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Action Aid faults drought insurance that failed Malawi

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One of the leading charities, Action Aid Malawi, has described the African Risk Capacity (ARC) drought insurance policy which government purchased in 2015 as an experiment that failed Malawi and women in particular.

The government purchased the insurance policy, at the cost of close to $5 million (about K3.6 billion), from African Risk Capacity insurance Company Limited. It was meant to cover the 2015/16 agricultural season.

The decision was taken amidst a global wave of enthusiasm for climate insurance that the World Bank and G7 countries generated with support from the insurance industry.

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Action Aid Malawi has said the tendency on the part of the G7, the World Bank and other powerful actors to push climate and disaster insurance on the poor and vulnerable needs to stop.

In its report titled ‘The Wrong Model for Resilience: How G7- backed Drought Insurance Failed Malawi, and What We Must Learn From It’, the charity says insurance failed to deliver its promise of timely assistance due to major defects in the model, data and process used to determine pay-out.

According to the report, which was released on Thursday, the pay-out of about $8 million, which Malawi received in January this year, came in too little and too late.

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“In the meantime, the government was left pursuing conventional means of raising money to buy food for its hungry citizens, with the total drought response costs estimated at $395m,” the report reads.

The reports says the ARC insurance policy has resulted into an effective economic loss for Malawi, represented poor value for money even if it worked as it should have, describing it as the wrong option in the first place.

Action Aid said ARC’s African members should be recognised for their solidarity and leadership in stepping up to fill a gap in international support for adaptation and disaster resilience.

The charity also said the members should hold inclusive, evidence based discussions to design a more appropriate African model for building resilience and addressing loss and damage.

“Malawi Government and other development partners should instead promote a rights-based, equitable, effective and empowering alternative model for climate risk financing: namely, supporting development of cooperatives, backstopped by adaptive, scalable social protection systems plus an equitably and predictably financed global mechanism for social protection and early response to crises,” said Mohammed Sillah, Action Aid Malawi Interim Executive Director.

The pay out from the drought insurance policy was not automatically triggered, as the model that African Risk Capacity used calculated that only 20,594 people had been affected by the drought yet a Malawi Vulnerability Assessment Committee report indicated that over 6.5 million people had been affected.

Minister of Finance Goodall Gondwe already expressed dissatisfaction with the policy and said government was considering whether to buy another policy or not.

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