Insuring countries against natural disasters

Insuring Countries Against Natural Disasters: Pool rules

Daniel J. Clarke, Ruth Vargas Hill
ifpri policy brief

The African Risk Capacity (ARC) pool is a proposed pan-Africa drought risk pool that would insure against drought risk in Africa south of the Sahara. Donors and, to at least a notional extent, member countries would pay annual premiums. In return, if, for instance, satellite weather indexes call for a response to a severe drought, the pool would make timely claim payments to insured governments. To be eligible to join the ARC pool, each government would have to develop a contingency plan that describes how it will use any claim payments. If fully operationalized, the ARC pool will mark a major change in how donors fund emergency support to countries in Africa during times of need.

In this brief, we summarize the key lessons that have emerged from a cost-benefit analysis of the ARC pool and discuss how these lessons can be more broadly applied to other cross-country pools.