The African Risk Capacity (ARC) Group is comprised of ARC Agency, a Specialised Agency of the African Union, founded in 2012; and ARC Insurance Company Limited (ARC Ltd), a hybrid mutual insurer and the commercial affiliate of the Group, founded in 2014.

African Risk Capacity Agency was established to help African governments improve their capacities to better plan, prepare, and respond to natural disasters triggered by extreme weather events, as well as outbreaks and epidemics. On the other hand, African Risk Capacity Ltd offers complementary risk pooling and risk transfer services. Together, the two 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 towards building resilience against natural disasters such as droughts, floods and tropical cyclones. In the process, the Group works to apply gender equality principles and achieve inclusivity in the programme to ensure that no one is left behind.

African Risk Capacityseeks to promote a proactive approach to Disaster Risk Management in participating countries to complement and augment existing country strategies. Such an approach not only reduces reliance on ad hoc humanitarian aid when a disaster strikes but puts in place a system that can reach affected populations faster.  The ARC approach is intended to save and prevent affecting communities from resorting to negative coping mechanisms such as selling off productive assets. The overall objective is to save lives and livelihoods, protect development gains and ensure food security.

The ARC Group is comprised of two entities:

• African Risk Capacity Agency, a treaty-based international organisation and specialised agency of the African Union, which provides technical and capacity building services to its Member States, and
• African Risk Capacity Insurance Company Limited (ARC Ltd.), which is the first financial affiliate of ARC Agency established in 2014 to provide insurance to participating governments. ARC Ltd. is a mutual insurance company owned by its members (countries that pay a premium) to manage the risk taken on through underwriting a pool of weather and other disaster risks. Pooling their risk together, African countries can substantially reduce the cost of insurance. While it is not motivated by profit, the company operates according to solvency standards. Net gains are reinvested back into the pool to pay future claims and grow the reserves for members for future years.

The governments of Germany and the United Kingdom (through KfW German Development Bank on behalf of BMZ and the United Kingdom’s Foreign Commonwealth Development Office (FCDO) respectively) provided US $90 million in risk capital which was given as a no-interest 20-year loan.

African Risk Capacity offers an African solution to one of the continent’s most pressing challenge, climate change, transferring the burden of climate risks away from governments - and the farmers and pastoralists they protect – to ARC to manage the risk. This African-owned, AU-led financial entity uses Africa RiskView, an advanced satellite weather surveillance and software to estimate the level of damage from a disaster, which triggers readily available funds to African countries to enable response. Pooling risk across the continent is a financially viable solution which could significantly reduce the cost of emergency contingency funds on countries while decreasing the reliance on external aid.

By merging the traditional approaches of disaster relief and quantification with the concepts of risk pooling and risk transfer, African Risk Capacity provides a Pan-African disaster response system that enables governments to meet the needs of those affected in a timelier and more efficient way. The ARC solution is an important step in creating a sustainable African-led strategy for managing extreme climate risks and disease outbreaks.

Historically, Africa and its partners have lacked the appropriate financial mechanisms to respond effectively to natural disasters. As currently structured, the system for responding to natural disasters is not as timely or equitable as it should or could be. International assistance through the appeals system is secured on a largely ad hoc basis after disaster strikes, and governments are forced to reallocate funds in national budgets from essential development activities to crisis response. Only then can relief be mobilised toward the people who need it most – and it is often too late. Livelihoods are lost, assets are depleted, and development gains reversed – forcing more people into chronic hunger, malnutrition and destitution across the continent.

By linking early warning systems with contingency planning and supported by modern financial mechanisms (specifically insurance), ARC enables governments to provide targeted responses to disasters in a timely, cost-effective, objective and transparent manner, thereby reducing response costs to governments and loss of livelihoods. The aim of African Risk Capacity mandate is to catalyse a better risk management system for Africa and provide the capacity building support required to implement such a system.

To date, the African Risk Capacity Establishment Agreement has been signed by 35 countries across the continent, an indication of the comprehensive endorsement of the work being undertaken by ARC as part of Africa’s new climate and disaster management infrastructure.
 

As an insurance risk pool, African Risk Capacity’s objective is to capitalise on the natural diversification of weather risk across Africa, allowing countries to manage their risk as a group in a financially efficient manner to respond to probable but uncertain risks. These techniques, while not new, can be applied by African countries in innovative ways to lower the cost of the response to disasters before they become humanitarian crises, and provide better services to those affected. The pool reinsures itself as well as benefits from investment income such that it builds and protects the capital available for coverage to member governments.

The African Risk Capacity works with countries to define risk profiles that inform the premiums to be paid by countries depending on the level at which the country wishes to participate by selecting the amount of risk they wish to retain or transfer to the market. Payouts are based on predetermined and transparent rules for payment. ARC also works with countries to develop operations plans which show the use of a potential payout. The plans are meant to optimise disbursements and are a prerequisite for participating in ARC risk pools.
 

Of the 35 countries that are signatory to the ARC Treaty:

• 11 have ratified the Treaty
• 20 are going through an active capacity building programme with ARC  
• 17 with Certificates of Good Standing that allow them to take up policies
• 14 countries have taken out drought insurance policies with ARC Ltd.

