14 As an alternative risk solution, parametric insurance eases the financial blow of natural disasters on vulnerable nations. Satellite data is used to determine the potential impact of a disaster and the commensurate insurance payout, assuring governments of quick access to funds in the event of a calamity. This allows them to deploy emergency relief when needed most, instead of having to wait for months until damage assessments are complete. Parametric insurance has been in existence for more than 20 years, but in sub-Saharan Africa, the implementation of comprehensive disaster risk management (DRM) and financing (DRF) frameworks are still in their early days. Historically, governments have depended on post-disaster international donor appeals. This reactive model catalyses fragmented aid efforts, delayed funding, and a muted crisis response capacity. Consequences are severe – loss of life, infrastructure damage, interrupted essential services, health and hunger insecurity, and displacement. Since 2014, ARC has been working with governments to create awareness while motivating for the evolution of the appeals-based model to parametric insurance. ARC also helps governments improve their planning, preparedness, and response to natural disasters. This is a significant differentiator among parametric insurers. Humanitarian agencies continue to play a pivotal role, and the ARC Group’s innovative Replica Programme allows them to duplicate country policies. This collaborative approach has proven valuable for bolstering national resilience and increasing emergency coffers, enabling a proactive and coordinated approach that saves more lives and livelihoods. The Replica Programme builds on governments’ DRM efforts and helps them transition from traditional postdisaster relief to an integrated, anticipatory approach that includes gradual capacity building and government ownership over planning/response. Despite the growing recognition of the importance of parametric insurance, several challenges remain, including fiscal restraints, the lack of an insurance culture in Africa, policy gaps, competing economic priorities and political fluctuations. ARC Ltd. continues to work at creating a better understanding of how parametric insurance fits into DRM, while also addressing the cost of insurance premiums through innovations such as Replica and risk pooling. With Africa’s massive climate funding shortfall, it has never been more critical for the continent to look to strategic partners who can assist from within and to recognise that parametric insurance offers a lifeline. CLIMATE CHANGE & SUB-SAHARAN AFRICA The region is experiencing more frequent and fluctuating extreme weather events like floods, droughts and heatwaves. Climate change is also exacerbating disease, poverty and social and economic tensions. “Without adaptation measures, the impact from climate change could not only result in real GDP losses of up to 7% but also increase push over a million more people into poverty by 2050.” – The World Bank OUR OPERAT I NG ENV I RONMENT OUR OPERATING ENVIRONMENT
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