Since 2011, ILRI and its partners in the public, private and non-profit sectors have pursued a comprehensive research agenda aimed at designing, developing and implementing market mediated index-based insurance to protect livestock keepers from drought related asset losses, particularly those in the drought prone Arid and Semi-Arid Lands (ASALs). For pastoralists whose livelihoods rely solely or partly on livestock, the resulting high livestock mortality rate has devastating effects on asset levels, rendering them among the most vulnerable populations in Kenya and Ethiopia.
Index-based insurance represents an exciting innovation that could allow vulnerable rural smallholder farmers and livestock keepers to benefit from insurance and thus reduce climate-related risk. Because index insurance is based on the realization of an outcome that cannot be influenced by insurers or policy holders (such as the amount and distribution of rainfall over a season), it has a relatively simple and transparent structure. This makes such products easier to administer and consequently more cost-effective to develop and trade. Indeed the success of several pilot programs in India and various countries in Africa and Latin America has proven the feasibility and affordability of such products.
The initial pilot phase of the project, which included extensive field work and stakeholder consultation, was successful and is now complete. The research generated useful insights that have been used in the design of index-based livestock insurance (IBLI) products better targeted to the needs of pastoralists, the target clientele. An IBLI contract has been modelled, priced, tested, and sold. In October 2011, UAP Insurance Companyvand partners disbursed indemnity payments to policyholders in all five divisions of Marsabit District of Kenya, the first payouts since the launch of the pilot in January 2010. Drought triggered another payout in two divisions in March 2012. In July of 2012, IBLI was launched in the Borana zone of southern Ethiopia.
Phase 2 of the project in Kenya started in July 2012 and focuses on scaling up existing operations in Marsabit and Borana, and expanding implementation coverage across seven districts in northern Kenya . We developed a cutting-edge econometric response model to expand into these new areas to identify the relationship between the Normalized Difference Vegetation Index (NDVI) and livestock mortality. Isiolo and Wajir contracts will be sold in August 2013.
The IBLI product was remodelled to reflect what we learned from the pilot. Our new project strategy emphasizes Market and Capacity Development to better fit the needs of pastoralists, improve market effectiveness, and to catalyze informed demand. We have switched to an ICT sales platform that uses cellular networks instead of the internet to improve reliability, ease of management, and real-time sales availability.
We have partnered with Oromia Insurance in Borana, APA insurance in Marasabit and Isiolo, and Takaful Insurance in Wajir. In Isiolo, World Vision International will be responsible (with our technical and capacity backstopping) for supporting APA Insurance with extension, marketing and delivery of sales. In Wajir, Mercycorps and Takaful Insurance (an Islamic insurance company that will be offering sharia-compliant products) will lead the implementation efforts with ILRI’s support.
- To effectively introduce index-based livestock insurance products to pastoral and agro-pastoral populations to help them manage drought-related livestock mortality.
- To learn and document the effectiveness of index-based livestock insurance as a tool for managing weather related perils and to incorporate lessons learned in efforts to upscale the pilot for national rollout.
The expected outputs, aimed at catalyzing a commercially sustainable market for index-based livestock insurance, and understanding its possible role as a productive safety net within a larger social protection program are:
Publications that offer insight into the conditions in which market-mediated IBLI products are possible
- IBLI products designed and related publications detailing design methods
- IBLI product piloted in Marsabit district
- The impact of IBLI adoption studied and detailed in publications
The economic and social returns to an effective program that insures pastoral and agro-patoral populations against drought-induced livestock losses can be substantial as it is expected to:
- Stabilize asset accumulation and enhance economic growth
- Crowd-in finance for ancillary investment and growth
- Stem the downward spiral of vulnerable households into poverty