Ghana secures first sovereign drought insurance policy from ARC

The Government of Ghana has purchased its first sovereign drought insurance policy, marking a significant step toward protecting vulnerable communities and the agricultural sector from drought.

Coordinated by the Global Shield Secretariat, this policy was issued by African Risk Capacity (ARC) Ltd. and funded with $1 million from KfW Development Bank on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and the Global Shield Solutions Platform (GSSP), managed by the Frankfurt School of Finance & Management.

This collaboration reflects the government’s commitment to enhancing resilience in agriculture and safeguarding livelihoods against climate-related risks.

Designed to provide financial support in the event of a drought, the policy enables the government to respond quickly and effectively to help affected farmers and communities. Insurance payouts will be used to protect food security and stabilise the agricultural sector.

Ghana’s investment in protecting vulnerable livelihoods marks the successful outcome of a collaborative effort initiated by the Global Shield against Climate Risks Initiative. This initiative brought together key stakeholders and adopted an inclusive approach to identify climate risks and develop effective financial solutions, paving the way for this first drought insurance policy.

This proactive strategy serves as a strong example for other African nations facing similar climate challenges. As the continent grapples with climate change, risk transfer mechanisms like drought insurance will be essential for protecting lives, securing livelihoods, and strengthening climate resilience.

Malvern Chirume, Chief Underwriting Officer at ARC, said: “The Government of Ghana has shown foresight and initiative by implementing this first-ever drought policy.”

Chirume continued: “Within the context of climate change where drought events will increase in frequency and severity, the country is now protected against a potential crisis.”

He emphasised that the policy extends beyond financial protection, saying, “It ensures that vulnerable communities in Ghana can continue to thrive despite increasingly erratic weather patterns due to the early warning tools available to the government. This policy is also a key component of our broader efforts to enhance climate resilience across Africa.”

Nilesh Prakash, Co-Director of the Global Shield Secretariat, remarked: “We are delighted to see the implementation of the Global Shield process come to fruition in Ghana, through multi-stakeholder, collective action, marking the completion of the first in-country process. We know that disasters don’t wait to happen – they strike with little warning, so the importance of pre-arranged finance mechanisms cannot be stressed enough. With the ARC policy in place, we are assuring the resilience of vulnerable livelihoods amid the ever-growing threats posed by climate change.”

Karsten Löffler, Co-Head of GSS, added: “The GSSP is very pleased to financially support the purchase of ARC drought insurance by the Government of Ghana for the benefit of vulnerable populations.

“It is a good example of what pooling funds for pre-agreed risk financing solutions and international coordination can achieve.”

Malte Marek, Senior Portfolio Manager at KfW, noted: “KfW Development Bank is very happy that Ghana is becoming an active member of the ARC family.”

Marek added: “Being the second largest economy in western Africa, Ghana can set the scene for other countries joining ARC in the future.”

Charlotte Norman, Government Coordinator for the ARC Programme, stated: “Ghana’s participation in the ARC risk pool is evidence of the proactive approach that the government is taking to protect the lives and livelihoods of the population that relies on agriculture as a source of livelihoods.”

“This protection is one of many initiatives that the Government of Ghana is taking to boost its capacity to respond to various climatic shocks that affect its population,” she concluded.

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