Drought risk financing and index- based livestock insurance in northern Kenya and southern Ethiopia
Partner (s): Donors to the International Livestock Research Institute (ILRI), the World Bank through the Kenyan government, livestock keepers, private insurance companies, ILRI, and the Kenyan and Ethiopian governments.
Type of Organization: Non-governmental organizations and Governmental organizations
Country of Operation: Kenya and Ethiopia
Climate Adaptation Sector Thematic Area: Disaster Risk Management
Activities:
De-risking investments in livestock value chains is possible through provision of index-based livestock insurance. Pastoralists can build resilience against droughts by insuring their livestock, and other services can be bundled together with the insurance to help improve herd health, offer additional financial services and provide climate information services. Index based Livestock Insurance (IBLI), for which standard premiums and payouts are determined within defined geographic insurance units, relies on Normalized Different Vegetation Index (NDVI) satellite imagery, a proxy for available biomass, to make payments to those policyholders living in regions that are affected by poor forage availability compared to the average conditions. Compensation is provided early in the season to minimize livestock losses by supporting drought coping strategies.
IBLI coverage has been shown to increase investments in livestock health services, improve household income and reduce distress sales of livestock during drought when prices are low. Programmes implemented by governments, NGOs, private sector, and humanitarian organisations are increasingly integrating IBLI for long- term resilience building. Beyond protecting livestock, IBLI plays an important role in protecting livelihoods. Linking IBLI with resilience building programmes requires de- risking of investments in the livestock value chain. There are ongoing efforts to bundle IBLI with other services. These services include financial (credit and savings), veterinary services, fodder production, and climate information services. The bundling of IBLI with other services is important to enhance the value proposition and ensure a sustainable business case to value chain actors.
Key partners in this project include the donors to the International Livestock Research Institute (ILRI), the World Bank through the Kenyan government, livestock keepers, private insurance companies, ILRI, the Kenyan and Ethiopian governments.
The benefits of IBLI in resilience building can be summarized in the impacts generated by the product. In severe droughts, pastoralists manage considerable risk of livestock losses. Often this risk makes and keeps people poor. IBLI can prevent the downward slide of vulnerable populations into poverty and crowd-in investment and assets accumulation by the poor. During drought, households with IBLI coverage tend to obtain higher incomes and milk production (Matsuda et al., 2019). Adopter households are 27–36% less likely to skip meals and 22–36% less likely to practice distress selling (Janzen and Carter, 2018). IBLI coverage increases investments in livestock as a productive asset. Evidence shows a doubling of veterinary expenditures and 46% increase in livestock sales in non-drought years (Jensen et al., 2017). In addition, IBLI reduces the risk inherent in keeping livestock in a vulnerable system and enhances financial deepening in pastoral areas. There are also positive impacts on other indicators of well-being. For example, IBLI has been associated with improvements in child nutrition as well as better access to credit by women IBLI policy holders (Gesare et al., 2016).
There are currently ongoing efforts to understand the potential impacts of IBLI on conflict mitigation. Distribution strategies ensuring that insurance company agents visit the pastoral communities in their catchment area increase access to IBLI by pastoralists, who are among the most vulnerable to climate change.
Since its introduction in Marsabit county in 2010, IBLI has scaled to eight ASAL counties under the Kenya Livestock Insurance Programme (KLIP). Further scaling is evident from the new World Bank funded regional project titled, “De-Risking, Inclusion, and Value Enhancement of Pastoral Economies in the Horn of Africa (DRIVE). The project aims to increase pastoralists’ access to IBLI in all the ASAL counties. Scaling efforts are also ongoing under the IGAD whose “Strategy for Sustainable and Resilient Livestock Development in view of Climate Change in the IGAD Region (2022- 2037)” clearly emphasizes the contribution of IBLI as a climate risk management innovation.
Adaptation Best Practices:
Further information:
For further information: https://www.cgiar.org