Developing a trigger-based finance framework for climate related disasters
Malawi is one of the world’s most low-income countries, making it particularly vulnerable to the adverse effects of climate change, including dry spells, seasonal droughts, intense rainfall, and both riverine and flash floods. To enhance the resilience of vulnerable populations against these adversities, the InsuResilience Solutions Fund (ISF) is co-funding the development of a climate risk insurance product in collaboration with the Danish Red Cross (DRC), the Malawian Red Cross Society (MRCS), African Risk Capacity (ARC) Ltd, and JBA Risk Management Ltd.
Malawi’s low-lying terrain makes it highly susceptible to flooding, with heavy rainfall from tropical depressions being the primary cause. These floods disrupt food and water security, energy resources, and the livelihoods of rural communities. With agriculture, predominantly rain-fed and small-scale, contributing 80% of Malawi’s GDP, droughts and floods present serious risks, affecting much of the population.
In response to the increasing threat of climate-related disasters in Malawi, the ISF has signed a grant agreement with the DRC and MRCS, who are leading the project. The initiative aims to enhance the capacity of vulnerable communities to anticipate, manage, and recover from large-scale flooding events. Supported by ARC as a risk taker and JBA Risk Management as a flood model provider and calculation agent, the project will create and introduce a nationwide, index-based insurance product. This innovative insurance solution will enable rapid payouts and swift response measures integrated into a comprehensive disaster risk financing framework that links triggers, funding, and digital contingency plans from the national to the community level.
The MRCS and DRC have established vital community structures to support early warning and risk reduction. These include a text-message-based early warning system (EWS) and a community-based surveillance network for the early detection of potential hazards. EWS teams have installed rain and river gauges to monitor flood threats and promptly relay information to key stakeholders. Building on ARC’s experience in offering drought insurance in Malawi, the new flood insurance solution will also leverage insights from early pilot flood insurance projects in other countries to ensure effective implementation.
This project represents a significant step towards enhancing Malawi’s resilience to climate-related disasters, helping safeguard livelihoods and ensure quicker recovery in the face of growing environmental challenges.