African Risk Capacity enters with first flood risk insurance product
By Business A.M.
African Union’s specialised agency, African Risk Capacity (ARC) Group, is pushing into the market an insurance product that would enable countries on the continent to cope with the devastating effects of flooding.
Initial take off countries for the new flood mechanism are Madagascar, Mozambique, Malawi, Côte d’Ivoire, Ghana, and Togo. It is expected that it will then be extended to other countries in 2024.
According to explanatory information made available, the parametric insurance product will provide countries with predictable and rapid financing for early response to cope with emergency disaster events caused by floods. ARC further said the mechanism is a significant milestone in building resilience to climate-related disasters on the African continent and in complementing the ARC solutions.
Flood events have been on the increase significantly in the continent in recent times with some of these occurring in many major urban centres and coastal areas resulting in several deaths and the displacement of millions of people and causing significant damage to property and farmlands worth billions of dollars.
The impact of climate change also means that the occurrence of floods in member states of the ARC has become more frequent, increasing in intensity in recent decades with member states expressing 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 operating system to estimate economic losses to underpin a sovereign insurance scheme.
In order to address this, the ARC and JBA Risk Management formed a partnership to develop a model to support the delivery of a practical and customisable parametric flood insurance product.
According to a statement by the ARC, the flood product will generate daily flood analysis and calculate the associated impacts for each country. These impacts are 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.
Furthermore, 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. The 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.