African Risk Capacity to deliver $8 mln drought insurance payout to Malawi
Source: Middle East Insurance Review | Dec 2016
The African Risk Capacity Insurance Company Limited (ARC Ltd) is processing an insurance payout of approximately US$8.1 million to the Government of Malawi to support its response to recent droughts.
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.
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 and requesting a re-assessment.
On re-assessment the risk modelling team at ARC found that farmers in the country had switched to use a different type of crop than the model had been calibrated to assume was widely in use in Malawi. Once the drought model was re-calibrated using this crop the parametric policy was triggered and the $8.1 million payout is now due.
Every policy issued to an African member state by the ARC Ltd is based on parameters derived 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.