1. Index-Based Insurance for Livestock in the IGAD Region24 06
2019
Index-Based Insurance for Livestock in the IGAD Region
MAKING LIVESTOCK INSURANCE WORK FOR THE PASTORAL ECONOMY
Ministerial Policy Roundtable 24 June 2019

2. Development of Livestock Index insurance has followed 2 distinct paths since the first index policy was introduced in Spain in 2001
For commercial cattle ranchers in developed countries as a pasture drought insurance policy to protect again the “additional costs of working” to purchase animal feed supplements:
e.g. Spain (2001), USA (2007), Canada (2001) – commercial scale-up
Other programs: Uruguay (pilot ); R&D Argentina; Chile
For small-scale livestock producers and migratory pastoralists in developing countries to act as:
An “asset replacement policy” in the event of death of the animal: Mongolia livestock freeze index 2006; Kenya 2010 IBLI predicted livestock drought-mortality index, or
An “asset protection policy” to keep core breeding animals alive during severe droughts when pasture/grazing are depleted, by making timely payouts to the pastoralists to purchase animal feeds: Mexico, CADENA (since 2006); Kenya (2015/16) and Ethiopia (since 2018)

3. When droughts occur in IGAD Countries large numbers of livestock die due to lack of forage and grazing resources and die of starvation:
Livestock are the key form of assets of Pastoralists and also the main source of income from sales of milk, live animals and animal products
Studies from Ethiopia and Kenya show it is generally more cost-effective to keep core breeding stock alive during droughts that to restock animals after the event.
Northern Kenya: 3 times more expensive to restock a core herd of sheep and goats than keep animals alive through feeding
Afar region, Ethiopia: restocking sheep and goats costs about 6.5 times more than supplementary feeding. Restocking cattle costs 14 times more than feeding
Source: Pastoralists Livelihoods Initiative, Ethiopia. Policy Brief. November 2007
Source: ILRI Project baseline 2009 (924 Marsabit Households)

4. NDVI (Green Index): (NIR-R)/(NIR+R)
The Normalised Vegetative Difference Index (NDVI) or “Green Index” is a very good measure of the nutritional quality of pasture and grazing for livestock
Sun
NDVI (Green Index): (NIR-R)/(NIR+R)
NiR = Near Infra Red spectrum
R = Visible Red spectrum
Source: Earth Observatory – Measuring Vegetation (NDVI & EVI) MeasuringVegetation/ measuring_vegetation_2.php
Most livestock pasture drought index
insurance programs are based on NDVI
Indexes

5. Livestock Index Insurance, can be marketed on a Micro-Level voluntary retail basis to Individual Livestock Producers or as a Meso/Macro-Level Cover purchased by Government as a Livelihoods Protection cover on behalf of Small-scale Vulnerable Livestock Producers
Insurer
Distributor
Insured Policyholder is
an individual Livestock Producer
Micro-level insurance program
Policies, premiums, claims
Meso/Macro-level insurance program
Policyholder is National or State Government
Beneficiaries (Vulnerable Livestock Producers)
Government sets the payout rules to livestock producers
Micro-level programs include: Spain, USA, Canada, Uruguay. Index-based Livestock Insurance, IBLI, in Mongolia, Kenya, and Ethiopia
Macro-level programs include: CADENA program, Mexico; Kenya Livestock Insurance Program, KLIP; SIIPE Ethiopia

6. Micro-Level: Individual Herder/Pastoralist (Voluntary)
Micro-Level Voluntary Commercial Livestock Index Insurance vs Meso/Macro-level Automatic Government Programs
Micro-Level: Individual Herder/Pastoralist (Voluntary)
Spain (2001), Agroseguro program, national PPP, heavily subsidised
USA (2007), FCIP, national PPP, heavily subsidised
Canada (2001), various State Governments, heavily subsidised
Uruguay (pilot ) Pilot PPP 100% subsidised;
Kenya (2010); IBLI (40% premium subsidies by Donors to cover operational costs: farmers charged the actuarially fair price)
Ethiopia (2012): IBLI program in Borana, Oromia Region
Other programs in R&D: Argentina, Chile
Meso/Macro-Levels: Livelihood Protection Cover (Automatic)
Mexico, CADENA (2006) fully funded by govt. (Federal 80%; States 20%)
Kenya (SR 2015/16), 8 Counties, 100% funded by Government of Kenya
Ethiopia (since 2018), Somali Region fully funded by WFP. (Assets for Insurance approach, linkage to PSNP)

