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Mar 2024

Djibouti: African Risk Capacity Group signs Africa's first multi-year, multi-peril agreement

Source: Middle East Insurance Review | May 2023

The government of Djibouti has signed the first-ever multi-year, multi-peril agreement on the African continent with the African Risk Capacity Group (ARC Group) to protect its most climate-vulnerable communities.
 
The agreement means that the country in the Horn of Africa now has access to five years of disaster risk management capacity building and disaster risk insurance coverage offered by ARC Group, covering two of its most prevalent hazards – drought and excess precipitation.
 
ARC Agency, a specialised agency of the African Union, assists African governments to prepare, plan and respond better to natural disasters, which have increased in frequency and severity due to climate change. ARC, as its insurance affiliate, provides disaster risk financing mechanisms, such as risk pooling and risk transfer services, to help countries build resilience and recover faster after a disaster.
 
The World Bank and the Global Risk Financing Facility multi-donor fund have provided $2m to underwrite the insurance policy.
 
Customised cover
Paris-headquartered Descartes Underwriting (Descartes) partnered with ARC to design the customised multi-peril cover. The policy against drought covers the entire country with indices based on rainfall seasonality and migration patterns of the pastoral population. While the excess precipitation portion centres on Djibouti City, home to nearly 60% of the population with high exposure to rainfall-driven flash floods due to population density, city topography and its coastal location.
 
According to Descartes underwriting managers Alessandro Girelli and Charlotte Rougier, Djibouti is an arid country with no significant, permanent, surface-water source and the goal of the insurance cover for drought was to cover the pastoral population, who are the most vulnerable to drought. Mainly nomadic herders, living in rural areas, move according to the rainfall and the availability of fodder.
 
“We custom-designed the index to align with both the rainfall seasons and migration patterns of the pastoral population. The index is also based on soil-moisture deficit and the policy covers the entire country,” said Ms Rougier.
 
While Djibouti has very low annual precipitation levels, it is also affected by extreme (high intensity over a short period) precipitation events that can cause devastating flash floods, with significant human and economic losses.
 
The signing of the agreement comes as the World Bank is preparing to launch its Risk Reduction, Inclusion and Enhancement of Pastoral Economies (DRIVE) programme – a massive de-risking initiative of the pastoral value chain in the Horn of Africa. The financing of Djibouti’s multi-year, multi-peril policy is part of the DRIVE programme.
 
While Djibouti was an original signatory of ARC’s treaty in 2012, this agreement now signals the government’s intensified efforts to mitigate the human and financial costs of natural disasters, simultaneously expressing confidence in its ARC membership. M 
 
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