The first ever African catastrophe insurance pool was launched on May 1st 2014 by the African Risk Capacity (ARC), a Specialised Agency of the African Union. Joanna Syroka, ARC Programme Director, writes about how lessons learned from ARC can help inform the priorities for action to be included in the successor to the Hyogo Framework for Action (HFA).

This blog is part of CDKN’s blog series: ‘Rethinking a new global agreement for disaster risk reduction’   which invites contributors to outline their ideas for a better post-2015 disaster risk management agreement. If you would like to contribute, please contact Amy Kirbyshire.

As a continental sovereign risk pool, the African Risk Capacity (ARC) provides cost-effective contingency funding to African governments to execute pre-approved contingency plans in the event of severe disasters.  African Risk Capacity serves as an operational and concrete example of countries taking innovative steps to improve their national capacities to manage and reduce risk.  It is a powerful African-led risk management and resilience-building platform, setting standards for improved weather and disaster risk management across Africa through promoting effective and efficient contingency planning and financing.  It therefore serves as a model for holistic action to meet HFA2 objectives, and offers valuable lessons for the new international disaster risk management framework.

What is the African Risk Capacity?

African Risk Capacity was established as a Specialised Agency of the African Union in November 2012 to help member states improve their capacities to better plan, prepare and respond to extreme weather events and disasters and to assist food insecure populations. Operating under the privileges and immunities of the AU, the ARC Agency provides member states with capacity building services for early warning, contingency planning and risk finance. In late 2013 the Agency established a financial affiliate called ARC Insurance Company Limited (ARC Ltd). ARC Ltd is a specialist hybrid mutual insurance company that issues policies to governments, and which aggregates and transfers risk to the international market. In order for a country to purchase an insurance policy and thus become a member of the Company, the country must demonstrate through a peer review process its ability to effectively use potential payouts.

The evidence shows that the economic benefits of early assistance to households after a failed harvest, before they deplete their productive assets and start skipping meals, far outweigh the insurance premiums countries pay if they pool their risk through a facility like African Risk Capacity.

In May 2014, with initial capital provided by the governments of Germany and the United Kingdom, ARC Ltd issued drought insurance policies to a first group of African governments – Kenya, Mauritania, Mozambique, Niger and Senegal – marking the launch of the inaugural ARC pool.  Should a severe drought hit any of these countries in the next 12 months, each stands to receive a payout to implement pre-approved contingency plans designed to reach those in need early, before livelihoods are lost.  ARC Ltd will use the satellite weather surveillance software Africa RiskView, developed together with the United Nations World Food Programme, to estimate needs and trigger insurance payouts to these countries at or before harvest time if the rains have been poor.

By allowing member states to capitalise on the natural diversification of weather risk across the continent, premiums are significantly more affordable than they would be for counties approaching the market alone. Eight additional countries are in the queue to join the next pool in 2015, with a target of up to 20 countries receiving coverage for drought and floods in the next five years.

Together, the two ARC entities form an innovative structure under international law:  an international organisation providing governmental services and a nationally-regulated company conducting financial operations.  This unique design facilitates intergovernmental capacity building and peer review through the Agency by setting and enforcing standards for early intervention, while allowing complex financial operations to be conducted by the Company under an established and robust regulatory framework.  In the future, ARC’s design will also allow ARC Ltd to stand on its own as a commercial operation, once the Agency’s inter-governmental services are no longer required as member states have sufficient capacity and confidence to engage in effective risk management.

What does this mean for the HFA2?

As an African-owned initiative, African Risk Capacity provides an African model for successfully meeting the objectives laid out in the HFA.  To rise to the global challenge of increasing country disaster response capacities, ARC has needed to make progress in each of the key five priority action areas identified in the HFA: a) governance, through ARC’s unique institutional design; b) risk identification, assessment, monitoring and early warning through Africa RiskView; c) knowledge management and education through ARC’s capacity building programme, a pre-requisite for countries joining the insurance pool; d) reducing underlying risk factors through the use of (re)insurance, contingency financing and risk sharing; and e) preparedness for effective response and recovery through ARC’s contingency planning review progress.

As such, African Risk Capacity serves as an important example for the drafters of HFA2 to consider in terms of the approach to implementation: while priority areas are indeed critical, action cannot be siloed into separate thematic areas. Action must rather be cross-cutting and designed to address all key areas simultaneously.  For example, Africa RiskView brings together separate established disciplines (crop monitoring and early warning; vulnerability assessment and mapping; humanitarian operational response; and financial planning and risk management) to convert seemingly abstract weather information (e.g. rainfall) into terms that decision makers understand and act upon (e.g. dollars). Similarly, any initiative seeking to effect change to meet HFA2 objectives must take a multi-faceted approach in order to capitalise on opportunities, to align incentives and to establish linkages wherever they arise.  Transformative improvements in responding to disasters will only come when early warning systems are linked to reliable financing and implementable response mechanisms.

Another important message for HFA2 to convey is that while aiming for a comprehensive and well-integrated approach to disaster risk reduction, it is also important to learn from and build on practical, implementable examples that are operational on the ground.  Initiatives that have the near-term potential to make a positive, direct impact on the lives and livelihoods of those most vulnerable to risks must be a prioritized action area for HFA2 and should remain the focus of all those working towards building a more resilient world.

African Risk Capacity’s value will grow in light of climate change and other risks facing the continent. For the initial group of five policyholder countries, it is an important and concrete step toward holistic risk management. For government negotiators of the new international framework for disaster risk reduction, and it serves as a concrete example of an integrated approach to implementation.

Occasionally, CDKN invites guest bloggers to share their personal opinions on matters of climate compatible development. The views expressed represent those of the authors alone and not necessarily those of CDKN's Alliance partners.

Image: Mozambique refugees after flood. Courtesy European Commission.