7. Summary on livestock Index Insurance
Most experience to date is with satellite-based NDVI index insurance for drought in pasture in the countries of
Spain, USA, Canada, Mexico, Argentina, Uruguay, Kenya, Ethiopia
NDVI index insurance product is very versatile and can be retailed as a micro-level individual producer cover, or used at meso-level by governments as a livelihoods protection cover for vulnerable pastoralists
NDVI index insurance has been shown to be beneficial to livestock producers and has reached scale in Spain, USA, Canada and Mexico.
Basis Risk continues to be a challenge on livestock index insurance programs
Research & development is being carried out into new & more specialised livestock index products:
Dairy cattle loss of milk production due to rainfall deficit and excess rainfall (using a Standardized Precipitation Index, SPI
Dairy cattle loss of milk production due to heat stress in cows (Index based on excess temperature and humidity)

8. Key Questions for Governments in IGAD Countries
How does livestock Insurance (micro-level and meso/macro-level) fit into your national DRM Strategies?
What roles does (should) Government play in promoting livestock insurance?
What successes / benefits have resulted from these livestock insurance programs in your countries?
What are the main issues and challenges?
Do you propose to scale-up your livestock insurance programs in future? If so, how?
Interest in joining some form of IGAD Regional initiative?
Are there any key recommendations you would give to your neighbouring IGAD countries who may wish to introduce livestock insurance?

9. Key Questions for Private Sector Insurers
Private sector experience with underwriting voluntary IBLI and automatic KLIP / SIIPE?
Can you achieve scale and financial profitability through micro-level voluntary sales only?
Do you believe public-private partnerships are necessary to insure pastoralists?
Views on large-scale livelihood protection covers – KLIP and SIIPE?
What are the key supporting roles you require from Government and why?
Issues, opportunities for a regional IGAD initiative?

10. ANNEXES

11. What Livestock Insurance Products Might be suitable for Uganda
Suitability for Uganda

12. Livestock Index Insurance Contents
Why livestock index insurance?
Options for livestock index insurance (micro/meso/macro)
International experience with livestock Index Insurance:
Micro-level Livestock Mortality Indexes:
IBLI Mongolia and Kenya
Micro-level, Pasture Drought Indexes:
Spain, USA, Canada, IBLI Kenya and Ethiopia,
Meso/Macro-level Pasture Drought Indexes:
CADENA Mexico, KLIP Kenya, SIIPE Ethiopia

13. Why consider Livestock Index Insurance particularly for small-scale livestock producers?
Conventional Individual Animal Livestock Mortality cover is generally too difficult for Insurers to offer to small-scale herders, due to:
High costs for Insurers to administer individual animal mortality cover;
Many small producers cannot meet the exacting pre-conditions for insurability (animal husbandry and sanitation, individual animal tagging etc).
Some countries have therefore experimented with livestock mortality indexes (e.g. Mongolia and Kenya)
In Developing Counties droughts leading to loss of pasture and grazing are a major cause of widespread starvation and death of livestock.
Natural pasture and rangeland cannot be insured under a conventional crop insurance policy because:
There is no accurate way of establishing an insured yield and for measuring and distinguishing between yield loss in pasture due to insured perils as opposed to pasture that is consumed by grazing animals and which is not insurable;
Remote sensing/satellite imagery is offering innovative solutions in the form of loss of pasture/grazing index insurance covers

14. KLIP insures against loss of pasture and grazing in the Long Rains season (Mar - Jun) and Short Rains season (Oct - Dec)
The World Bank Group designed the KLIP pasture drought insurance contract
and also developed an excel based tool to provide capacity building and training
to GoK (State Department of Livestock) and to the Insurance Companies
Source: World Bank Group 2015; 2016

15. KLIP: Roles of Key Stakeholders
Government of Kenya – State Department of Livestock
Policy holder on macro-level program
Funds 100% of premiums for vulnerable pastoralists and 50% premium subsidies for voluntary sales
Implementing agency through the SDL PMU
Insurance Companies
Pool of 7 Kenyan Insurers underwrite KLIP and settle claims
1 specialist Takaful insurance company underwriting IBLI & KLIP
Farmer promotion, marketing and voluntary policy sales
World Bank Group (WBG) in partnership with International Livestock Research Institute (ILRI)
Technical Assistance to GoK (2013 to 2018)
KLIP Contract Design and Actuarial
Capacity building and training for all KLIP stakeholders
Monitoring and Evaluation
Funding for IRLI

16. KLIP has achieved “proof of concept” and made very significant drought payouts to Pastoralists over the past four years
Short Rains 2015/16 No Payouts
Long Rains Small Payouts in Wajir
Short Rains 2016/17. Payouts of US$ 2.2 million to 12,000 pastoralists
Long Rains Major payouts of US$ 3.1 million to >14,000 pastoralists
Short Rains 2017/18. Major payouts >1.5 million in 8 counties

17. Kenya: KLIP Drought payouts to Pastoralists 2015 to 2018 (KSh)
Source: ILRI 2018

18. Kenya: Drought Coping Strategies of pastoralists, ASAL Counties
Source: ILRI 2018

19. Use of KLIP Payouts: % of HHs receiving a payout
Source: ILRI 2018