ARC & Descartes team on first Djibouti multi-peril parametric policy

The African Risk Capacity (ARC), a provider of parametric disaster insurance products, has signed a first-of-its-kind multi-year, multi-peril agreement with the Government of Djibouti, designed with the help of parametric specialist Descartes Underwriting to protect the lives and livelihoods of one of the most climate-vulnerable communities on the African continent.

Djibouti, a country in the Horn of Africa, generally experiences low annual precipitation levels and therefore suffers from droughts, but is also impacted by extreme precipitation events that can lead to intense and devastating flash floods.

In order to boost its resilience to these adverse weather events, the country’s government has signed a ground-breaking agreement with ARC.

Specifically, it provides the country of Djibouti with five years of disaster risk management capacity and disaster risk insurance coverage offered by ARC, covering both drought and excess precipitation.

To underwrite the insurance policy, The World Bank and the Global Risk Financing Facility multi-donor fund have provided USD 2 million.

“This is a first for Djibouti and underscores the World Bank’s commitment to support efforts that help communities to become more resilient and to adapt to climate change through the use of innovative financial instruments, including insurance,” said Boubacar-Sid Barry, World Bank Resident Representative in Djibouti.

Additionally, ARC collaborated with Descartes Underwriting, an insurtech focused managing general agency that specialises in parametric and data-driven risk transfer products.

This isn’t the first time ARC has leveraged the firm’s expert technical and modelling capabilities, and ARC notes that their strong relationship, as well as Descartes’ understanding of risk and ARC’s work in Africa, led to its involvement in Djibouti.

“We were elated to contribute our scientific expertise to support a more precise understanding and modelling of the risks in Djibouti, and then to design and support the risk transfer of this customised multi-peril cover. We sent an underwriter to Djibouti as part of our commitment to the project, and to the productive collaboration between ourselves, ARC, the World Bank and the Government of Djibouti,” said Tanguy Touffut, CEO of Descartes Underwriting.

Expanding on Descartes’ involvement, Alessandro Girelli and Charlotte Rougier, underwriting managers at the firm, note that the country is arid with no significant, permanent surface-water source. In light of this, the aim of the insurance policy for drought is to cover the pastoral population, who 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 Rougier.

Girelli added, “The focus of the excess precipitation part of the insurance coverage is on Djibouti-City, which comprises approximately 60% of the population. People living here are particularly vulnerable to extreme rainfall due to population density, the topography of the city and its coastal location.

“Descartes is proud to have been involved in this pioneering work, and grateful to Generali Global Corporate & Commercial, which was also part of supporting this achievement. Our role is to revolutionise insurance in the face of climate change and provide cover to those most vulnerable to its impact. This is a space where we want to continue contributing.”

Commenting on this inaugural agreement, Ibrahima Cheikh Diong, UN-Assistant Secretary General and Director General of ARC, said, “The Government of Djibouti has demonstrated yet again its leadership role in the region in the domain of disaster risk management by reinforcing its planning, preparation and response capacities against natural disasters. We at ARC are extremely proud to stand by Djibouti as we continue to provide demand-driven technical support and holistic solutions to the country and other member states to ensure that they are well-equipped to protect their most vulnerable populations against climate shocks.”

Djibouti was in fact an original signatory of ARC’s treaty in 2012, and this new arrangement shows the government’s intensified efforts to mitigate the human and financial costs of natural disaster events, while at the same time expressing confidence in its ARC membership.

Lesley Ndlovu, CEO of ARC, commented, “Not only is this multi-year, multi-peril agreement ground-breaking in Africa, but it’s also the first time we are covering excess precipitation. Being able to build two unique, innovative risk products for Djibouti and being ready to launch in record time has set a precedent that we hope to replicate throughout Africa going forward.”