Index Based Livestock Insurance (IBLI): Toward Sustainable Risk Management for Pastoralist Herders Andrew Mude, IBLI Program Lead, International Livestock Research Institute KLIP Executive Seminar for Members of the Kenyan Parliament Mombasa, April 17&18 2018
Motivation: Why IBLI? Catastrophic herd loss risk due to major droughts identified as the major source of vulnerability facing pastoralists in Kenya and the region Resilience to droughts further strained by increasing climate variability, population, evolving land tenure, etc Risk system collapse with changing underlying dynamics Standard responses food aid, cash aid post-drought restocking are often slow, insufficient and expensive. Development impacts of effective drought risk reduction technologies (insurance) should therefore be significant.
What is Index-Based Insurance Conventional commercial insurance not viable due to high transactions costs, moral hazard/adverse selection. IBLI can, in principle, offer a timely, sustainable, safety net against catastrophic drought shocks. Can help accelerate herd recovery and reduce human suffering. Index Insurance is a variation on traditional insurance: It does not insurance individual losses. Insures an index measure that is strongly correlated with individual losses (Examples: rainfall, area average yield, remotely sensed vegetation index) Index needs to be: Objectively verifiable, available at low cost in real time, not manipulable by either party to the contract cimss.ssec.wisc.edu
ILRIs Index-Based Livestock Insurance Program IBLI R&D agenda launched in 2008, contributed to catalyzing a nascent but growing industry. First product offered in Marsabit in 2010 by a consortium of partners supported by the GoK 2011 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 and later Wajir. Also launched a program in Ethiopia Rigorous IBLI impact assessments have revealed considerable socioeconomic and behavioral benefits drawing policy and development partner support. 2012 the Government of Kenya set up the National Agricultural Insurance Policy Taskforce Situational Analysis and recommendations for program development.
ILRIs Index-Based Livestock Insurance Program 2013 GoK invites World Bank to help develop Crop and Livestock Agricultural Insurance Policy. ILRI requested to support livestock program. October 2015, Kenya Livestock Insurance Program (KLIP) issues first policies to 5000 pastoralist households slip across Wajir and Turkana Counties. KLIP has further scaled provision of IBLI across 8 counties and attracted more players and increased investment particularly with substantial payouts in 2017/2018 Increasing momentum toward scale but considerable work to ensure sustainability Government of Ethiopia discussing scaling IBLI program, with design efforts in Uganda and growing interest in Somalia, