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JOHANNESBURG, South Africa / LILONGWE, Malawi / HAMILTON, Bermuda, 14 November 2016
The African Risk Capacity Insurance Company Limited (ARC Ltd) is processing an insurance payout of approximately USD 8.1 million to the Government of Malawi to support its response to the drought which resulted from the poor 2015/16 agricultural season.
The Minister of Finance, Economic Planning and Development for Malawi, Honourable Goodall Gondwe, said: “Malawi welcomes the payout from ARC Ltd given the significant challenges in securing financing to support the millions of affected households in the country.”
The payout will be released to Malawi as soon as the Government’s plan on how the payout will be used to respond to those affected by drought – known as the Final Implementation Plan – is approved by ARC. This is standard practice for ARC payouts, and is expected to take place by the end of November.
Background
ARC Ltd issues insurance policies to its African Member governments; any payout thereof is based on results from its drought risk model, the Africa RiskView. In close consultation with ARC Ltd, the model is customised for and by each country to reflect the country’s historical drought risk profile and current farming practices.
Malawi bought a parametric drought insurance policy from ARC Ltd for the 2015/16 agricultural season. The policy did not initially trigger a payout, because the model indicated a low number of people affected by the drought. However, the Government’s estimate of the impacted population in Malawi was much higher, suggesting a discrepancy in the results of the model.
ARC investigated the discrepancy through extensive technical work. It first examined the performance of the model as it was originally customised by Malawi, and found that the model had performed as expected given its parameters and the satellite-based rainfall data used. The satellite data was in line with Malawi’s ground-based rainfall data.
Subsequently, ARC conducted extensive fieldwork and household surveys in partnership with Malawian technical experts, including researchers from the Centre for Agricultural and Rural Development (CARD) at the Lilongwe University of Agriculture and Natural Resources (LUANAR).
This work revealed that farmers had switched to a greater extent to growing a different type of crop than that assumed in the model. Farmers shifted in recent years to planting maize with a 90-day growing period, compared to the maize variety with a growing period of 120-140 days as assumed in the customisation of Malawi’s model. The rainfall pattern in 2015/16 was particularly unfavourable to the shorter cycle maize, such that correcting this crop assumption in the model resulted in a very different modelled outcome.
In fact, when ARC re-customised the Africa RiskView to correct this crop assumption, it resulted in the model outcome providing a reasonable representation of the situation on the ground. This in turn triggered a payout under the revised policy to the Government of Malawi.
ARC’s work confirmed that the Africa RiskView technical engine is a robust modelling platform. However, having to correct key data in the case of Malawi emphasises how critical it is to make appropriate and realistic assumptions based on the best-available and current data when customising the model.
The Chair of ARC Ltd Board, Dr. Lars Thunell stated: “The case of Malawi has showed that heightened attention is necessary in validating national input data provided for the model. Any model’s ability to represent reality depends on the accuracy of starting assumptions and data. Based on the re-customisation using a more accurate assumption on reference crop type, an amended insurance policy was issued to the Government of Malawi and a payout has been triggered.”
ARC is a Member State organisation, and its aim is to keep its Members at the centre of its work. ARC Ltd is not merely a commercial insurance company, but part of a development organisation established with the leadership of African Union Member States including Malawi.
Dr. Ngozi Okonjo-Iweala, Chair of the African Risk Capacity Agency Board, further stated: “ARC was founded by African Governments with the objective of providing them with the tools and capacity to better manage natural disaster risks. ARC Ltd stands by to support Malawi and to continue to help the country develop a comprehensive and effective drought risk management strategy.”
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About African Risk Capacity (ARC)
The African Risk Capacity Agency (ARC Agency) was established in 2012 as a Specialised Agency of the African Union (AU) by a Conference of Plenipotentiaries to help African Union Member States improve their capacities to better plan, prepare and respond to weather-related disasters. The objective of the ARC Agency is to assists AU Member States to reduce the risk of loss and damage caused by extreme weather events affecting Africa’s populations by providing, through sovereign risk insurance, targeted responses to natural disasters in a more timely, cost-effective, objective and transparent manner.
For more information, please visit: www.africanriskcapacity.org
The African Risk Capacity Insurance Company Limited (ARC Ltd) was established in 2013 is a financial affiliate of the African Risk Capacity.
Membership in the company’s 2015 insurance pool included the countries which took out insurance contracts to cover agricultural seasons during the calendar year starting 1 May 2015; this 2015/2016 pool consisted of The Gambia, Kenya, Malawi, Mali, Mauritania, Niger and Senegal. – The members of ARC Ltd also include its capital contributors, the United Kingdom (through DFID) and Germany (KfW on behalf of BMZ).
For more information, please visit: http://ltd.arc.int
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For further Information, please contact:
info@africanriskcapacity.org Tel: +27 11517 1640; +27 11517 1535
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