Together We Stand

[ 140 ] ments with access to immediate funds for early and planned responses to support vulnerable populations in the event of disasters. This vehicle allows ARC to helps its members build capacity to lead their own responses and reduce their reliance on the international appeals process for assistance over time. More critically, however, reduced response times save the lives and livelihoods of those affected and protect development gains, essential for growth and building a more disaster-resilient Africa for the future. A specialized agency of the AU, ARC agency was established in 2012 and currently counts 32 AU countries as members. In late 2013 the agency established a financial affiliate called ARC Insurance Company Limited (ARC Ltd). Operating on mutual insurance principles, ARC Ltd issues parametric weather insur- ance policies to governments. It uses ARC’s risk modelling and early warning software platform, Africa RiskView, to estimate the potential range of impacts of weather events on vulner- able populations — and the response costs required to assist them — before a hazard season begins, and monitors progress through the season. In the case of drought, parametric insur- ance payouts, based on Africa RiskView, are triggered at or before harvest time. For sudden-onset events such as a severe flood or cyclone, payouts are triggered within days of the event having occurred. By allowing ARC member states to capitalize on the natural diversification of weather risk across the conti- nent and access the international risk markets as a single pool, ARC Ltd reduces transaction costs and premiums to the lowest level possible while remaining financially sustainable. In order for a country to purchase an insurance policy it must first demonstrate, through a peer review process managed by the agency, its ability to effectively use potential payouts. The evidence shows that the economic benefits of early assistance to households after a disaster — before they deplete their productive assets, start skipping meals and eventually leave their homes — far outweigh the insurance premiums countries pay if they pool their risk through a facility like ARC. In the case of drought, for example, as a result of reduced response times to households and risk pooling, a dollar spent on drought response through ARC saves US$4.40 in traditional humanitar- ian assistance costs. Effective contingency planning linked to early payouts is therefore key to protecting livelihoods and to realizing ARC’s benefits. But the indirect benefits are poten- tially greater still. Predictable and well-planned local responses to events, that vulnerable populations can rely on, will have macroeconomic advantages by protecting agricultural invest- ment and gross domestic product, and reducing pressure on government finances as a result of unanticipated emergency interventions. They could also yield far-reaching dividends. Preventing disasters from increasing food insecurity and poverty when they happen will not only result in less need for assistance in the future, but can also reduce conflict and displacement risk and the additional humanitarian, economic and political costs these problems can bring. In May 2014, a first group of African governments — Kenya, Mauritania, Niger and Senegal — paid a total premium amount of US$17 million in exchange for drought insurance Image: WFP/Victoria Cavanagh Strengthening and rebuilding a community’s infrastructure to stabilize food security and improve sustainability T ogether W e S tand