Overall, through its financial affiliate, ARC Ltd, ARC has provided drought and tropical cyclone insurance coverage of USD 900 million, protecting over 90 million people. ARC has also made payouts of up to USD 124 million to 10 countries following droughts and tropical cyclone disasters. The funds have gone towards directly helping over 6 million people, preventing loss of lives and livelihoods, and providing proof of concept on the effectiveness of capacitating governments and the public private partnerships. ARC has also developed capacities on national experts in risk modelling for early warning, contingency planning, risk transfer and gender mainstreaming in Disaster Risk Management.  

These payouts and the corresponding response efforts were for the most part mobilised before the international humanitarian appeals had been formulated to respond to these disasters thereby representing a significant improvement in the response efforts. To achieve its fullest potential, the African Risk Capacity must scale up its efforts across the continent and continue to ensure that African governments are adequately equipped with resources to respond to affected populations in a timely manner.

"With the money received, I was able to clear my field and pay for new seeds. I am now more self-sufficient than before."- Adjoua Koffi - beneficiary of the ARC payout in Ivory Coast.

“With the help we received, we were able to solve a lot of problems. We bought rice, oil, soap and sugar. My greatest joy was to see the relief on the faces of my children and granddaughters." - Ngoné Sène - beneficiary of the ARC payout in Senegal.

“This subsidy was timely. If we had not had it, I really do not know how we would cope. Breeders without this action would have sold their cattle at ridiculous prices, for fear of seeing them die of hunger.” - Mohamed El Mustafa Ould Ahmed beneficiary of the ARC payout in Mauritania

Niger received US $3.5 million for conditional cash transfers and food distribution to support vulnerable families in drought-affected areas. In total, 157,000 people were assisted with ARC-funded interventions: 115,000 received cash support and 42,000 people benefited from rice distribution.

The Government of Senegal received US$23.1 from African Risk Capacity Insurance Limited to assist in providing early action to support more than 975, 000 people affected by drought during the 2019 agricultural season. “We are extremely committed to the African Risk Capacity. ARC is an African institution which uses innovative financing to protect the resilience of our populations.’’ - Mr. Aly Ngouille Ndiaye, Honourable Minister of Interior of the Republic of Senegal

Visit https://www.arc.int/impact to see the various testimonials of the impact of ARC’s work.

Given projected increases in global temperatures which are likely to give rise to longer and more intense droughts, in addition to greater weather variability across parts of Africa, the risks facing many of the world’s most exposed households – those that rely on rain-fed agriculture for their livelihood – are more pressing than ever.

The fundamental risk-pooling mechanism that underlies ARC has been recognised at the highest levels of climate negotiations as a new and important adaptation tool for countries to utilise. The eighteenth session of the Conference of the Parties (COP 18) of the United Nations Framework Convention on Climate Change’s (UNFCCC) Decision on loss and damage taken in 2012 in Doha emphasises the importance of risk transfer and risk sharing through regional collaboration as a crucial element to climate change adaptation. The ARC specifically addresses a number of related aspects of the Decision, namely in that it,

• Implements a regionally-driven risk transfer and risk-sharing mechanism;
• Supports comprehensive climate risk management approaches, including scaling up and replicating good practices and pilot initiatives;
• Addresses the loss and damage associated with the adverse effects of climate change, including slow onset events and extreme weather events; and,
• Strengthens and promotes regional collaboration, centres and networks on strategies and approaches.

In addition, ARC is in the process of establishing the Extreme Climate Facility (XCF), a new financial mechanism that will secure direct access for African governments to climate finance to respond to the impacts of increased climate volatility. Over the next months, the ARC Agency will lead the XCF Research and Development programme working with African States and their partners.

Africa RiskView is the technical engine behind ARC. It is a software application, developed by the United Nations World Food Programme (WFP), which provides a transparent system to estimate crop losses and the impact on populations’ food security from past and future droughts for sub-Saharan African countries.  Africa RiskView combines a number of different disciplines, including crop monitoring and early warning, vulnerability assessment and mapping, financial planning and risk management into one software tool that provides a standardised approach for estimating drought response costs systematically across a large number of African countries.

Learn more about the work of the African Risk Capacity on Climate Change and Resilience here.

In January 2012, the African Risk Capacity commissioned a cost-benefit analysis (CBA) to examine the economic advantages and disadvantages of establishing a risk pooling facility as an early response mechanism to severe drought in sub-Saharan Africa. The work, undertaken by researchers from the University of Oxford and the International Food Policy Research Institute (IFPRI), was completed in June 2012, and serves as an important piece that adds new information and perspectives to the on-going discourse on disaster risk management in the context of food security for the continent. The study sheds new light on the value of early and predictable action in assisting those affected by livelihood shocks, such as drought, and the cost-effectiveness of scaling up existing in-country mechanisms to identify and respond to such needs.

