Presentation on managing climate risk through ecosystem-based adaptation – linking urban and rural development planning by Papa Zoumana Diarra (The African Risk Capacity Insurance Company Limited.)

1. Introduction to the African Risk Capacity
OECD meeting
20-21 April
Paris, France

2. What is the African Risk Capacity?
An innovative extreme weather insurance mechanism designed to help
African Union member states resist and recover from the ravages of
natural disasters.
An African-owned insurance pool and early response mechanism that
aims to catalyse a transition from the traditional ad hoc, ex-post
disaster response system to a more efficient continental risk
management system.
ARC offered coverage for droughts in early 2014. Three countries
received payout in early 2015. It is developing a flood model for use in
2016.
A new way for African governments to improve food security among
vulnerable populations.

3. Value Driver 1: Protecting Livelihoods
and Development Gains
Cost-effective contingency funding protects livelihoods and
development gains

4. Value Driver 2: Pan-African Political
Solidarity Makes Financial Sense

5. Institutional Structure
ARC has two parts:
• ARC Agency, a Specialized Agency of the African Union created by treaty
• ARC Insurance Company Ltd, an insurance company created by the Agency and
organized under national law
WFP
Support
ARC Agency
Specialized Agency of the African Union
• Managed by Member States
• Provides Guidelines & Oversight
• Political Engagement
• Capacity Building
• Operational Monitoring
ARC Insurance Company Ltd.
Regulated commercial insurance company
• Owned by member states and capital contributors
• Risk pooling / insurance / asset management functions
• Transfers risk to the markets
• Established in Bermuda for the interim period

6. Quantifying the Risk
Hazard
Satellite-based rainfall data for over 261,000 satellite pixels over
Africa (0.1 dg x 0.1 dg or 10x10km sq. near the equator)
updated every 10 days.
Vulnerability
Who’s at risk? Where are they? What are they growing or where
do their herds graze?
Exposure
In today’s procurement and logistic costs, how much will it cost
to assist each potential person affected?

7. Africa RiskView: Technical Engine of ARC
Africa RiskView is a tool that allows countries to:
• Analyze and monitor their drought-related food security risk
• Define their participation in ARC using transparent criteria
• Monitor potential ARC payouts
By bringing together existing information on
vulnerable populations with drought and crop early
warning products, ARV defines a standard setting
methodology that allows countries to identify and
quantify drought risk and to transfer a portion of
this drought risk to ARC
All model settings in ARV can be customized for each
country and to reflect national risk transfer decisions

8. Long-Term Impact
Risk management and investment increase resilience and growth
• ARC complements and reduces reliance on external appeals
• Investment raises productivity and increases resilience to withstand 1:10-1:15 year
events
• ARC crowds in commercial insurance as higher resilience makes it attractive

9. Thanks
Website: www.africanriskcapacity.org
Papa Zoumana Diarra
Chief of Contingency Planning
Email: papazoumana.diarra@africanriskcapacity.org
Twitter : @ARCapacity

10. Back Up slides

11. ARC Value Multiplier for Member States
Two value drivers make ARC an efficient tool to manage droughts and other risks:
• Improved risk management through risk transfer and risk pooling
• Early response actions and improved targeting
Financial benefit of insurance through ARC:
• Low operating costs for the ARC, thus lower
premiums for countries
• Capitalises on natural diversification in Africa
• Better conditions on insurance markets
• Focusing on more extreme coverage
> 1-in-5 year events better value
Estimated cost benefit for every US$ 1 spent on ARC versus
traditional emergency response:
US$ 4.41 + possible direct cost savings
Development benefit of planning and early
response:
• Protect lives and livelihoods
• Protect development gains
• Maintain economic growth
• Scaling up social safety nets and contingent
transfers most effective
Enables
1 ARC Cost Benefit Analysis, IFPRI, Oxford University and Boston Consulting Group

12. • Natural disasters strike with a variability in
magnitude
 High impact events happen less
frequently
 Low impact events happen more often
Risk Transfer
0 5 10 15 20 25 30
Impact (e.g. in million US$)
Probability
35 40 45
Low impact
High probability
High impact
Low probability
Ranked by magnitude
You can see that on Risk
Profile charts produced
by ARV:
 Each country/season has a different profile – which also largely depends on the customisation!

13. Amount of Risk
These Risk Profile charts also allow us to quantify the
amount of risk there is in a country.
Small but frequent, or rare but big  all droughts are taken
into account.
Average:
USD 140 million
per year
Average: USD
26 million per
year
Niger Senegal
Now the questions are:
• How much risk does the country want to transfer?
• Which part of the risk?
Average:
USD 9.6
million
per year
Namibia

14. ARC and Loss and Damage
Complements investments in resilience by scaling up social protection
systems and preventing asset depletion.
Strengthens vulnerability mapping, data sharing, and risk quantification
efforts.
Is an operational regional mechanism with support across the
continent.
Provides capacity building services to governments in risk management
and contingency planning.
Ensures timely, reliable support to governments in the wake of an
extreme weather event through a transparent financial mechanism.