In 2014, the African Risk Capacity (ARC) insurance company was set up as a specialised agency of the African Union to help its Member States address the effects of unique climate issues on the African continent, improve planning for and responding to extreme weather events and thereby protect populations vulnerable to food shortages suffered as a consequence.

ARC and its affiliated mutual insurance company developed a catastrophe insurance model and January 2015 saw a payout of USD$25 million in drought insurance claims to three countries in the Sahel – a semiarid transitional zone of western and north-central Africa which extends from Senegal in the west to The Sudan in the east. The three countries, Mauritania, Niger and Senegal, paid a total premium of USD$8 million and will use the payout to initiate an early programme of drought response which itself is formulated on pre-endorsed emergency plans.

The payout was described as a “milestone in government leadership and financial innovation for emergency response across the Sahel” by the UN regional humanitarian co-ordinator for the Sahel, Robert Piper. Mr. Piper continued, “ARC’s information and action is spearheading what will be a substantial global emergency response over the coming months to mitigate what could otherwise become a major food crisis.”

In 2014, Kenya, Mauritania, Niger and Senegal became the first African countries to purchase drought insurance based on parametric statistics. This was seen as significant move toward changing African concepts of disaster response. Further, 2016 will see the first coverage availability for floods and tropical cyclones.

Country-level contingency plans based on existing government programmes are being developed by ARC and its member states. Payouts are made on the basis of calculations using ARC’s in-house drought monitoring and loss calculation software, Africa RiskView. Before a payout is made, a final implementation plan must be submitted by the government for certification by ARC’s governing board’s peer review mechanism.

It is said that ARC has the potential to change disaster risk management in Africa – with the ability to mount a multibillion dollar portfolio, ARC could offer coverage to more than twenty countries by 2020. As described by the founding director general of ARC, Dr. Richard Wilcox, “this is a transformative moment in African food security, demonstrating the potential for cost effective disaster financing.”