The G7 leaders officially endorsed the African Risk Capacity (ARC) as a model for climate risk insurance at their recent summit. This is great news as agricultural production in many parts of Africa is increasingly affected by climate risks, and it demonstrates that such risks can be insured in highly vulnerable developing countries.
The pool is now set grow to around $192 million in parametric drought cover for the 2015/16 policy year, as Burkina Faso, Malawi, Mali, The Gambia and Zimbabwe are expected to join, in addition to Kenya, Mauritania, Niger and Senegal, which have formed part of the pool already last year. Swiss Re Corporate Solutions is one of the leading capacity providers on this deal, which is helping to reach even more people in the future: With 65% of the workforce employed in agriculture, millions of Africans not only depend on farming for their food but also for their incomes and livelihoods.
The benefits of this programme was already seen in its first policy year when ARC paid out about $26.3 million after Senegal, Mauritania and Niger all suffered insufficient rainfall. The pay-out will ultimately benefit over 1.3 million food-insecure people and close to 600,000 livestock across the three countries. Importantly, the insurance payout reached the respective governments even before the aid appeal to the UN humanitarian system for the Sahel was made.
The African Risk Capacity intends to help African governments better plan for and respond to extreme weather events or natural catastrophes, to protect livelihoods and ensure food better food security for millions of people. As Africa's first sovereign insurance pool, it has so called parametric triggers to reflect specific rainfall requirements for growing staple crops. To qualify for the risk transfer programme, countries need to have pre-approved contingency plans in place, which describe how potential insurance payouts will be used to support the affected population.
The G7 endorsement and the expansion of the programme will encourage even more countries in Africa's most vulnerable regions to join the insurance pool. As a major risk taker, Swiss Re supports ARC in an effort to make it a more attractive and affordable solution in order to help reduce the risk of loss and damage caused by drought - and in the future also flood and tropical cyclones - in Africa.
For more information, check the websites of Swiss Re and African Risk Capacity.
Category: Food security: Farming, Climate/natural disasters: Climate change, Disaster risk, Drought