This document discusses the design and development of an index-based livestock insurance (IBLI) program for southern Ethiopia. The key points are: 1) The objective is to assess the viability and poverty reduction impacts of index insurance and determine how these impacts can be realized and sustained over time. 2) Steps include designing an IBLI product focused on livelihoods, identifying a suitable contract structure and delivery mechanisms, and addressing impacts of climate change. 3) Existing longitudinal household and climate data will be used to design the IBLI program and evaluate its impacts through a baseline survey and repeated annual surveys of 920 households.

1. Index insurance for agriculture in Ethiopia Addis Ababa, Ethiopia, 9 December 2010 Design and Development of IBLI for Southern Ethiopia Andrew G. Mude International Livestock Research Institute

3. Design a livelihood-focused IBLI

4. Identify suitable contract structure

5. Identify suitable delivery mechanisms

7. Quarterly household survey (30 hhs/kebele)

8. 5 kebeles in 4 woredas

9. Desta (1999)’s Herd Recalls Data (1981-97)

10. Annual household herd recalls (~15 hhs/center)

11. 35-km radius of 4 town centersNote on Studied Sites: PARIMA’s Kebele Desta’s Town Center YEBELO Dida Hara Wachille Mega KENYA KENYA

13. Existing Data NDVI and Livestock Mortality Satellite imagery NDVI (8km resolution, available every 10 days in real-time) Drought 2000 Drought 2009 Good forage condition 2010 Standardized NDVI Drought 84-85 Drought 90-91 Drought 99-00 Drought 05-06 Drought 09 Key Questions: Other longitude household-level data? Verification of past data? The need to collect recent herd recalls? Area livestock loss (%) (Recalls from Desta 1981-97, PARIMA 1998-2002)

15. Contract design/delivery/regulation Group-based IBLI Financial Institution Financial Institution Financial Institution i i i i i i i i i G G Individual IBLI Group as delivery channel Group as client + Substitute for absence financial facilities in remote locations + Use group learning to enhance education and extension + Use group rules to reduce individual basis risks + Enhance prospect for linking credit access with insurance -- Groups need to be well-established, participated by pastoralists

18. Contract design/regulatory Risk Layering  Reducing risk coverage for commercial insurers for lower premiums  Cap commercial provision of risk to an intermediate risk layer.  Catastrophic zone can be explicitly taken up by government or donors who already offer some response in times of catastrophic loss

21. Feeding climate change predictions into IBLI response functions and pricing in expected climate change

23. Baseline of 920 households with 3 annual repeats

24. Should allow us to rigorously establish impacts directly attributable to IBLI

25. Discount coupons and educational games to encourage uptake