ARC to provide cover in fight against drought, natural disasters

AFRICAN Risk Capacity (ARC),  a programme set up by the African Union and United Nations is  to provide insurance cover to fight against drought and natural disasters, as well as  help Africans  states to prepare for extreme weather events and protect “food insecure” populations.

  Several months on from its launch last May, the insurance programme has already paid out a total of $25m (£16m) in claims to Niger, Mauritania and Senegal, triggered by drought in the Sahel region.

  Drought accounted for, on average, 34 per cent of all World Food Programme operations in Africa between 2002-12, a good proxy for overall international aid flows. ARC analysis suggests that a widespread catastrophic drought in sub-Saharan Africa today could cost upwards of $3bn in emergency assistance; this would put an unprecedented financial strain on African countries’ and donor countries’ aid budgets.

  “ARC was established to help African countries build their own capacities to prepare for and respond to predictable natural disasters, such as the next drought or flood,” said  programme director Joanna Syroka. “At a time when international aid budgets are stretched more than ever before, ARC is an important step forward in creating a sustainable African-led strategy for managing extreme climate risks for the continent.”

  ARC Ltd, a Bermuda-based mutual insurance company, which was backed by UK and German government agencies, sits at the heart of the programme and has so far issued policies to Niger, Mauritania and Senegal as well as Kenya and Mozambique. They pay premiums of about $3m-$4m in return for annual drought coverage of up to $30m.

  ARC Ltd uses a sophisticated software application – Africa RiskView – to estimate crop losses and drought response costs during and after a growing season. This triggers insurance payouts if rainfall has been lower than expected, causing drought conditions. 

  “ARC insurance payouts are designed to be released to participating countries early – before international aid is available – reducing the time it takes to reach vulnerable populations who depend on government assistance in times of crisis,” Dr Syroka added. “Before a country can receive a payout, it must first have a Final Implementation Plan, approved by the ARC Agency governing board. This outlines how the government will convert the payout into timely and effective assistance to those affected and is a scenario-specific version of the more general ARC Operations Plan that was approved before the country bought insurance.”  

  According to Simon Young, who runs the insurance arm, the policies are expected to pay out once every three to five years, with maximum payouts of up to $30m in each country happening once every 30 to 50 years.  He previously helped develop and run the Caribbean Catastrophe Risk Insurance Facility, which was set up in 2006 in the wake of Hurricane Ivan. This has grown to cover 16 Caribbean countries and protects against hurricane and earthquake damage and has paid out nearly $35m since being launched. 

  In terms of how the ARC money is spent, he said: “If we look at Senegal, most affected areas are towards the north of the country, where there is a lot of livestock. Most of the money will go towards direct food aid or livestock feed distribution. It’s not about air-dropping flour – we’re working within local systems to help local markets respond.”