Mutual insurer can play a ‘vital role’ in protecting Africa from climate disasters

ARC Ltd, an African Union initiative, met stakeholders in Malawi last week to discuss its responses to flood, drought and pandemic

Mutual insurer African Risk Capacity Limited (ARC) met stakeholders in Malawi on 4 August to discuss how its parametric insurance can transform Africa’s response to climate disasters such as droughts and cyclones.

“We all know Africa is a continent that is most exposed to climate-change-related risks,” said CEO Lesley Ndlovu, “and with ARC we have an instrument that can play a vital role in creating the solution to protect the most vulnerable African citizens against the worst impacts of extreme weather.

“It really is up to us to make this initiative a success.”

Founded in 2014, ARC is a financial affiliate of the African Risk Capacity Group, an African Union initiative set up to  improve responses to climate-related food security emergencies. ARC provides parametric insurance services to African Union states and farmer organisations to pool disaster-related risk across the continent, transferring it to international risk markets.

Last week’s event heard from representatives of Malawi, Mali, Madagascar and Zambia, who told how ARC has supported their disaster risk management programmes over the past year. The need for political buy-in and alternative pay-out mechanisms was also highlighted by speakers.

Key donors and humanitarian partners of ARC – including USAID; the World Food Programme; the Start Network; the African Development Bank; KfW Development Bank; the Foreign, Commonwealth and Development Office; the Swiss Agency for Development and Cooperation; and Global Affairs Canada – also attended and shared their experiences.

Related: Zimbabwe fishing co-op facing challenges from environmental crisis

Over the past year, ARC has made a record pay-out of almost US$60m in claims, Mr Ndlovu told the meeting.

“In the history of ARC, we have paid about $125m in claims and half of that was in last year’s Pool 8,” he added. “We are extremely happy when we pay claims because these go towards meeting the needs of Africa’s most vulnerable people. These pay-outs also demonstrate the value of the insurance mechanism.”

Half of the claims paid were paid by the insurance market, said Mr Ndlovu, which enables ARC to take weather-related risks on the African continent and seed them into global markets. This means that when a disaster hits the African continent, the cost is partly paid from the global reinsurance markets.

ARC has also been working to diversify its products, including the development of flood and pandemic insurance, as well as expanding coverage of its existing products in the countries it serves.

But Mr Ndlovu said its main goal is to increase the number of African countries in its insurance programme, to position ARC as the continent’s premier institution for disaster-risk financing.

Related: Korean credit co-operative model continues to thrive in Uganda

“Currently, we have 13 countries that participate out of 55 on the African continent,” he told delegates. “We need more to participate, and we are also working very hard to bring partners into the ecosystem so we are able to overcome the two main barriers we face in the growth of insurance – the affordability of premiums and increasing capacity building so there is greater understanding of the role of insurance in disaster risk management.”

Mr Ndlovu will speak at the ICMIF Centenary Conference In Rome, Italy this October, in a session exploring the leadership role mutual and co-op insurers can play in global challenges.

Related: Mutual insurer launches climate adaptability home coverages in Canada