The ARC Replica initiative, which began in mid-2017, increased the engagement of the World Food Programme (WFP) and ARC Ltd, giving WFP the much-needed collaboration of working together.
Collaborative opportunities
The drought modelling software that is used to underpin ARC’s drought risk insurance policies was born out of WFP’s Vulnerability, Analysis and Mapping Unit. The software has made it possible for ARC to undertake accurate and reliable drought mapping initiatives.
Dual relationship
WFP shares a harmonious dual relationship with ARC Ltd: as an underwriter for the ARC Replica insurance policies and as a collaborating partner in the ARC Replica programme design and improvement. Some key results of the relationship include the following:
• As Replica partners, we take pride in being regarded as equals with ARC’s original clients, the sovereign governments, and the constructive sharing of feedback makes our relationship even stronger;
• Quick turnaround times, leading to improvements in policy wording after WFP’s legal team review, in some countries;
• Adjustments in the duration of data series for pricing and in the quality of the index. Using the revised data series, ARC Ltd adjusted the risk profile for Mali and Burkina Faso offering them an optimised product;
• Improvements to timeliness of issuing policies have been noted. This, however, requires the combined efforts of different stakeholders and has the potential to lead to more policies being signed and eventual timely settlement of premiums.
Opportunities for improvement
Improvements can be made in the following areas:
• Basis risk events – ARC Ltd should explicitly state its policy on basis risks events, highlighting that it would not pay for such events. Having made commercial payments in the past has created some expectations and these need to be handled well;
• Rules on Risk Transfer Parameters – lessons can be drawn out of West Africa and Zimbabwe and attending to the following would enhance the relationship with the insured
• Lessons out of West Africa – in West Africa, the rules were shared only after the ARV profiles had been customised, leading to dissatisfaction among some sovereigns on the performance of the product and at this stage there was no room to make changes;
• Lessons from Zimbabwe – the Zimbabwe case was better handled as the risk transfer parameters were communicated before work on the ARV customisation began. This approach should be encouraged as it lays out the expectations.
Written by WFP: Emily Jones, Climate Risk Financing Programme Policy Officer