Index-insurance to protect pastoralists from drought shocks
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Presented by Francesco Fava, ILRI, at the International Committee of the Red Cross (ICRC) Agro-Livestock Workshop–Climate Risks and Innovation in Conflict affected areas Linked to Agro/Livestock Production, Nairobi, 4 December 2019
Index-insurance to protect pastoralists from drought shocks
1. Index-insurance to protect pastoralists from drought shocks
Francesco Fava, ILRI
International Committee of the Red Cross (ICRC) Agro-Livestock
Workshop–Climate Risks and Innovation in Conflict affected areas
Linked to Agro/Livestock Production, Nairobi, 4 December 2019
2. LIVESTOCK & PASTORALISM IN E. AFRICA
LIVESTOCK & LIVELIHOODS
In East Africa and the Sahel pastoralism is the principal livelihood for over 40 million people;
In the Horn of Africa, exports of livestock and livestock products exceed $1billion annually.
In the region, estimated contribution of the livestock economy represents up to 60 percent of
3. LIVESTOCK & PASTORALISM IN E. AFRICA
LIVESTOCK & LIVELIHOODS
In Kenya and Ethiopia:
Median pastoralist household holds 100% of their productive assets in livestock
Livestock products and sales of livestock are 40% of income for average household
Global economy and environmental/climatic changes are increasing the vulnerability to shocks,
while decreasing the efficiency of copying mechanisms.
4. STANDARD RESPONSES TO DROUGHT ARE COSTLY & INSUFFICIENT
Food aid – slow, expensive, targeting challenges, foster dependency.
Cash aid – targeting challenges, fiscal sustainability, not equally effective for all.
DROUGHT - A MAJOR RISK
Catastrophic herd loss due to drought identified as the major source of vulnerability and cause of
poverty. 75% of livestock losses, among pastoralists, due to drought.
Strong evidence of asset-based poverty trap dynamics.
5. DISASTER RISK FINANCING & INSURANCE (DRFI)
In order to better prepare for disaster events,
governments and institutions should have
a coordinated plan for post-disaster early
response agreed in advance,
clearly defined rules and triggers for early
disaster response, and
risk financing to ensure that the plan can be
implemented in the event of a disaster
IMPORTANCE OF LINKAGE WITH ACTION MECHANISMS (including financial)
• Early warning
• Early action
• Backed by early
6. Objective: Offer a timely, sustainable, safety net against catastrophic drought shocks on
IBLI Program was launched in 2008 by ILRI to design an index-insurance product protecting
pastoralists from asset losses during drought shocks.
INDEX-BASED LIVESTOCK INSURANCE
7. WHAT IS INDEX-BASED INSURANCE
Loss Claim Verification
Very high transactions costs for
It does not insure individual losses
It is based on an “index” strongly
correlated with impacts (no
The Index is objectively verifiable,
available at low cost
8. o Since 2010 IBLI has been scaled-up commercially in
Kenyan and Ethiopian drylands through various
o Since 2015, fully subsidized IBLI coverage is also
provided to thousands of vulnerable pastoralists in
Kenya under the KLIP (Kenyan Livestock Insurance
Program), as part as Kenyan social protection policies.
o Under KLIP, over 10 million USD of payouts have been
distributed since 2016 to over 18000 pastoral
o Several countries are evaluating to implement IBLI like
contracts in East and West Africa
o IBLI has been implemented in multiple modalities
(micro-insurance, macro-insurance social protection,
sovereign level insurance)
9. 1. Precise 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 CAN BECOME AN
EFFECTIVE (SCALABLE) OPERATIONAL PROGRAM?
RESEARCH – DEVELOPMENT DYCOTOMY?
RESEARCH – DEVELOPMENT FEEDBACK LOOP
10. Z-scoring to get seasonal index
Vrieling et al., 2014, IJAEG
Standardization and deviation
from ‘historical’ mean
Seasonal cumulated NDVI
NDVI spatially aggregated
1-10 May 2011
MODIS NDVI image (10 day)
PRODUCT DESIGN – INDEX OF FORAGE AVAILABILITY
11. NDVI-based Forage Scarcity contracts – ASSET PROTECTION
Payouts at the end of the rainy season
Sum Insured: cost to keep livestock alive during drought
PRODUCT DESIGN – ASSET PROTECTION
12. If the trigger threshold is reached, the payout is proportional do the degree of forage scarcity
severity (as estimated from z-cum NDVI)
PRODUCT DESIGN – PAYOUT MODEL
13. o The KLIP Policy:
o Based on ILRI-designed asset protection NDVI-based index
o Covers 5 Tropical Livestock Units for targeted households. Total covered value
is Ksh 70,000
o Payment triggers below 20th percentile.
