Index-based livestock insurance as an innovative tool against drought loss: Good practices and impact analysis from northern Kenya
This report (PDF) by CTA summarises findings from research activities and presents conclusions and recommendations on index-based livestock insurance (IBLI). IBLI is a donor-funded programme aimed at designing, developing and implementing market-mediated, index-based insurance products to protect livestock keepers, particularly in the drought-prone arid and semi-arid lands. The IBLI is based on satellite data, measuring the quality of pastureland every 10-16 days. These data predict livestock mortality. When evolving range conditions predict livestock mortality in excess of a critical threshold (say 15%) over a predetermined area, the insurance pays contract-holding pastoralists for their losses, allowing them to manage their individual risk. The aim of the IBLI pilot is to reduce poverty and promote asset retention and accumulation among its beneficiaries. However, its primary function is not poverty reduction per se, but to act as a drought safety net. In this sense its emphasis is on livelihood assets protection and livelihood promotion. As a drought safety net, IBLI was fairly effective at protecting beneficiary households in northern Kenya against the worst effects of the Horn of Africa drought. The IBLI therefore has a bigger impact on long-term livelihood security than on long-term poverty. Thus, while IBLI, at its current coverage rates, might provide a functional safety net against drought, it is unlikely to systematically move people out of poverty. This is because of the negative climatic conditions that are endemic to the region and the relative marginalisation of the population. The report concludes that the index-based livestock insurance currently implemented by ILRI in northern Kenya has shown great potential in providing an excellent alternative for mitigating drought-induced livestock asset losses for vulnerable pastoralist households. The product is uniform across spatial and temporal in its design and implementation, objective, validated and sufficient demand to make it commercially viable, which allows for easy scaling up, while keeping costs down.