African Risk Capacity launches first flood risk insurance product in Africa

Johannesburg - The African Risk Capacity (ARC) Group is in the process of launching a new insurance mechanism - a parametric insurance product - for African countries to cope with the devastating effects of flooding. In an announcement made at the begining of June, the Group said this product will provide countries with predictable and rapid financing for early response to cope with emergency disaster events caused by floods. It said the mechanism is a significant milestone in building resilience to climate-related disasters on the African continent and in complementing the ARC solutions.

African Risk Capacity (ARC) Group consists of ARC Agency and ARC Insurance Company Limited (ARC Ltd), with the Agency having been 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, while ARC Ltd is a mutual insurance facility providing risk transfer services to the Member States through risk pooling and access to reinsurance markets. 

The Group said the number of flood events in Africa has increased significantly, including in many major urban centres and coastal areas, resulting in numerous deaths and the displacement of millions of people, and causing significant damage to property and farmlands worth billions of US Dollars. Unfortunately, says the Group, because of climate change, the occurrence of floods in ARC Member States has become more frequent and increased in intensity in recent decades, and 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. Although some regional and national flood early warning initiatives exist, there is no operational system going up to estimate economic losses to underpin a sovereign insurance scheme.

ARC explained that it had partnered with JBA Risk Management to develop a model to support the delivery of a practical and customisable parametric flood insurance product. It said the flood product will generate daily flood analysis and calculate the associated impacts for each country, and these will be 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.

It said 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. These 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".