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What is the African Risk Capacity?
An innovative extreme weather insurance mechanism designed to help African Union member states resist and recover from the ravages of natural disasters.
An African-owned insurance pool and early response mechanism that aims to catalyse a transition from the traditional ad hoc, ex-post disaster response system to a more efficient continental risk management system.
ARC offered coverage for droughts in early 2014. Three countries received payout in early 2015. It is developing a flood model for use in 2016.
A new way for African governments to improve food security among vulnerable populations.
Value Driver 1: Protecting Livelihoods and Development Gains
Cost-effective contingency funding protects livelihoods and development gains
Institutional Structure
ARC has two parts: • ARC Agency, a Specialized Agency of the African Union created by treaty • ARC Insurance Company Ltd, an insurance company created by the Agency and
organized under national law
WFP Support
ARC Agency Specialized Agency of the African Union
• Managed by Member States • Provides Guidelines & Oversight • Political Engagement • Capacity Building • Operational Monitoring
ARC Insurance Company Ltd. Regulated commercial insurance company
• Owned by member states and capital contributors • Risk pooling / insurance / asset management functions • Transfers risk to the markets • Established in Bermuda for the interim period
Quantifying the Risk
Hazard Satellite-based rainfall data for over 261,000 satellite pixels over Africa (0.1 dg x 0.1 dg or 10x10km sq. near the equator) updated every 10 days.
Vulnerability Who’s at risk? Where are they? What are they growing or where do their herds graze?
Exposure In today’s procurement and logistic costs, how much will it cost to assist each potential person affected?
Africa RiskView: Technical Engine of ARC
Africa RiskView is a tool that allows countries to: • Analyze and monitor their drought-related food security risk • Define their participation in ARC using transparent criteria • Monitor potential ARC payouts
By bringing together existing information on vulnerable populations with drought and crop early warning products, ARV defines a standard setting methodology that allows countries to identify and quantify drought risk and to transfer a portion of this drought risk to ARC
All model settings in ARV can be customized for each country and to reflect national risk transfer decisions
Long-Term Impact
Risk management and investment increase resilience and growth
• ARC complements and reduces reliance on external appeals • Investment raises productivity and increases resilience to withstand 1:10-1:15 year
events • ARC crowds in commercial insurance as higher resilience makes it attractive
Thanks
Website: www.africanriskcapacity.org
Papa Zoumana Diarra Chief of Contingency Planning Email: [email protected]
Twitter : @ARCapacity
ARC Value Multiplier for Member States
Two value drivers make ARC an efficient tool to manage droughts and other risks: • Improved risk management through risk transfer and risk pooling • Early response actions and improved targeting
Financial benefit of insurance through ARC:
• Low operating costs for the ARC, thus lower premiums for countries
• Capitalises on natural diversification in Africa • Better conditions on insurance markets • Focusing on more extreme coverage
> 1-in-5 year events better value
Estimated cost benefit for every US$ 1 spent on ARC versus traditional emergency response:
US$ 4.41 + possible direct cost savings
Development benefit of planning and early response:
• Protect lives and livelihoods • Protect development gains • Maintain economic growth • Scaling up social safety nets and contingent
transfers most effective
Enables
1 ARC Cost Benefit Analysis, IFPRI, Oxford University and Boston Consulting Group
• Natural disasters strike with a variability in magnitude High impact events happen less frequently Low impact events happen more often
Risk Transfer
0 5 10 15 20 25 30 Impact (e.g. in million US$)
Prob
abili
ty
35 40 45
Low impact High probability
High impact Low probability
Ranked by magnitude
You can see that on Risk Profile charts produced by ARV:
Each country/season has a different profile – which also largely depends on the customisation!
Amount of Risk
These Risk Profile charts also allow us to quantify the amount of risk there is in a country. Small but frequent, or rare but big all droughts are taken into account.
Average: USD 140 million
per year
Average: USD 26 million per
year
Niger Senegal
Now the questions are: • How much risk does the country want to transfer? • Which part of the risk?
Average: USD 9.6 million per year
Namibia
ARC and Loss and Damage
Complements investments in resilience by scaling up social protection systems and preventing asset depletion.
Strengthens vulnerability mapping, data sharing, and risk quantification efforts.
Is an operational regional mechanism with support across the continent.
Provides capacity building services to governments in risk management and contingency planning.
Ensures timely, reliable support to governments in the wake of an extreme weather event through a transparent financial mechanism.