”

The G7 took note of both ARC as well as the Caribbean Catastrophe Risk Insurance Facility [CCRIF], “as successful existing risk insurance facilities upon which to build and from which to learn.”

Dr. Richard Wilcox, who led the establishment of ARC, commented: “If the G7 translate their commitment into real action we can achieve the target. In Africa, the capacities, technology, and national demand are in place to reach $1 billion in coverage by 2020. If the G7 initiative brings the traditionally funded international actors, like the UN humanitarian emergency system, into the risk management framework, we can readily double that coverage to $2 billion by 2020.”

ARC, through its affiliate insurance mutual African Risk Capacity Insurance Company Ltd formed in late 2013, “insures participating African nations against the risk of drought using a modelled loss index based on satellite rainfall data. ARC Ltd was capitalized through 20-year interest-free loans totaling ~$95 million from the UK development agency DFID and German development agency KfW on behalf of BMZ,” the bulletin explained.

“To become a member of ARC Ltd, pre-approved contingency plans have to be in place, which describe how insurance pay-outs will be used should the coverage be triggered. ARC Ltd has already paid out ~$26.3 million in its first policy year after three of the participating countries in western Africa suffered low rainfall.”

Dr. Lars Thunell, Chairman of the ARC Ltd Board of Directors and former CEO of the International Finance Corporation, said: “For ARC to be held up by G7 leaders as the model for disaster risk management in developing countries is testament to its winning formula. ARC has broken new ground in combining science, political ownership and risk pooling to address catastrophes and food insecurity, and showcases the benefits of African Government-led initiatives to build resilience to climate risk.”

ARC also plans to expand this year with its catastrophe insurance pool in Burkina Faso, Malawi, Mali, The Gambia and Zimbabwe; countries that are expected to join the pool for 2015/16 growing seasons.

ARC Ltd CEO Dr. Simon Young said: “The ongoing program of awareness and capacity building being implemented across Africa by ARC Agency, together with the success of ARC Ltd in its first year, have encouraged more countries to join the pool which has in turn increased the diversification benefits of the risk pooling, providing a win-win for all stakeholders.”

ARC is targeting a total of 20 to 30 African countries to become Members over the next four years. It is planning to offer tropical cyclone and flood risk within the next year and in the longer term, to set up a platform to issue parametric climate change catastrophe bonds. ARC also received a mandate to look into insuring African states against infectious disease outbreaks.

Source: African Risk Capacity (ARC)