Two major advantages of ARC are the provision of financing for the government and the enabling of early disbursement of emergency response services to those living in affected areas. Early disbursement of assistance derived from ARC participation could potentially provide higher welfare benefits to countries and their vulnerable households than traditional aid channels. To help assess these potential benefits, the CBA documents evidence regarding the timing of household coping actions when faced with a drought and the likely long-term cost impacts of these actions.

From this baseline, the study estimates the economic costs of a delayed response per household by calculating the potential economic benefits in acting early, thus protecting a household’s economic growth potential. Simply put, early intervention prevents households from resorting to negative coping actions such as reduced food consumption, livestock death, and distressed productive asset sales which, in the absence of external assistance, have increasingly pronounced negative consequences.

Find more illustrations on Food Security and Risk Management here.

Linking early warning to early response requires the quick mobilisation of funds to implement pre-planned response activities. The pre-planning process, or contingency/operations planning, ensures that potential ARC Ltd payouts are optimised and used effectively, and that ARC funds reach the most vulnerable populations in an efficient and timely manner. This planning also allows participating governments to make evidence-based decisions with a clear understanding of the financial resources available to them in the event of a disaster and the types of activities required to save lives as well as livelihoods.

Ensuring that early response activities reach those most impacted by extreme weather events in Africa is one of the ARC’s primary objectives. Operations planning saves governments both time and money, as proven in the ARC Cost Benefit Analysis (CBA) which concluded that substantial speed, cost and targeting gains can be achieved through improved contingency planning.

The planning process requires countries to identify the optimal use of funds from an ARC Ltd. payout, given the existing national risk management structure and the needs of potential beneficiaries.  Operations plans should be government-driven and based on in-country priorities for risk management in the context of food security. In fact, the CBA shows that the magnitude of contingency planning benefits is much greater when the plans involve scaling-up existing programmes such as social protection programmes on account of both improved targeting and gains in speed.

Principles guiding the ARC contingency planning process

• Time sensitive and/or catalytic: Payouts must be used for time-sensitive activities which can be enhanced by the timely and reliable funds that ARC provides. Implementation and first contact with beneficiaries activities, as well as supporting activities, is feasible within 120 days of an ARC payout, to ensure faster and more effective action for the overall response.
• Critical impact: Payouts should not be used for general investment activities but instead, should demonstrate their critical impact for vulnerable beneficiaries who require urgent assistance after a disaster.
• Duration – Each activity that is funded by an ARC payout should be completed within six months to ensure that financial resources are utilised in a timely and efficient manner. This will ensure that countries capitalise on the “first available” funds principle of ARC.

Find out more about the Contingency Planning Process here.

In carrying out its mandate, the ARC Group upholds gender equality principles in all its activities within the organisation, as well as within the Member States it serves. In this regard, ARC systematically builds a gender perspective into its operations and policies, with the goal to transform Disaster Risk Management approaches to ensure gender equality for vulnerable women, men and children. Guided by the Gender Strategy, the organisation’s goal is to mainstream gender in all its activities, starting by a gender analysis to understand a country’s gender culture, and working with the country to ensure a gendered approach to Disaster Risk Management.

ARC, together with the African Union Directorate of Women, Gender and Youth launched the Gender and Disaster Risk Management Platform (GDRMP) which contributes to the development and management of knowledge on the issues of gender and DRM on the continent. Specifically, the platform will address the research and development gaps in gender and Disaster Risk Management and Financing in Africa by engaging in studies, collection and analyses of gender disaggregated data, impact assessments and publication of best practices among others. This will serve as a medium for stakeholders to increase their know-how with regard to practical steps for gender mainstreaming in Disaster Risk Management; raise awareness of gender perspectives in DRM; be a mechanism for policy dialogue and advocacy on gender transformative Disaster Risk Management approaches geared towards the adoption of a gender transformative ‘culture of insurance’ by Member States.

ARC’s gender mainstreaming efforts also focus on the internal operations of the Group to ensure gender sensitive staff, and gender responsive systems and procedures to accompany Member States in the gender and Disaster Risk Management journey.

Visit https://www.arc.int/gender-dimension to learn more about the ARC’s efforts to integrate gender issues in its interventions.

As an African solution that makes it possible to respond to the impacts of extreme weather events, ARC through its financial affiliate, ARC Limited (Ltd), offers  participating member countries risk pooling services which, in the event of a disaster, avail financial resources to enable a government to respond effectively. The payout received from ARC Ltd. gives the government an opportunity to reach affected populations with speed. .

Since 2014, over 72 insurance policies have been signed by Member States, representing about US$101.7 million in premiums paid for a corresponding cumulative insurance worth of coverage of US$ 1 billion for the protection of over 100 million vulnerable people in participating countries.

Guided by a recently formulated Fundraising Strategy, ARC is currently engaged in a resource mobilisation drive for funds to help scale up its interventions across Africa. At such a critical times such as this when Africa is grappling the climate crisis, any funding received would go a long way towards enabling the ARC programme and driving the continent’s Disaster Risk Management strategies..

Your support counts. See the various Call to Action to support the African Risk Capacity in its Fundraising campaign here.