African Risk Capacity (ARC) has entered into a landmark $11.7-million partnership with the US government to increase access to parametric insurance in Africa.

This will help to safeguard food security and strengthen climate resilience on the continent, by protecting vulnerable smallholder farmers that are facing climate change-related disasters, ARC says.

The parametric insurance will also assist African governments to better respond to climate risks.

Parametric insurance provides rapid payouts based on pre-agreed triggers, allowing timely responses to natural disasters.

The US government funding will enable ARC to scale up technical assistance in-country and increase coverage across Africa over the next three years.

ARC COO Ange Chitate says the company is committed to protecting the livelihoods of farmers and pastoralists across African Union (AU) members States.

“Our priority with this grant is to provide coverage to 19 States, and, with the support of the US government, we will refine and develop innovative products to meet the evolving needs of these countries.”

ARC is a financial affiliate of the African Risk Capacity Group, which is, in turn, a specialised agency of the AU.

ARC will work closely with governments to customise risk models for each country, establish contingency plans and integrate parametric insurance into policy frameworks. This localisation helps ensure that the insurance payouts will meet the real needs on the ground.

Secondly, the project seeks to increase the uptake of parametric insurance through close cooperation with the AU and regional economic communities to encourage adoption.

It will also focus on aligning domestic policy frameworks with regional policies to embed parametric insurance in existing climate adaption frameworks.

“Increasing climate change impacts requires responsive diversification to ensure the project's long-term sustainability,” ARC states, adding that it will expand its portfolio to cover more countries, hazards and people.

The plans include developing demand-driven micro or meso insurance and diversifying beneficiaries, such as pastoral farmers locally and humanitarian organisations internationally.

INNER WORKINGS

On the technical side, ARC will further refine and develop new products for AU member States with a focus on drought, flood and tropical cyclone models.

ARC will also work more extensively with technical and financial partners, United Nations agencies, international finance institutions and universities to identify how data can be used for increased evidence-based policy decision-making and impact measurement.

To pave the way for more countries to participate in the risk pools, ARC will, together with ARC Agency, align technical, governance and policy capacity with the risk pool requirements by hosting risk transfer workshops in select countries. Training local experts is also a key focus.

Moreover, ARC will complete policy underwriting for single and multiperil cover, having identified the countries that qualify for each.

The US aims to help more than 500-million people in developing countries to adapt to and manage the impacts of climate change through President Joe Biden’s Emergency Plan for Adaptation and Resilience.

With this partnership, it has strengthened its strategic interests in disaster risk financing in Africa, while signalling its commitment to investing in locally led climate solutions.

For ARC, the project aligns with its mission to safeguard more nations and create effective pan-African climate response systems.

“ARC has set an ambitious goal of protecting the lives and livelihoods of 700-million vulnerable people in Africa by 2034,” says CEO Lesley Ndlovu.

He adds that the partnership with the US government and others will help ARC to achieve this goal, while demonstrating the commitment of developed nations to build the resilience of the global south to withstand climate disasters.