Workstream 2: Action & Implementation
Enable effective action and implementation of high-quality Climate and Disaster Risk Finance and Insurance solutions in poor and vulnerable countries
Covid-19 Response: ARC Premium Subsidization
African Risk Capacity enables climate resilience in times of Covid-19
By KfW Development Bank & African Risk Capacity
In the course of its Corona emergency programme, the KfW Development Bank, has on behalf of the German Ministry for Economic Cooperation and Development (BMZ) provided EUR 19.5 million for the African Risk Capacity (ARC) insurance premiums to African countries and humanitarian actors that provide protection against climate risks. This support protects up to 20 million people in Sub-Saharan Africa against droughts and tropical cyclones.
Against the background of a changing climate, the increase in frequency and intensity of natural disasters has become one of the greatest threats to mankind. Sub-Saharan Africa is particularly affected by extreme weather events, regularly causing harvest failures, depletion of livestock and loss of livelihood.
In order to proactively prepare and allow for a rapid and efficient response, ARC provides insurance protection against climate shocks to African governments and through the ARC Replica programme to humanitarian actors in conjunction with comprehensive technical assistance for disaster preparedness and risk management.
The remarkable aspect of ARC and ARC Replica is that governments and humanitarian actors jointly design a contingency plan that predetermines how funds will be spent if there is an insurance payout as a precondition to concluding insurance contracts. In this way, they proactively prepare themselves for natural disasters such as droughts and tropical cyclones. ARC allows African actors to secure ex-ante financing to cover emergencies instead of hoping for ad-hoc support by international donors.
Financing via Covid-19 emergency programme
The impact of the Covid-19 pandemic can be felt everywhere around the world and has particularly struck the African continent. According to IMF forecasts, countries in Sub-Saharan Africa will experience a real per-capita GDP contraction of 5.4% on average – this roughly equals the gains made in the region over the past ten years. In a worst-case scenario, 26 to 39 million people in Sub-Saharan Africa are estimated to be pushed into extreme poverty. Furthermore, the pandemic has severely restricted the fiscal space of many African governments and has put the financing of ARC insurance premiums at risk.
In response to this situation, KfW on behalf of BMZ has provided special Covid-19 support amounting to EUR 19.5 million to cover ARC premium costs for African states and for humanitarian actors through ARC Replica. The German support has created resilience against natural disasters during the Covid-19 crisis in nine African countries. USAID was also able to support ARC Replica with USD 1.4 million in 2020 and has committed an additional USD 8 million over the next four years.
In total, poor and vulnerable people in 11 African countries benefited from ARC and ARC Replica insurance coverage in 2020: Burkina Faso, The Gambia, Ivory Coast, Madagascar, Malawi, Mali, Mauretania, Niger, Togo, Zambia and Zimbabwe.
These countries are facing a two-fold endurance test arising from climate risks on the one hand and the pandemic on the other. A climate disaster during the current pandemic would entail drastic consequences for the countries’ food security. The German support protects up to 20 million people prone to climate impacts in Sub-Saharan Africa against damage caused by natural disasters during the current agricultural season. As another highlight in 2020, Madagascar has been the first country to purchase the recently launched tropical cyclone product of ARC with the support of German premium subsidization. Overall, ARC’s drought and cyclone insurance coverage contributes to preventing more profound economic, health and food crises in these countries.
Impact through rapid emergency assistance in times of crisis
The innovative approach of ARC and ARC Replica combines proactive climate risk management with ex-ante financing and predetermined emergency plans. This strategy pays off. Since its inception in 2013, ARC has disbursed about USD 65 million on insurance payouts for the impacts of drought in Ivory Coast, Malawi, Mauretania, Niger, Senegal and Zimbabwe. This has benefited more than 3.2 million people. An initiative that deserves to be pursued and expanded.