Malawi Paid $5M for Drought Insurance That Failed to Trigger During 2016 Famine

In 2016, Malawi declared a national emergency after failed rains left 6.7 million people food-insecure, yet a $5 million parametric drought insurance policy purchased from the African Union's African Risk Capacity paid out nothing. The policy used satellite rainfall data fed into a crop model to automatically trigger payments, bypassing traditional loss assessment — but the model was calibrated to track long-cycle maize varieties that most Malawian farmers had already abandoned in favour of shorter-cycle hybrids. Because the model watched a hardier crop rather than the more drought-sensitive variety actually growing in fields, it concluded losses did not meet the payout threshold despite the real-world crisis. An independent 2017 evaluation by the e-Pact consortium found the calibration process had insufficiently involved agronomists and ground-level experts, despite ARC describing it as a year-long, expert-led exercise. The case has since become a prominent example of 'basis risk' — the inherent danger in parametric insurance that an index may diverge sharply from actual conditions on the ground.