Index Based Livestock Insurance Tracing East Africa’s Journey Andrew Mude Manager, Agricultural Research Production and Sustainability Division African Development Bank

Motivation: Why IBLI? Motivation: Why IBLI? Catastrophic herd loss risk due to major droughts identified as the major source of vulnerability facing pastoralists in the region Resilience to droughts further strained by increasing climate variability, population, evolving land tenure, etc Risk system collapse with changing underlying dynamics Standard responses – food aid, cash aid post-drought restocking – are often slow, insufficient and expensive. Development impacts, and cost-efficiency, of effective drought risk reduction technologies should therefore be significant.

What is Index Based Insurance? Motivation: Why IBLI? Conventional commercial insurance not viable due to high transactions costs, moral hazard/adverse selection. Index Insurance is an innovation in insurance design particularly suited to climate risk and the pastoralist production system. It does not insurance individual losses. Insures an “index” measure that is strongly correlated with individual losses (IBLI: remotely sensed vegetation index) Index needs to be: Objectively verifiable, available at low cost in real time, not manipulable by either party to the contract cimss.ssec.wisc.edu

IBLI’s East Africa Journey: A snap shot Motivation: Why IBLI? IBLI R&D agenda launched in 2008, contributed to catalyzing a nascent but growing industry. First product offered in N. Kenya in 2010 by a consortium of partners supported by the GoK 2011 drought triggered contract payments in all covered areas serving as an important proof-of-concept indicator. 2012 IBLI began to scale in Kenya beyond pilot site in Marsabit into Isiolo and later Wajir. Also launched a program in Ethiopia A rigorous research infrastructure ensured contracts were continuously improved, and generated evidence of considerable socioeconomic impact.

IBLI’s East Africa Journey: A snap shot Motivation: Why IBLI? 2013 GoK invites World Bank to help develop Crop and Livestock Agricultural Insurance Program. ILRI requested to support livestock program. October 2015, Kenya Livestock Insurance Program (KLIP) issues first policies to 5000 pastoralist households in 2 counties.. KLIP has further scaled provision of IBLI across 8 counties and attracted more players and increased investment – particularly with substantial payouts in 2017/2018 Government of Ethiopia discussing scaling IBLI program, with growing interest and initial feasibility work in Uganda,Somalia, Niger and Senegal among others. The knowledge products, lessons, capacity and partnerships established can help accelerate program development and scale – but considerable investments required.

Components of a Sustainable IBLI Program Motivation: Why IBLI? 1. Design of Precise Insurance Contracts 2: Generating and Tracking Evidence of Value and Impact 3. Establishing Informed Effective Demand 4. Developing low-cost service delivery mechanisms 5. Building enabling policy and institutional infrastructure

Key Messages: Way Forward Motivation: Why IBLI? Growing evidence of the positive welfare impact and fiscal efficiency of index- insurance for livestock as a important DRM tool for dryland populations. Critical need to develop standard, universally accepted metrics for identifying and signaling product quality Investment in credible monitoring, evaluation and learning systems are fundamental Sustainable scaling of IBLI requires delivery within a Public/Private framework with government developing the enabling environment and supporting smart subsidies and private sector incentivized to delivery appropriately. Considerable investment in building supporting institutions and a critical mass of certified capacity along the supply chain is required.

What is Index-Based Insurance