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Safeguarding food security and expanding parametric insurance in Africa

African Risk Capacity Limited (ARC Ltd.) has entered into a landmark US$11.7mn partnership the United States Government (USG) to safeguard food security and strengthen climate resilience in Africa by increasing access to parametric insurance

The project aims to protect vulnerable smallholder farmers facing increasing climate change-related disasters while assisting African governments to better respond to climate risks.

The two main objectives of the project include: 

- Assisting governments with capacity building to manage climate change-induced disasters through the effective use of parametric insurance. Unlike traditional insurance, where loss adjustment processes can be lengthy, parametric insurance triggers payouts automatically when a predefined threshold, such as a drought or flood is met, therby ensuring swift compensation to policyholders in the event of a covered occurance. To this end, ARC Ltd. will work closely with governments to customise risk models for each country, establish contingency plans and integrate parametric insurance into policy frameworks. This localisation helps ensure that the insurance payouts will meet the real needs on the ground.

- Increasing the uptake of parametric insurance through close cooperation with the African Union and regional economic communities to encourage adoption, while also focusing on aligning domestic policy frameworks with regional policies to embed parametric insurance in existing climate adaption frameworks.

"Our priority with this grant is to provide coverage to 19 states, and with the support of the USG, we will refine and develop innovative products that will meet the evolving needs of these countries,” said ARC Ltd. COO Ange Chitate, who heads up the project.

Increasing climate change impacts requires responsive diversification to ensure the project's long-term sustainability and ARC Ltd. is committed to expanding its portfolio to cover more countries, hazards and people. Plans include developing demand-driven micro/meso insurance and diversifying beneficiaries, such as pastoral farmers locally and humanitarian organisations internationally. 

Various activities have been identified to achieve these objectives. On the technical side, ARC Ltd. will further refine and develop new products for member states with a focus on drought, flood and tropical cyclone models. ARC Ltd. will also work more extensively with technical and financial partners, UN agencies, international financing institutions and universities to identify how data can be used for increased evidence-based policy decision-making and impact measurement. 

Through President Biden’s Emergency Plan for Adaptation and Resilience (PREPARE), the US government aims to help more than half a billion people in developing countries to adapt to and manage the impacts of climate change. For ARC Ltd., this project aligns with its mission to safeguard more nations and create effective pan-African climate response systems. According to CEO Lesley NdlovuARC Ltd. has set an ambitious goal of protecting the lives and livelihoods of 700 million vulnerable people in Africa by 2034.

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