Recently, the Government of the Republic of Madagascar qualified for a much-needed insurance payout of USD 1.2 million to support the island nation’s recovery efforts from Tropical Cyclone Freddy and help the government reach its most affected populations. This follows its participation in the African Risk Capacity (ARC) Group mechanism. The Group, which has been working with Madagascar since 2017 to manage its climate risks, has the mandate to work with African Union Member States to better plan, prepare, and respond to extreme weather events.
The payout, made by ARC Limited (ARC Ltd.), the insurance affiliate of the ARC Group responsible for risk pooling and transfer, honours the conditions of the Tropical Cyclone sovereign insurance policy taken by Madagascar to cover itself against the impending risk of such disaster events, a regular occurrence in the South West Indian Ocean region. In addition to transferring risk away from participating countries, ARC Limited has the responsibility to interact with international markets.
According to the ARC’s Tropical Cyclone Explorer, an online platform that calculates the number of populations affected and the economic losses caused by a cyclone event, the modelled economic losses are estimated at USD 481 million. As of 10 March 2023, the National Bureau of Risk and Disaster Management (BNGRC) had reported ten deaths in regions across central and southern Madagascar, more than 120,000 affected people, with over 45,000 people displaced, more than 10,000 houses and 300 schools destroyed.
In line with the rules of the ARC programme, the use of this payout will be guided by a comprehensive Final Implementation Plan (FIP), developed by the government with the help of ARC Agency as part of ARC Operations Plans (OP) to be used in the event of a disaster. The ARC OP is developed ahead of a season as part of the mandatory ARC capacity-building process which every participating country is taken through to ensure its preparedness to respond to disaster events.
The payout will enable the Government of Madagascar to respond to the needs of its population in the most affected regions of central and southern Madagascar, helping the people of Madagascar to build back faster and better. The ARC payout is designed to address the needs of the ground in the most practical way and prevent households from resorting to negative coping mechanisms such as internal displacement, forced migration, selling off productive assets, etc.
“We are pleased to be working with the Republic of Madagascar to fight yet another disaster. By participating in the ARC risk pools, the government has been able to transfer its cyclone risk to international markets as part of building the country’s resilience against such threats,” said, Lesley Ndlovu, CEO of ARC Ltd, ahead of the payout ceremony. “The payout will go a long way towards facilitating timely response on the ground, especially given the FIP in place to guide the process.”
In November 2020, Madagascar made history when it became the first country to take out ARC’s Tropical Cyclone insurance, a newly introduced solution to respond to cyclonic events that consistently threaten the South West Indian Ocean region. Like many countries in Africa, the Republic of Madagascar is under pressure to deliver on the multiple needs of its population and the attainment of Sustainable Development Goals, yet the challenge of more frequent and intense weather-induced disasters exerts excessive pressure on its fiscus.
The growing climate crisis is causing extreme weather events and much devastation and disruption to vulnerable communities, and Madagascar is one of the most affected. Over the last two decades, the country has experienced over 60 major disasters with significant socio-economic costs to the household and to the government. This underscores the value of sovereign insurance in protecting the country.
Commenting on the payout, UN Assistant Secretary-General and ARC Group Director General, Ibrahima Cheikh Diong, had this to say, “our hearts are with the people of Madagascar during a difficult period when it is dealing with yet another climate-induced extreme weather event. As we carry out our mandate to work with African Union Member States to strengthen their capacities to respond to such threats, it is our vision to provide country-specific world-class solutions that respond to the exact needs of each Member State”.
The ARC facility combines critical elements of disaster risk management and financing such as early warning, risk modelling, contingency planning, risk pooling and risk transfer to create a powerful value proposition and has proven to be a viable solution that improves a government’s preparedness to manage disaster events. Combined, this offering provides participating Member States with access to immediate funds for early and planned responses to support vulnerable populations while strengthening response capacities.
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African Risk Capacity (ARC)
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About the African Risk Capacity (ARC)
African Risk Capacity (ARC) Group consists of ARC Agency and ARC Insurance Company Limited (ARC Ltd). ARC Agency was established in 2012 as a Specialised Agency of the African Union to help the member states to strengthen their capacities to better plan, prepare and respond to climate-related disasters and disease outbreaks. ARC Ltd, the financial affiliate of the Group, is a mutual insurance facility responsible for providing risk transfer services to the member states through risk pooling and access to reinsurance markets.
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