The African Risk Capacity Insurance Company Limited (ARC Ltd) made payouts of USD 1.4 million to the Government of Zimbabwe and another US$ 290,288 to UN World Food Programme (WFP), in parametric drought risk insurance payouts to support the extensive drought response efforts in Zimbabwe.
The payouts announced via a virtual ceremony were the result of drought insurance policies bought by Zimbabwe’s National Treasury and UN World Food Programme (WFP) to cover the 2019/20 rainfall season.
These payouts will contribute in funding the early response measures put in place by Government and WFP through the ARC Operational Plan mechanism. The payout to the Government will be used to support over 155 000 families in the highly vulnerable districts of Buhera, UMP, Chivi, Binga and Bulilima, through direct mobile cash disbursements during the month of August 2020. 8. WFP will use the ARC payout to support around 33,550 beneficiaries with unconditional food assistance in prioritized wards during Sept/Oct’20 and complement the Government’s response efforts through the Food Deficit Mitigation Strategy.
Speaking after the official notification of the ARC payout, the Minister of Finance and Economic Development, Mthuli Ncube, said; “This is evidence that the Government of Zimbabwe is taking measures of cushioning its fiscus against natural disasters, in Zimbabwe. The payout will complement existing social safety nets that Government has structured to counter droughts but also to respond to the emergence of the COVID 19 pandemic.”
Zimbabwe is increasingly vulnerable to severe drought events, and other calamities such as floods and tropical cyclones. Given the unpredictable nature of occurrence of these disasters, Government has had to resort to National Budget reallocations to cushion vulnerable populations against their impacts. In that sense the Government of Zimbabwe has moved to revamp its disaster risk financing systems.
The ARC parametric risk insurance facility has been identified as a low hanging opportunity. With adequate insurance coverage against droughts, floods and outbreaks and epidemics at sovereign level, Government stands a better chance to cushion its fiscus against natural disasters now and in the future.
Speaking on the ARC payout to Zimbabwe, Ngozi Okonjo-Iweala, the Chairperson of African Risk Capacity (ARC) Agency said, “it is helpful that this payout is coming at a time when there is a compounded effect of COVID 19 pandemic; and we hope that in addition to assisting the population affected by the drought, it will enable the Government in easing the financial pressure of supporting affected communities. Although disasters are not to be celebrated, when a Government takes steps of hedging its investments in food security against natural risk to broaden fiscus flexibility when a disaster strike, it should be commended. “The payout signifies the policy direction that Zimbabwe and other Governments across the continent are taking towards a transformative culture to disaster risk management and financing for the benefit of the population that is vulnerable to climate change’, Dr. Okonjo-Iweala stressed.
The Government has also called upon Development Partners to complement its efforts to increase insurance coverage at sovereign level. This support can either be direct or indirect. The ARC insurance products can be accessed by non-government entities such as UN Agencies, INGOs and private sector entities.
Niels Balzer, the (a.i) UN World Food Programme Country Director and Representative for Zimbabwe, said, “The ARC payout to the Government of Zimbabwe and WFP through the Replica initiative is proof that the concept works as an innovative instrument to finance early response and lifesaving actions in the aftermath of extreme droughts. When combined with other instruments such asThe ARC parametric risk insurance facility has been identified as a low hanging opportunity. With adequate insurance coverage against droughts, floods and outbreaks and epidemics at sovereign level, Government stands a better chance to cushion its fiscus against natural disasters now and in the Future.
Development Partners running resilience projects in disaster prone regions of Zimbabwe can directly secure their investments by purchasing insurance coverage from ARC, whilst micro-insurance companies can either act as insurance aggregators of small-holder farmers to allow bulk purchase of crop insurance from ARC or can purchase re-insurance products from ARC on specific terms and conditionalities. The ARC insurance products are highly competitive given that they capitalise on pooling risk across the risk diverse African continent, thus attracting favorable rates on the international re-insurance market.
Over and above insurance products, these entities can also capitalise on ARC early warning, risk analytics, operational planning for early response and knowledge on disaster risk financing products and capabilities.