24.01.2014 – 16:00
KfW support for drought insurance for Africa
- Nobel Laureate Robert J. Shiller presents new insurance instrument at the World Economic Forum - Approx. EUR 50 million to capitalize ARC Insurance Company - African states less vulnerable to climate change
On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), KfW Development Bank takes an interest of approx. EUR 50 million (EUR 46 million of which is equity capital and EUR 4 million of which is a grant for consultancy and training measures) in ARC Insurance Company Ltd. (Africa Risk Capacity Agency Insurance Company (ARC)) and is thus significantly involved in the setting up of ARC. This innovative insurance company is at the focus of today's event at the World Economic Forum in Davos by Robert J. Shiller, the 2013 Nobel Laureate for Economics.
The company is offering African countries insurance against droughts for a risk-adjusted premium. In the event of a drought, ARC agrees to promptly pay out the insured sum for a drought programme that is agreed upon with the policyholder and directly benefits the local community. The instrument is helping the affected African countries to be far less vulnerable to the risks of extreme weather events and drought caused by climate change.
"The world's first drought insurance for African states is a key contribution to food security and poverty alleviation for African communities that are particularly affected by natural disasters such as droughts. Indeed, this needs-based and sustainable insurance solution, which is affordable for the countries, is an innovative milestone. We are delighted to have the opportunity to turn the ideas of Nobel Laureate Robert J. Shiller into reality as part of an investment on behalf of the German Government," said Dr Norbert Kloppenburg, Member of the KfW Group Executive Board.
Climate change has long since become a reality - and its effects are already being felt, especially by people in developing countries, i.e. those who are the most vulnerable. It is up to us, the affluent industrialised countries and co-contributers to climate change, to take action. With this drought insurance scheme, we are giving affected countries an instrument with which they can react quickly to climate-related crop failure. Smallholder farmers, for whom a period of drought can easily turn into a threat to their survival, will benefit especially.
KfW and the UK's Department for International Development (DFID) are contributing the seed capital for the ARC insurance company. The World Food Programme (WFP) initiated the project on behalf of the African Union (AU). Other donors, such as the Swiss Agency for Development and Cooperation (DEZA), DFID and the Swedish International Development Cooperation Agency (SIDA), have been supporting the development of the insurance model and various types of preparatory work.
The insurance company is managed by a private insurance manager and underwriter. It is expected that the equity participations by KfW and other public investors will mobilise private investors. In the medium run ARC will be majority owned by the African countries who benefit from the insurance cover. ARC is procuring the reinsurance services from commercial insurance companies such as Munich Re or Swiss Re.
Original content of: KfW, transmitted by news aktuell