Cross-posted from This is Africa.
Africa accounts for less than 3 percent of global emissions, yet our continent is widely recognized to be the most vulnerable to the effects of climate change. Natural disasters, driven by climate change, threaten to undermine the hard-fought gains made over the last decade, just as Africa is beginning to realize its vast agricultural potential.
Smallholder farmers, who constitute the bulk of the sector across our continent, are especially vulnerable to changing weather and require government assistance to deal with it. As currently structured, the system for responding to natural disasters is not as timely or equitable as it should, or could be, with much of the cost borne by farmers. International assistance through the appeals system is secured on a largely ad hoc basis after disaster strikes, and we 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. Lives are lost, assets are depleted, and development gains reversed — forcing more people into chronic hunger, malnutrition and destitution across the continent.
Insurance may be a key element in protecting against the impact of climate change-related disasters.
It need not be this way, and insurance may be a key element in protecting both people and our environment from the increasingly severe impact of climate change-related disasters. Nations on the continent have joined together to establish the African Union’s African Risk Capacity (ARC), a mutual insurance company to trigger readily available funds for disaster response when and where we need them.
The ARC allows African governments to break out of their current cycle. By offering modern financial tools, it allows us to transfer the burden of climate risk away from the most vulnerable and least equipped to shoulder it – the farmers and pastoralists – to a risk pool that can handle it much better.
In a multi-year effort supported by the United Nations World Food Programme, the African Union has established a continental disaster risk insurance programme for drought, to be extended to other natural disasters in the years ahead. Risk pooling reduces the cost of contingent capital by almost half, translating into cost-savings for member governments on their insurance premiums.
One dollar spent on early intervention saves three and a half dollars spent after a crisis
One dollar spent on early intervention through the ARC saves three and a half dollars spent after a crisis is allowed to evolve, according to analysis by Oxford University and the International Food Policy Research Institute. Members of the ARC Agency can only join our mutual insurance company when they have demonstrated credible operational planning and response capacity through a peer review process led by the ARC’s governing board.
While the ARC provides cost-effective contingency financing through risk pooling, it also brings our shared African experience and aspirations to bear on the planning, execution and monitoring of the funds’ use in the event of a disaster. It is an example of the kind of pan-African solidarity that is transforming the continent’s fortunes in the 21st century.
Through a nationally regulated mutual insurance company providing policies to its members, we combine this solidarity and peer-to-peer sharing of best practices with the financial credibility of a well-regulated insurer. The ARC insurance company itself will seek reinsurance coverage in the international financial markets, further crowding in the private sector to meet the risk management demands of Africa’s growing economies.
With the support of Africa’s key donors such as the United Kingdom, Sweden, Switzerland, Germany and other partners, our continental sovereign disaster risk pool will be ready to issue its first round of policies to qualified African states for agricultural seasons beginning in 2014.
Later this year, world leaders will gather in Warsaw for the United Nations’ Climate Change Conference, and the agenda will include regional risk pools. Any effective mechanism for adapting to climate change needs to provide timely and reliable funding linked to weather events. Fundamentally this is an insurance proposition. The ARC and its Caribbean sister institution, the Caribbean Catastrophic Risk Insurance Facility (CCRIF), stand at the forefront of this effort. Africa has a technically and financially sophisticated, fair and well-governed contribution ready.
Ngozi Okonjo-Iweala is Nigeria’s finance minister and Richard Wilcox is the interim director general of the African Risk Capacity initiative