Djibouti signs five-year disaster risk financing deal with ARC

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 the lives and livelihoods of its most climate-vulnerable communities.

The ground-breaking 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 the 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 better prepare, plan, and respond to natural disasters, which have increased in frequency and severity due to climate change.

ARC Ltd., 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 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,” said Ibrahima Cheikh Diong, UN-Assistant Secretary General and Director General of the African Risk Capacity Group. 

“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.”

World Bank provides seed funding

The World Bank and the Global Risk Financing Facility multi-donor fund have provided $2m to underwrite the insurance policy.

“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.

While Djibouti was an original signatory of ARC’s treaty in 2012, according to Executive Secretary for Risks and Disasters Ahmed Mohamed Madar, 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.

“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,” said ARC CEO Lesley Ndlovu. 

”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.” 

Protection from weather extremes 

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, they move according to the rainfall and the availability of fodder.

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.

“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 Charlotte Rougier, underwriting managers at Descartes.

“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,” explained Descartes’ Alessandro Girelli .

Descartes Underwriting is bringing its expert technical and modelling capabilities and understanding of risk to the project.

The company uses advanced data and machine-learning techniques to model underlying phenomena and unlock risk insights that better align with the realities of a shifting climate and risk landscape.

“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,” said Tanguy Touffut, CEO of Descartes Underwriting.

”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.”