African Union Launches Catastrophe Insurance For Member Countries

Insuring Against Extreme Weather

Farmers and their families in five African countries will gain some financial protection against drought this growing season through a catastrophe insurance pool launched in May by African Risk Capacity (ARC). Set up two years ago by the African Union, this specialized agency aims to help 54 member states on the vast African continent manage the devastating risks caused by the growing number of extreme weather events and natural disasters.

ARC, in turn, has created a specialist hybrid mutual insurance company—African Risk Capacity Insurance—to issue insurance policies to African governments and keep their budgets out of the red.

The first subscribers to take out contracts for the 2014 insurance pool, which covers the agricultural season that began May 1, are Kenya, Mauritania, Mozambique, Niger and Senegal. That makes the governments of these nations members of the insurance pool, along with the United Kingdom and Germany, which have contributed around $230 million to fund the project.

The insurance mechanism aims to curb African governments’ perennial reliance on external emergency aid when weather conditions devastate crop production in struggling economies. These countries frequently turn to a lengthy global appeals system run by donor governments and international agencies, such as the United Nations Office for the Coordination of Humanitarian Affairs. The drought-stricken countries and their vulnerable people must then wait as monies are collected and allocated on a largely ad hoc basis.

Technology will help ARC slash this response time by using a new software application, Africa RiskView. Developed by the World Food Programme, the food assistance branch of the United Nations, Africa RiskView can estimate crop losses and drought response costs before a season even begins. The technology monitors the growing season and triggers insurance payouts at or before harvest time if the rains have been poor. ARC officials estimate that spending $1 on early intervention could reduce the ultimate economic impact of poor weather by as much as $4.50.

The need for such intervention is only expected to increase as changes in the global climate wreak havoc with food production cycles in Africa and lead to conflict over insufficient food resources.