Insurance: AfDB signs agreement with the African Risk Capacity

May 30, 2016

The two institutions will cooperate in their response to natural disasters.

The African Development Bank (ADB) has signed a letter of intent with the African Risk Capacity (ARC) to strengthen cooperation in the field of insurance.

The ARC is a mutual insurance company founded by 26 African states in 2012, which aims to cover 30 countries and 160 million Africans by 2020 against the risk of drought, flood or cyclone.

This agreement marks the intention of both parties "to cooperate in the areas of planning, preparation and response to weather events and natural disasters," according to a statement seen by Jeune Afrique.

In addition, a Memorandum of Understanding was also signed between the ARC and the Inter-African Conference on Insurance Markets (Cima), which provides "training to insurers, the establishment of joint working groups to study and implement strategies related to index insurance and the promotion of insurance products based on climate indices."

So far, seven African countries endorsed the ARC insurance against drought, namely Niger, Senegal, Gambia, Mali, Malawi, Mauritania and Kenya.

According to a study led by Columbia University and the research group Climate Change, Agriculture and Food Security (CCAFS), new types of insurance are doing a better job at protecting small farmers.

More farmers are able to obtain coverage than before due to a switch to index insurance from traditional indemnity insurance, where the size of payouts is based on specific losses faced by a client.

The new index model allows farmers to buy insurance so they receive a payout if the amount of rainfall in a given period increases or decreases beyond acceptable levels, or if average crop yields in a certain region drop below an acceptable level.

Until now, it was not viable for traditional insurers to assess and cover many small farms with low margins, as it was not worthwhile to investigate claims, the study said.ADNFCR-2976-ID-801819352-ADNFCR