ARC drought insurance payout to Malawi
Malawi held African Risk Capacity drought insurance for the 2015/16 season. The model first estimated 20,594 people affected against about 2 million, and a USD 8.1 million payout came about nine months after the emergency declaration.
Payout of USD 8.1 million against an estimated drought response need of USD 395 million.
Status As of March 2024: the 2015/16 payout stands at USD 8.1 million, paid about nine months after the emergency declaration; in 2023/24 the model triggered and about USD 11.6 million was paid.
What happened
African Risk Capacity (ARC) is an African insurance pool that pays governments when a drought model is triggered. Malawi's premium for the 2015/16 season was about USD 4.7-5 million.
The ARC model first estimated that 20,594 people were affected by the drought. The estimate was later revised to about 2 million. ARC attributed the error to farmers having switched to a different maize variety than the model assumed.
A payout of USD 8.1 million was agreed in November 2016 and paid in January 2017, about nine months after the emergency declaration. The estimated total drought response need was USD 395 million.
ActionAid said Malawi had "effectively made an economic loss." The report was covered by Climate Home News in May 2017 under the headline that the G7-backed insurance was too little, too late.
Across all ARC pools, premiums of over USD 100 million were collected for USD 720 million of cover (around 2020), and USD 65 million had been paid out by then. By March 2024 ARC reported total payouts above USD 170 million. In the 2023/24 El Nino drought the model triggered for Malawi and the government and UNHCR received about USD 11.6 million.
- 20152015/16 drought season; Malawi insured through ARC
- 2016Payout of USD 8.1 million agreed in November
- 2017Payout made in January, about nine months after the emergency declaration; report coverage in May
- 2024ARC marks ten years and reports payouts above USD 170 million; Malawi government and UNHCR receive about USD 11.6 million for 2023/24
What was said
“effectively made an economic loss.”
Where accounts differ
Each party's account, side by side, with its source. The record does not settle these points; it shows them.
The model error came from farmers switching to a different maize variety than the model assumed.
ActionAidHow it looked
Who gained
Reached nature or the ground
Gained elsewhere
Responses on record
- African Risk Capacity (2017): Attributed the model error to farmers having switched to a different maize variety than the model assumed. · ActionAid
In court and with insurers
Lawsuits and rulings
Insurers
- 2016Paid$8.1m USD 8.1 millionAfrican Risk Capacity → Government of MalawiStated reason: Model first estimated 20,594 people affected against about 2 million; payout agreed November 2016, paid January 2017.
Premium of about USD 4.7-5 million; estimated total drought response need USD 395 million. ActionAid
- 2023/24Paid$11.6m about USD 11.6 millionAfrican Risk Capacity → Government of Malawi and UNHCRStated reason: El Nino drought; the model was triggered.
Payout to the Malawi government and UNHCR. Artemis
What nature saw
Nature's report opens this page. Below: further outcomes measured on the ground.
What we don't know
Nature
- Not measured Harm to nature: The record holds no measurement of harm to nature.
Accounts
- Disputed Did the insurance deliver what it promised for the 2015/16 drought?
Record
- None on record ARC's premium totals after 2020 are not in the sources reviewed.
- Disputed ARC overall payouts are given as USD 125 million across eight pools (2022 annual report) and above USD 170 million (2024); the two figures cover different periods.
Did the harm stop?
Not applicable in the sources reviewed: they record the size and timing of the payout, not the end of any harm to nature.
Who paid?
The sources reviewed do not say who paid the premium; the drought response need not covered by the payout fell on Malawi.
Sources
Press and investigations
- G7-backed insurance 'too little, too late' for Malawi drought, report findsClimate Home News · 2017-05-25
- African Risk Capacity marks ten-year anniversaryCreamer Media · 2024-03-05
- ARC Ltd releases 2022 annual reportAfrica.com · 2022
Communities and civil society
- ActionAid report on ARC drought insurance and Malawi (2017)ActionAid · 2017
Researchers
- African Risk Capacity (case study)Climate Policy Initiative · 2020