o Government selects beneficiary households and holds policy on behalf of the
o Payouts are delivered directly to beneficiary Households
o Voluntary purchase options under implementation
14. Hirfrot , Barrett, Lentz and Taddesse2014; Janzen
and Carter 2013 NBER
EVIDENCE OF IMPACT AND VALUE
IMPACT ON PRODUCTION AND WELFARE
Increase herd survival rates by reducing
risk of catastrophic loss
Increase investments in maintaining
livestock through procurement of
veterinary and services
Improved production outcomes: increases
Positive impact on nutrition (i.e. child mid-
upper arm circumference )
IMPACT ON COPING STRATEGIES
IBLI improves post-drought coping. After
catastrophic 2011 drought:
reduction in likelihood of distress
livestock sales, especially (64%) among
modestly better-off HHs (>8.4 TLU)
25% reduction in likelihood of reducing
meals as a coping strategy, especially
(43%) among those with small or no herds
Chantarat, Mude, Barrett & Turvey 2017, World Dev.)
(Jensen, Barrett & Mude 2016, Cornell Working paper)
15. Pastoralists’ access and use of indemnity payouts through KLIP
Chelanga et al., 2018
LRLD Drought 2017SRSD Drought 2016
Is there anything that you spent money on because of the KLIP payment that you could not have done so without
EVIDENCE OF IMPACT AND VALUE
16. CAPACITY DEVELOPMENT, EXTENSION, MARKETING
Across the delivery chain – insurance underwriters, implementing partners, government agencies, regulators,
extension and sales agents
Fundamentally, for sustainable scale, the client needs to understand the product and trust the delivery
IBLI CAPACITY DEVELOPMENT STRATEGY
Level 1: Knowledge and tools for
government and insurance industry
Level 2: Knowledge, skills and job aids for
IBLI/KLIP sales agents and promoters
Level 3: Awareness raising for potential
ESTABLISH INFORMED DEMAND
17. EFFICIENT DELIVERY MECHANISMS
Mobile and digital solutions could potential solve may of
the delivery challenges
Efficient agency models and tools
Developed mobile sales transactions applications with
back end MIS for insurance companies
KLIP program leveraging provision of bank accounts
through HSNP program in Northern Kenya
Bundling of extension services
18. Snapshot of Use of Digital Technology in IBLI/KLIP
DIGITAL INNOVATION – M-factor
19. INSTITUTIONAL INFRASTRUCTURE
Sustainable, large-scale index insurance program
requires a clear and well articulated policy
No example of unsubsidized private market for
index insurance in developing countries. Globally
only 7% of transaction volume is purely private
Experience and evidence suggests that for
programs to go to scale they need to build on
strong, well-coordinated public and private
21. TOWARD SUSTAINABLE SCALING
Growing body of evidence continues to highlight the
socioeconomic and risk-management value of index
insurance programs, and the logic of public support.
IBLI experience has made a contribution to this
evidence, and to identifying/solving some of the
barriers to scale
Going to scale will require careful research and
development efforts to further unlock the barriers,
and an alignment of policy and technological forces.
Data: World Bank, FAO, Esri
22. Case study – East Hararghe, Oromia
In 2018, ICRC implemented a livelihood program in the
lowland areas of Oromia region, with the aim of
protecting/restoring animal health and production capacity
of conflict-affected pastoral communities.
Target population: 8,000 pastoralist households in
Meyumuluke woreda, affected by the inter-communal
conflict and were assisted with food and emergency
household items (EHI).
Drought/critical water shortage, livestock diseases, shortage
of veterinary service delivery, market and predators were
identified as the major five livestock production constraints
ICRC opted to focus on addressing the challenges of livestock
Similar activities are now expanding in the adjacent Erer
zone of Somali Regional State (SRS).
0 25 5012.5
23. Intervention area
Meyumuluke is one of the 20 woredas (districts) constituting
the East Hararghe zone of Oromia National Regional State
Meyumuluke has a land area of 4500 – 5,000 km2
Altitude that varies from 900 meters above sea level (masl) to
about 1400 masl, with a mean annual rainfall ranging from
500mm - 700mm and an average day time temperature of 30 –
370C (warm semi-arid)
The bulk of the rural population in Meyumuluke woreda are
either pastoralists or agro-pastoralists
The district possesses large livestock resources of which cattle
constitutes the majority followed by goats, camel, and sheep;
At the end of 2016, heavy clashes with Oromo pastoral
communities occurred in Erer zone (Somali region) woredas
bordering Oromia region, resulting in population
displacement, looting of their livestock and destruction of
community´s productive assets.
The conflict but it also happened in bordering kebeles of
most woredas along the Somali-Oromia border.
Political reasons are considered to be the prime cause of
the violence that caused destruction in 2016
The conflict negatively impacted on the already stressed
livelihoods of the community due to El Nino-induced
drought that occurred in 2016-2017
Inter-communal conflict is also caused by competition over
grazing land and watering points
25. Interventions for conflict mitigation
ASSUMPTION: Migration duration stress times and inter-communal conflict.
