The Integrated Disaster Risk Management Alliance (IDRIMA)—an initiative established by the Insurance Development Forum (IDF) and AFD Group—has published a policy paper advocating the use of parametric insurance to shield hydro-dependent energy utilities in Eastern and Southern Africa from climate risks.
Titled From Exposure to Protection: The Case for Parametric Insurance Revenue Cover for Hydro-Dependent Utilities in Eastern and Southern Africa, the brief highlights the growing financial vulnerabilities of regional power sectors affected by prolonged droughts and unpredictable rainfall patterns.
Hydropower accounts for over 17 per cent of total electricity generation across the African continent, rising above 80 per cent in nations including the Democratic Republic of the Congo, Ethiopia, Malawi, Mozambique, Uganda, and Zambia. Drought-induced disruptions directly threaten sovereign creditworthiness, national electricity supply, municipal budgets, and consumer tariffs.
The report recommends implementing parametric revenue protection to complement physical infrastructure investments, proposing regional risk pooling mechanisms to widen access to insurance coverage across public and private financial institutions.
Key analytical findings and policy recommendations include:
- Sovereign financial risk: Extreme hydrological variability exacerbated by climate change creates severe fiscal strains, forcing governments to subsidise power imports or absorb utility operational shortfalls.
- Parametric solution design: Recommends index-based parametric insurance policies that automatically trigger payouts when water flow or rainfall thresholds fall below critical operational levels, restoring utility revenues without lengthy claims adjustments.
- Stakeholder action plan: Outlines actionable implementation steps for national finance ministries, energy regulators, power utilities, development financial institutions, and commercial insurers to integrate parametric products into sovereign disaster risk financing strategies.
Céline Boulay, IDRIMA Facility Lead at the AFD Group, stated: “The current El Niño-Southern Oscillation (ENSO) makes the risks faced by energy utilities a stark reality, especially in Africa and Latin America. We hope that this paper will help understanding of how parametric insurance for critical infrastructure can be integrated into national disaster risk financing strategies, alongside reserves and contingent credit – and prompt action. As IDRIMA, we are ready to help.”
Ekhosuehi Iyahen, Secretary General of the Insurance Development Forum, commented: “Energy supply is at the heart of every country’s economic and social development; when it fails people and businesses suffer real consequences and economies pay the price. The role of insurance is to facilitate development and protect from shocks, and we are delighted to provide a practical guide for action with concrete recommendations through this IDRIMA paper, at a most relevant time.”
