38 “We’ve discussed with our donors and ARC Limited that we need to have another layer that would trigger less frequently. Perhaps even one in 10 or one in 15 with a rate online that is significantly lower of between 5% and 10%, so that should a climate event occur, we can leverage the multiplier effect of insurance more. Of course, this would need to be quite infrequent otherwise it wouldn’t be the best approach.” The issue of regional climate events could also potentially be addressed with the CAT layer. The current challenge is that each country must purchase its own policies, and the Replica policies are linked to that country. “It’s a difficult situation because it’s the decision of the governments,” says Dubreuil. “We’ve seen this in West Africa between Senegal and The Gambia, where one country receives a payout, but the other does not, for the same drought event, despite one country being situated inside the other.” ARC Ltd.’s impact in 2023 For beneficiaries, the impact has been significant. “In the first season, the microinsurance payouts in Madagascar were large, corresponding to about eight months of cash transfers we provided to the most affected households”, says Dubreuil. “Of course, this meant the loss ratio for ARC Limited was fairly high, but it served to grow our partnership, which we see as a long-term journey.” Jones agrees. “Through the provision of significant funding, ARC Ltd. has made a difference to both implementors and beneficiaries, and it has also been proving the concept. When there were no substantial payouts, people were experiencing premium fatigue. I think it’s obvious now that if products are designed properly, they will pay out, and if the right resources are invested, you can get something meaningful back, such as policies with less frequent return periods – this is an area where we would like to be more active. “In the context of drought, with slow onset drought, we see huge value in receiving the funds earlier. On the fast onset side, we had our first experience with the payout in Madagascar, and we realised that the added value from parametric insurance is different for fast onsets. The value there is more on the preparedness and on the predictability of the funds and being able to leverage other resources we have internally through the predictability of those funds.” Donors also acknowledge the significant value of Replica. “There have been coups and institutional issues across Africa, and Replica has provided some stability in countries like Mali, Burkina Faso, and Sudan, where we’ve managed to maintain a certain degree of coverage even if we couldn’t cover the whole population. Governments have also seen the impact on their capacity strengthening and system building,” says Dubreuil. “Stakeholders have been reflecting, however, on the frequency of payments and the return, which at the beginning was less important. Now, they are interested in having a more structured risk financing approach. We, therefore, conducted an impact assessment through Tetra Tech, which provided data analytics on the Mali payout in 2021. The early response made possible by the Replica payout created an up to 20% decrease in the cost of essential food items, thereby reducing the cost of the humanitarian response. REP L I CA PARNTER I NTERV I EW: WFP
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