Hp that insurance could be used:
o To enable pastoralists access feed/fodder, thereby reducing the need for travelling further
afield in search of animal feed and water, thus reducing the competition over natural
o as a vehicle for facilitating inter-community interaction and dialogue.
Risk reduction activities in the context of ICRC operations – Community-Based Protection
o Raising Awareness in Relation to a Risk
o Developing Self-Protection Strategies
o Providing Assistance aiming to Reduce Risk Exposure
o Facilitating Engagement Strategies
o Supporting Self-Organization and Community Cooperation Processes
26. Feasibility assessment
• Idea conceptualization: problem statement and conceptual framework design based on direct experiences, literature review and interactions with index-
• Feasibility assessment (country level): agro-ecological context, product technical design suitabiliy, rural development and macroeconomic context,
natural hazard vulnerability, potential demand for insurance, weather/satellite/agricultural data infrastructure, private insurance infrastructure, distribution channels,
institutional context and capacity, existing policies, legal & regulatory environment, stakeholders/partners interest and capacity, ongoing related projects and
initiatives, potential for financial support.
• Preparation (sub-country level): pilot area(s) identification, initial product design, risk modelling and pricing, product design tools (i.e. pricing, claim
settlments, etc) development, public/private stakeholders/partners engagement at local and national level, capacity needs assessment, cap. dev. material
development, detailed market study, implementation model design (i.e. distribution mechanism), implementation tools development (e.g. sales platform),
legal/regulatory product approval process, design of M&E framework and baseline, funding mechanism and source identification.
• Implementation: testing and implementation of all components of the insurance program. Refinement of product design in response to stakeholders feedback
and validation studies, generate evidences of impact, support informed demand, support policy and regulatory infrastructure, develop cost-effective delivery channels,
refine business and implementation models, multi-level capacity building.
- • Support Actions for Sustainable scaling: target actions and interventions to support enabling conditions for program scaling and long-term
27. Feasibility assessment
• Biophysical (contract design)
Can we technically design an IBLI product in the region?
• Socio-economic (product value and potential demand)
Can we expect that IBLI would be a valuable interventions for supporting livelihoods and that there will
be demand for the product?
• Operational/institutional (product supply)
Are there the conditions for supplying the product? What type of investment would be needed to create
the necessary infrastructure and capacity?
31. Socio-economic (summary)
• Shared interest toward the product
• Centrality of livestock for pastoralist welfare
• Extreme vulnerability to drought
• High cost of drought response in the area
• Strong interaction between drought and disease.
• Need of subsidies
Pros & Cons
• Existing traditional social support mechanisms
• Existing safety net programs (PSNP)
• Presence of OIC in Ethiopia and willingness to underwrite
• Existing CAHWS network (potential distribution)
• Existence of rural savings and co-operatives
• Excellent mobile network
• No rigid requirements for Sharia
• Seemingly institutional support and national level policy
• Limited financial literacy and awareness about insurance
• Lack of value chain interventions addressing fodder
markets and water resources
• OIC needs incentives/support to move in the area
• Very small area of intervention
33. Summary – way forward
Preparatory and pilot intervention under discussion for 2020
Smart subsidies scheme initially donor-supported
Use of CAWHS or alternative organizations to support awareness creation, capacity building, and product
Need of exploring how to link the project to IBLI initiatives in Borana, Somali and at national level for long
term sustainability (high potential)
Need to further explore mechanisms for good use of payouts (value chain)
This study can be an opportunity
to test hypotheses and design innovative solutions around the role of insurance in conflict mitigation.
to understand how this type of intervention could be linked to ICRC standard operations for livelihood
support, beyond Ethiopia.
to demonstrate the value of such interventions for reducing humanitarian crisis (and costs) during drought
34. Open questions
Is IBLI a meaningful interventions in post-conflict situation?
CONFLICTS. Can IBLI really be valuable for conflict mitigation? How?
direct effect (e.g. migration control during drought, premium incentives for good
practices, vehicle for community dialogue etc.)
Indirect effect (resilience building, livelihood support, etc.)
ICRC Operation. Can IBLI really be sustainable? How (especially for those areas where index-
insurance is not present)? Who can sustain the cost of implementation?
36. FROM PIXELS TO PEOPLE
NDVI limitations and long term data continuity.
How to improve the index? Can we use new/multiple
indicators (e.g soil moisture, RFE) or different datasets (e.g.
Poor characterization of rangeland systems (e.g. in relation
to palatability/quality and land condition)
Rangeland mask, multi-scale mapping (high/very high res.
Poor link between vegetation and livestock production.
Forage quality, grazing patterns, livestock mapping, water
Lack of long term data for “validation” of mapping products.
Crowdsourcing, ground networks (webcams), drones.
SOME GAPS & OPPORTUNITIES FOR THE
Hinweis der Redaktion
Here there is not much to add to the slide content. The message is: livestock is central for the country economy and for a substantial fraction of the population
In E. African drylands livestock is essential for household welfare and livelihood. Pastoralists have strategies to cope with drought, but environmental and climatic changes are increasing the vulnerability of these already fragile populations and decreasing the efficiency of traditional coping strategies (such as destocking and migration)
Drought has catastrophic impacts on livestock assets and when pastoralists lose their animals there are evidences they are not able to recover and remain trapped into permanent poverty
Standard response interventions (cash transfer/food aid) are extremely costly and happen too late, when drought is already impacting key assets and livelihoods.
Here it is mostly all written. The cash/food aid logic of humanitarian response is now shifting toward a disaster risk financing approach toward effective early response. Early saving response allow early action toward prevention of major impacts on livestock and livelihood which is much more efficient. Here you can mention that EO is playing a growing role in triggering financial response mechanisms.
IBLI works with this logic. It is an index-insurance product designed to provide timely payouts to pastoralists to protect their livestock in case of drought. Timely means that payouts given early in the growing season in case of there is a deficit in forage production. Thus payouts are given before the dry seasons when grazing resources would be quickly depleted and livestock will start to starve.
IBLI is an index-insurance product. Traditional insurance (claim based, like the car ones) cannot work in these remote and low populated contexts because of the high transaction costs in verifying the claims.
Instead index-insurance is based on an objective INDEX of the risk. If the index falls below a pre-agreed level, then payout are given independently from a claim process. No verification.
The INDEX is based on EO-based indicators in most cases.
Just read. Plans to scale up KLIP up to 100k households.
Feasibility analyses done in Somalia, Uganda, Niger and several other countries are asking
Several ingredients are necessary to make a disaster risk financing solution work. As listed.
However, one critical area of interest for the EO community, is product design. It is of paramount importance of accurately assessing the risk you are covering and the potential of EO methods is huge in this respect and yet poorly explored. This is a clear case on EO technologies delivering impact.
- Evidence of value and impact refers to impact studies demonstrating the benefits of IBLI for household welfare and copying strategies (vast literature)
- Informed demand refers to awareness creation and capacity building efforts
Supply chain refers to the development of tools (ICT based/mobile) to reduce the transactions costs to deliver the insurance product for the private sector (e.g. sales apps, mobile payments, electronic registration etc)
Policy and institutional work is critical for creating the necessary enabling conditions for scaling (e.g. regulatory frameworks, policies, etc)
This could be effectively achieved with a continuous research effort to respond to implementation needs.
For IBLI we used MODIS NDVI imagery according to the methodology illustrated (spatial aggregation at insurance unit level, taking into account the extensive nature of grazing lands in the region and migration), then aggregated over the growing season(s) (there are two in East Africa) and finally an anomaly is calculated with respect to long term mean (z-score) to assess the current condition.
You can also skip this eventually. It is reiterating that the design of IBLI is done for early response for asset protection. The payouts can serve to purchase feed/fodder, water, veterinary services etc to protect the livestock before mortality occur so the total sum insured (the maximum amount one can get) is equal to the cost of keeping an animal alive during drought. There are two seasons in East Africa, the short rains shor dry (oct to feb) and the long rains long dry (march to sept)
When a pre-defined trigger is reached (so the forage availability falls below a certain level), then payout are linearly dependent on the forage availability index.
Feasibility assessment is the first phase of the IBLI implementation cycle. It is a critical step to evaluate if investments to introduce IBLI are meaningful and to understand the modality of implementation
The EO community could greatly contribute the development of index-insurance or, more broadly speaking, disaster risk financing solutions for the African drylands. And this in turn could have dramatic impacts on poverty reduction and SDGs.
However, more efforts should be done to understand the specificity and complexity of rangeland systems in Africa and to design approaches that are tailored to these ecological systems.
Can we go beyond NDVI and test new models to improve the assessment of forage resources? We need operational, near-real time and long term datasets and indicators that are tested and validated in the African context (e.g. RAPP PV/NPV/BS calibrated in Africa?)
Can we improve our characterizations of rangelands to recognize the heterogeneity of these systems which has dramatic implications on their usability and value for grazing? Rangeland are still not clearly defined and we do not have a recognized rangeland cover product…
Can we explore more the potential of remote sensing for assessing forage quality (beyond quantity) and invest in generating reliable geospatial datasets to better monitor livestock production (e.g. livestock density, water points,etc?
Finally, for this to be possible we need to address the huge issue of data scarcity in the pastoral drylands and support efforts to design effective networks of in situ measurements for model calibration/intercomparing/accuracy assessment. Given the cost of data collection in these remote region, new technologies should be tested.