The United Nations Development Programme (UNDP), the German Government and the Insurance Development Forum (IDF), and the Lagos State Government in Nigeria today launched a EUR 1.6 million project to develop a sub-sovereign risk transfer scheme to provide flood risk cover for Lagos State, Nigeria.
Lagos State has a high proportion of poor and vulnerable people, and suffers from regular widespread flooding exacerbated by the impacts of climate change. This Tripartite project leverages innovative insurance solutions to protect 1.7 million households (8.5 million people) in Lagos State, and ensure quick payouts in the event of flooding.
Zainab Shamsuna Ahmed, Minister of Finance, Budget and National Planning, Nigeria said: “The Lagos State Government is very aware of the ongoing flood risks in the state, the state has placed emphasis on these risks and is currently focused on planning, mitigation, and response. I’m very pleased that through this programme we are placing greater emphasis on proactive finance and risk management and transfer, with the ambition of creating greater resilience for Lagos State’s population.”
The project aims to harness an innovative parametric insurance solution that will pay out a set amount based on the magnitude of the flood, as opposed to the magnitude of the losses in a traditional indemnity policy. The insurance product is expected to be integrated within the existing flood risk management framework, and to significantly enhance the Lagos State flood resilience and contingency planning in the coming years. The insurance will release funds to the Lagos State Government which will allow for direct cash transfer to affected households or contribute towards emergency disaster relief and rapid reconstruction of critical network infrastructures.
The risk transfer project is led by IDF members AXA Climate and Swiss Re, and closely supported by UNDP. Further partners in the project are AXA Mansard, the Nigerian entity of the AXA Group; Africa Risk Capacity Ltd., an affiliate of the African Union’s African Risk Capacity; JBA Risk Management, flood data specialists in flood hazard and vulnerability datasets development; and ICEYE, an earth observation-driven near real-time flood depth and extent data provider.
The overall response coordination will be supported by the Office of the Governor of Lagos State, the Ministry of Finance and Lagos State Emergency Management Agency (LASEMA). The InsuResilience Solutions Fund (ISF), funded by the KfW Development Bank on behalf of the German Federal Ministry for Economic Cooperation and Development and managed by Frankfurt School of Finance & Management, will co-fund the project alongside the IDF insurance industry members.
UNDP Nigeria Resident Representative Mohamed Yahya reaffirmed that “We at UNDP Nigeria are committed to working closely with the Federal Government of Nigeria to support capacity building and contingency planning to help build measures that will guard against flood risks in Lagos State.” He added that “UNDP will deploy technical assistance to support the governance of risk financing pay-outs from industry that will ensure that the right management systems and practices are put in place.”
In addition to playing a coordination, project management and convening role throughout the development of the risk financing solution for Lagos State, UNDP, through its Insurance and Risk Finance Facility, will also work closely with the Federal Government of Nigeria to make risk transfer central to the way in which the country tackles both climate change and development, helping to build the country’s financial resilience. As part of this work, UNDP will support the Ministry of Finance to financially manage risk and collaborate with both industry and regulators to create an inclusive enabling environment that secures a sustainable insurance market in Nigeria.
Antoine Denoix, CEO of AXA Climate said: “We are delighted to be leading this project and working with global partners as well as local insurer AXA Mansard. Flood risk capacity development for Nigeria within the underwriting community will be key in developing appropriate flood risk models and products as well as in integrating risk management advisory for Lagos State. This initiative offers immediate assistance to affected people, especially the poor and vulnerable, and protects critical infrastructure. Some funds can also be used for immediate reconstruction of roads, bridges, and other infrastructure.”
This risk transfer project is part of the Tripartite Programme of UNDP, the German Government, and the IDF that provides technical assistance and sovereign and sub-sovereign risk financing solutions to countries vulnerable to the impacts of climate change, for their public assets, as well as for sectors, such as agriculture, education, health and transport, among others, to protect their most vulnerable populations.
Ivo Menzinger, Co-Chair of IDF Sovereign & Humanitarian Solutions Working Group and Head Europe, Middle East & Africa and Managing Director Public Sector Solutions at Swiss Re said: “Flooding in Lagos disproportionately impacts poor and vulnerable communities, and I am delighted that IDF Members Axa and Swiss Re have stepped up to help provide a flood risk transfer mechanism in Lagos that can play a crucial role in financing the residual flood risk faced by the population.” He added by saying, “We believe that preventive measures and insurance are two sides of the same coin. But a critical limit to all risk reduction measures is the current lack of data and modelling, by supporting the compilation, creation and analysis of flood risk data in Lagos as a public-private-partnership, these crucial steps to design the insurance product will also lead to the creation of key assets for other measures such as the mapping of vulnerability zones, to help improve resilience and proactive flood risk management in Nigeria.”
See factsheet on the project.