African Risk Capacity
The African Risk Capacity was established as a Specialized Agency of the African Union (AU) in November 2012 to help Member States improve their capacities to better plan, prepare and respond to extreme weather events and disasters and to assist food insecure populations. Operating under the privileges and immunities of the AU, the ARC Agency, through its Secretariat, provides Member States with capacity building services for early warning, contingency planning and risk finance.
In late 2013 the Agency established a financial affiliate called ARC Insurance Company Limited (ARC Ltd). ARC Ltd is a specialist hybrid mutual insurance company that issues policies to governments, and which aggregates and transfers risk to the international market. ARC, through ARC Ltd. and after its capacity building activities, provides financing in the form of insurance to African governments to execute pre-approved contingency plans in the event of severe disasters. In order for a country to purchase an insurance policy through ARC Ltd. and thus become a member of the Company, the country must demonstrate through a peer review process its ability to effectively use potential payouts.
In May 2014, with initial capital provided by the Governments of Germany and the United Kingdom, ARC Ltd issued drought insurance policies to a first group of African governments – Kenya, Mauritania, Mozambique, Niger and Senegal – marking the launch of the inaugural ARC pool. Due to a poor rainfall season in the Sahel during the 2014/ 2015 season, three of these four first countries received a payout from ARC Ltd to be used for the implementation of pre-approved contingency plans designed to reach those in need. In its second year of implementation ARC Ltd offered insurance coverage to seven countries for the 2015/ 2016 rainfall season and one of these countries – Malawi – received a payout due to the bad season. ARC is now in its third risk pool with 5-6 potential members.
ARC Ltd uses the satellite weather surveillance software Africa RiskView, developed together with the United Nations World Food Programme (WFP), to estimate needs and trigger insurance payouts to those countries affected by poor weather. By allowing Member States to capitalise on the natural diversification of weather risk across the continent, premiums are significantly more affordable than they would be for countries approaching the market alone. Additional countries are working with ARC to join future pools with the target to insure 30 countries by 2020 through drought, flood and tropical cyclone products.