Addis Ababa, June 7, 2023 (FBC) – The African Risk Capacity (ARC) Group is launching a new insurance mechanism for African countries to cope with the devastating effects of flooding, according to the African Union press release.
This parametric insurance product is expected to provide countries with predictable and rapid financing for early response to cope with emergency disaster events caused by floods. The mechanism is a significant milestone in building resilience to climate-related disasters on the African continent and in complementing the ARC solutions.
“The number of flood events in Africa has increased significantly, including in many major urban centres and coastal areas. These have resulted in numerous deaths and the displacement of millions of people and caused significant damage to property and farmlands worth billions of US Dollars. Unfortunately, because of climate change, the occurrence of floods in ARC Member States has become more frequent and increased in intensity in recent decades,” AU said.
It is stated that AU Member States have expressed a strong interest in the development and delivery of a flood insurance product to help countries respond timely to flood disasters.
ARC has partnered with JBA Risk Management to develop a model to support the delivery of a practical and customizable parametric flood insurance product.
The Flood product will generate daily flood analysis and calculate the associated impacts for each country. These impacts are compared to the parametric triggers (economic losses or the number of people affected), and payouts are calculated if flood impacts exceed the trigger threshold defined by the country.
After completion of the in-countries validation workshops, the flood model was subjected to a quality review process to assess its robustness and suitability for purpose by a Technical Review Forum composed of national and international high-level flood experts from globally renowned institutions. The experts determined that the ARC Flood Risk Model was deemed ready and robust enough, and that it can be confidently used for underwriting insurance policies.
The Flood model is available for Madagascar, Mozambique, Malawi, Cote d’Ivoire, Ghana, and Togo, and will be extended to other countries in 2024.
Ibrahima Cheikh Diong, ARC Group Director-General stated, “ARC’s goal is to continue to diversify its products offering to meet the needs of Member States effectively. This new Flood insurance product will allow Member States to better anticipate and manage extreme flood events while ensuring that their impact on the population is mitigated.’’
ARC Group African Risk Capacity (ARC) Group consists of ARC Agency and ARC Insurance Company Limited (ARC Ltd). The Agency was established in 2012 as a Specialized Agency of the African Union to help the Member States improve their capacities to better plan, prepare and respond to weather-related disasters. ARC Ltd is a mutual insurance facility providing risk transfer services to the Member States through risk pooling and access to reinsurance markets. ARC was established on the principle that investing in preparedness and early warning through an innovative financing approach is highly cost-effective and can save upward of four dollars for every dollar invested ex-ante.