Francesco Fava International Livestock Research Institute 1 INDEXINSURANCE FOR LIVESTOCK IN THE IGAD REGION MINISTERIAL POLICY ROUNDTABLE amp TECHNICAL WORKSHOP ILRI Campus Addis Ababa 2426 June 2019 ID: 806392
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Slide1
Designing index-based insurance for livestock
Francesco FavaInternational Livestock Research Institute
1
INDEX-INSURANCE FOR LIVESTOCK IN THE IGAD REGION
MINISTERIAL POLICY ROUNDTABLE & TECHNICAL WORKSHOP
ILRI Campus, Addis Ababa, 24-26 June 2019
Slide2GOAL - Offer a timely, sustainable, safety net against catastrophic drought shocks
Provide an opportunity for early response
Prevent vulnerable to fall into poverty trap by losing their key productive assets.Crowd-in investments from the private sector.Rationale for livestock Insurance
Slide3Conventional insurance
Loss
Claim Verification Indemnity
Very high transactions costs for verification, etc.Moral hazard
Index-based insurance
It does
not
insure individual losses
It is based on an “index” strongly correlated with impacts (no claims)
The Index is objectively verifiable, available at low cost
What is Index-insurance
Slide42008 - IBLI R&D agenda launched,
2010 - First commercial product offered in
Marsabit by a consortium of private partners2011 - drought triggered contracts 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. Program launched in Ethiopia
The Index-based livestock Insurance (IBLI)
Slide52015 - Kenya Livestock Insurance Program (KLIP) issues first policies to 5000 pastoralist households across
Wajir
and Turkana.2016 - KLIP has further scaled provision of IBLI across 8 counties (18k households) 2017 - Increasing momentum toward scale, particularly with substantial payouts (over 7 million USD) in 2016/2017
2018 - Government of Ethiopia discussing scaling IBLI program, design efforts in Uganda, Somalia, Niger and Senegal
The Index-based livestock Insurance evolution
Slide6Precise contract design;
2. Evidence of value and impact;
3. Establishing informed effective demand;4. Low cost, efficient supply chain;5. Policy and institutional infrastructure. HOW A GOOD SCIENTIFIC IDEA BECOMES AN EFFECTIVE OPERATIONAL PROGRAM?
Pillars
Slide7Index Insurance is a variation on traditional insurance
Indicator (e.g. rainfall, field data, NDVI, etc.)
Index (correlated with the risk)
Payouts/Indemnities
WHY SOME DESIGN WORK?
AND SOME OTHERS NOT?
How Index-Insurance works
Slide81. Satellite Indicators
Rainfall
Station-data limitedAccuracy issuesMeteorological droughtVegetation indicesNDVI (or EVI, fAPAR)Available from many satellitesAgricultural drought
Alternatives indicators
Soil moisture
Evapotranspiration (from LST)
cimss.ssec.wisc.edu
Slide91. Satellite Indicators - NDVI
NIR
red
Indicator of the presence/amount of green vegetation
Slide102. Index design
Chantarat, Mude, Barrett and Carter (2013,
JRI)
The Asset Replacement Index Design
Response Function:
livestock mortality data modelled from NDVI
Asset Replacement
:
Pays out when livestock
deaths
are predicted in an area based on an empirical function
Nice but…
Limited mortality data availability for scaling-up, issues with data accuracy
Why replacing rather than protecting livestock (much cheaper)?
Slide11The Asset Protection Index design
2. Index design
Seasnal forage scarcity
Vrieling
et al., 2014, IJAEG
Standardization and deviation from ‘historical’ mean
Temporal accumulating
March-June
Seasonal cumulated NDVI
Temporal aggregation
NDVI spatially aggregated
1-10 May 2011
MODIS NDVI image (10 day)
Spatial aggregation
400 km
Response function:
Pays out when forage availability during the rainy season is lower then normal
ealier
!
Asset protection
It insures the cost of keeping the animal alive
lower!
Data for calibration are not necessary
Slide123. Payouts/Indemnities
Proportional do the severity of forage scarcity
Payout function
LESS FORAGE
MORE PAYOUTS
When to trigger
payouts
, with what frequency, how big?
Impact on premium!
Slide13KLIP Product in Kenya
Covers 5 Tropical Livestock Units for targeted households. Total covered value is
Ksh 70,000Payment triggers below 20th percentile (every 5 seasons).Two risk periods (long rains and short rains) with payouts in June and December
3. Payouts/Indemnities
Slide14How to design a good product?
Making the right choices
Understanding the
local context, needs, drought impacts mechanisms
Use
well-established
and
simple
indicators (quality and awareness)
Design
quality assessment
processes and
respond to stakeholders feedbacks
Slide15THANK YOU!
f.fava@cgiar.org
THANKS!f.fava@cigar.org
Slide16Slide17The Prosopis dilemma
Are NDVI-based Indices affected by the presence of invasive non-palatable species such as Prosopis
?NDVI is a greenness indicator. It is NOT related to the quality of forageHowever, the Index is designed to minimize the impacts of species variability with the objective of detection drought.Masking non usable areas (low interannual variability, signal or using land cover maps)Averaging (spatially) over large areas (units): local changes in composition have minimal impacts on the averaged NDNVIComparing each unit with itself over time: the reference for the detection of forage scarcity is the historical average in the same location (i.e. same type of rangelands). The argument theoretically is sound. Practically no evidences of impacts on the Index.