ARC pays $11.6m as drought triggers Malawi’s parametric insurance

The African Risk Capacity (ARC) Group, a provider of parametric disaster insurance products and risk pooling for countries and other entities in Africa, has made just over $11.6 million in payouts to Malawi and a replica partner the United Nations High Commissioner for Refugees (UNHCR) after drought triggered its parametric insurance there.

The Republic of Malawi had purchased an anticipatory sovereign parametric insurance policy to cover it against drought with ARC Ltd, the insurance affiliate of the ARC Group, for the 2023/2024 growing season.

The El Niño-driven drought had already caused ARC to make payouts of US $32 million payout to benefit Zimbabwe after that countries parametric drought cover was triggered.

That saw Zimbabwe getting $16.8 million in parametric insurance payout, while two organisations buying replica parametric insurance product also made recoveries, with the United Nations World Food Programme (WFP) and Start Network getting payouts of US $6.1 million and US $8.9 million respectively.

We’d reported back in April that the African Risk Capacity (ARC) was expecting a severe drought across the southern African region to trigger its parametric insurance policies for at least four countries.

Now, the Government of the Republic of Malawi and its Replica partner, the United Nations High Commissioner for Refugees (UNHCR), have received parametric insurance payouts of just over US $11.6 million from the African Risk Capacity (ARC) for the drought in that country.

The UNHCR only joined ARC as a replica cover buyer in Malawi this year and while its payout is relatively small at $400,000, it is welcomed by the UN agency.

“UNHCR is proud to have joined the ARC insurance risk pool for the first time in Malawi. The payout of just over $400 000 that we received will play a pivotal role in addressing the needs of refugees affected by the recent El-Nino induced drought,” explained Mr Kouame Cyr Modeste, UNHCR Country Representative. “This funding will be used to enhance food security and improve the livelihoods of forcibly displaced persons and their host communities.”

“It is in moments like these that we can truly appreciate the role of sovereign insurance as an innovative financial instrument to help bolster Africa’s resilience,” added Lesley Ndlovu, CEO of ARC Ltd. “The southern African drought has tested the ARC concept, and we are proud to be enabling early response and coming to the aid of those in need.”

“Malawi’s resilience has grown from strength to strength, all thanks to the joint efforts from the government, the ARC Group, and partners. This payout is yet another testament to the value of preparedness,” Ibrahima Cheick Diong, UN Assistant Secretary General and ARC Group Director General also said. “Our goal is to reach the most vulnerable with speed, and the ARC mechanism is designed to do just that. We look forward to seeing how these funds will contribute to rapid response.”

The rapid payouts of funds under these parametric drought insurance policies is expected to make a significant difference to Malawi’s recovery and to the humanitarian response to the ongoing drought conditions.