Earlier this month, African Risk Capacity (ARC) made an insurance payout to the Government of the Republic of Malawi and its Replica partner, the United Nations High Commissioner for Refugees (UNHCR), following the devastating 2023/24 El Niño-driven drought. The payout of just over USD 11.6 million will support immediate humanitarian efforts to address food insecurity and reach the most vulnerable communities impacted by the widespread crop failures. ARC says this is the largest drought payout in Malawi’s history, addressing the worst drought in 100 years.
Ahead of the 2023/24 planting season, the Republic of Malawi secured an anticipatory sovereign insurance policy with ICMIF member ARC Ltd, the insurance affiliate of the ARC Group. The Malawi government’s participation in ARC climate risk insurance was facilitated by an insurance premium paid in part by the government and a premium support contribution from the African Development Bank (AfDB)’s Africa Disaster Risk Financing Programme Multi-Donor Trust Fund (ADRiFi-MDTF).
The record-breaking dry spell, exacerbated by the El Niño weather pattern, led to extensive crop failures. A state of emergency was declared in 23 districts out of the country’s 28 districts. The immediate impact of the payment is that there are funds to support over 2 million farming households which have been impacted by the drought and which face food insecurity and need assistance, emphasising the importance of resilience building.
“It is in moments like these that we can truly appreciate the role of sovereign insurance as an innovative financial instrument to help bolster Africa’s resilience,” said Lesley Ndlovu, CEO of ARC Ltd. “The southern African drought has tested the ARC concept, and we are proud to be enabling early response and coming to the aid of those in need”, he concluded.
The President of the Republic of Malawi, Lazarus McCarthy Chakwera, said: “This severity of this drought has been the worst in 100 years, and one in four of our people are at risk of going hungry. It is a great moment for Malawi when you have friends that come when you are at your lowest. It makes us feel energised. What has happened is unprecedented.”
Simplex-Chithyola Banda, Minister of Finance and Economic Affairs added: “The government is seeing results from its proactive and forward-thinking approach to managing natural disasters; the resources will play a crucial role in strengthening the resilience of the affected communities.”
The Replica programme allows humanitarian actors to purchase insurance on behalf of a country and, in this case, Replica partner, the UNHCR, also took out a policy on behalf of refugees. This collaborative approach ensures that more people in need, including refugees, can be reached with critical assistance. For the first time, forcibly displaced communities and their hosts were included in insurance, increasing the total number of those covered and protected. According to an announcement from ARC Ltd, the combined payouts to the Republic of Malawi and Replica partner, UNHCR, will go a long way towards complementing other in-country recovery efforts. This was the first-ever inclusion of refugees in an ARC insurance policy through UNHCR’s participation.
“UNHCR is proud to have joined the ARC insurance risk pool for the first time in Malawi. The payout of just over USD 400,000 that we received will play a pivotal role in addressing the needs of refugees affected by the recent El-Nino induced drought”, said Kouame Cyr Modeste, UNHCR Country Representative. “This funding will be used to enhance food security and improve the livelihoods of forcibly displaced persons and their host communities”, he concluded.
In line with the Final Implementation Plan developed as part of the ARC contingency planning process, that guides the use of the payout, the government will use this fund to procure and distribute food aid. Replica partner, UNHCR, will use the payout to complement the same activities and reach more people.
“Malawi’s resilience has grown from strength to strength, all thanks to the joint efforts from the government, the ARC Group, and partners. This payout is yet another testament to the value of preparedness,” said Ibrahima Cheick Diong, UN Assistant Secretary General and ARC Group Director General. “Our goal is to reach the most vulnerable with speed, and the ARC mechanism is designed to do just that. We look forward to seeing how these funds will contribute to rapid response.”
ARC says the combined payouts to the Republic of Malawi and Replica partner, UNHCR, are expected to have a significant impact on the ongoing humanitarian response to the drought.
