Understanding African Risk Capacity and Its Impact

African Risk Capacity is a vital tool for African countries to manage and respond to climate-related disasters. It's a partnership between the African Union and the United Nations.

The African Risk Capacity is a specialized agency of the African Union that provides financial assistance to African countries to help them prepare for and respond to climate-related disasters.

Its main goal is to reduce the vulnerability of African countries to climate-related disasters, and to improve their ability to respond to and recover from such events.

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African Risk Capacity (ARC) is a specialized agency of the African Union, founded in 2012, that helps governments improve their capacity to plan, prepare, and respond to natural disasters.

ARC provides support to its member states in planning for climate-related disasters and index-based weather risk insurance based on a pooled regional insurance model. This model is unique in requiring countries to have effective contingency plans before agreeing to provide insurance.

ARC Ltd, the commercial affiliate of the Group, offers parametric insurance services to member states and farmer organizations, employing innovative financing mechanisms to pool disaster-related risk across Africa. By transferring the burden of natural disaster risks away from governments and their populations, ARC Ltd facilitates a deliberate response approach to disasters.

The African Risk Capacity Group is comprised of ARC Agency and ARC Insurance Company Limited (ARC Ltd). Together, they provide Member States with capacity building and contingency planning services, access to state-of-the-art early warning systems, and risk pooling and transfer facilities.

To participate in ARC, countries must undertake several processes, including customizing the Africa RiskView (ARV) software, signing MOUs for in-country capacity building, defining a contingency plan for ARC payouts, and determining risk transfer parameters.

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African Risk Capacity has a significant funding support of US$ 4.5M.

The organization has made significant progress in implementing its drought insurance program, with a maximum coverage of USD 30 million per country per season.

ARC currently covers 34 African Union member states and has collected over USD 100 million in premiums since 2014.

This coverage has resulted in insurance payouts of a total of USD 65 million, mainly in the agriculture sector, with notable payouts in Malawi in 2017 and Mauritania in 2018.

The funding for this project was a significant US$ 4.5M. This substantial investment will likely have a major impact on its success.

The investors were likely pleased with the return on their investment, which will be crucial in determining the project's future.

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The Stage of Implementation is a critical part of the African Risk Capacity (ARC) program.

ARC currently offers maximum coverage of USD 30 million per country per season for drought events that occur with a frequency of 1 in 5 years or less.

34 African Union member states are part of ARC in 2020, with 24 having active MOUs, 13 being Class A Members who have purchased the policy, and 7 countries having received payouts.

Since 2014, ARC Ltd has collected over USD 100 million in premiums, provided USD 720 million of insurance coverage, and paid a total of USD 65 million in payouts mainly in the agriculture sector.

To be eligible for the African Risk Capacity (ARC) program, countries must meet certain criteria. Availability of robust climate data is crucial, as it's necessary for customizing the ARC software, which relies on historical loss and damage information and different types of weather data disaggregated at the subnational level.

Countries also need to have a high level of awareness of the ARC program among stakeholders, institutions, and political decision-makers. This ensures that participation in the pool is viable.

Countries with technical and financial capacity within their governments are also eligible to participate. This includes having technical expertise in areas of sovereign and weather index insurance, which is required to take ownership of the ARC's disaster risk financing mechanisms.

Here are the 24 countries that have signed MOUs with ARC:

To be eligible for the Africa RiskView software customization, you'll need to have access to robust climate data. This includes historical loss and damage information, as well as different types of weather data disaggregated at the subnational level.

To make the most of the Africa RiskView software, you'll also need to have the necessary technical expertise in areas like sovereign and weather index insurance. This means having a team with the right skills to take ownership of the ARC's disaster risk financing mechanisms.

Awareness of the ARC program is also crucial. You'll need to have a high level of awareness among stakeholders, institutions, and political decision-makers in your country to make participation in the pool viable.

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The ARC program is available in 24 countries, including Benin, Burkina Faso, Chad, Comoros, Côte d’Ivoire, Djibouti, The Gambia, Ghana, Guinea, Kenya, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Nigeria, Rwanda, Senegal, Sudan, Togo, Uganda, Zambia, and Zimbabwe.

Of these countries, 12 have taken out at least one drought insurance policy since inception, including Burkina Faso, Chad, Côte D’Ivoire, Kenya, Madagascar, Malawi, Mali, Mauritania, Niger, Senegal, The Gambia, and Zimbabwe.

Malawi, Zimbabwe, Côte d’Ivoire, Madagascar, Mauritania, Niger, and Senegal are among the countries that have received payouts from the drought insurance policy.

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African Risk Capacity has undertaken various evaluations to assess its impact and effectiveness. These evaluations have provided valuable insights into the program's progress and areas for improvement.

Two formative evaluations have been conducted to identify lessons learned and share them with stakeholders. Two impact assessments have also been completed, including a pilot in Senegal.

A key evaluation was the Impact Assessment 1 (IA1) in 2024, which assessed the contribution of ARC's support to reducing the impact of climate disasters on vulnerable households. It focused on countries that received payouts from ARC between 2020 and 2023.

The Formative Evaluation Report 2 (FE2) in 2022 evaluated ARC's contribution to disaster response and disaster risk management through capacity development. It also assessed the program's growth in demand for its services and its long-term sustainability.

The Pilot Impact Assessment – Senegal in 2021 evaluated the effectiveness of ARC's support in response to the 2019 drought. The assessment identified lessons learned and key findings.

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The Formative Evaluation Report 1 (FE1) in 2017 tested the early stages of the program's Theory of Change (ToC). It provided an assessment of whether ARC was on the right trajectory towards achieving its outcomes.

The ARC Final Inception Report in 2017 outlined the program design for the evaluation.

Here are the evaluation reports conducted by ARC:

Climate & Disaster Risk Management is a crucial theme in Sub-Saharan Africa, where the African Risk Capacity plays a vital role.

The African Risk Capacity is focused on Climate & Disaster Risk Management and Risk Finance, two areas that are closely linked in the region.

Sub-Saharan Africa is particularly vulnerable to climate-related disasters, which can have devastating effects on local communities.

The African Risk Capacity is working to address these risks through innovative solutions.

Hillier, D., Ward, P., McConnell, J., Hurrell, A., King, J., and Hansford, F. are among the experts working on these solutions.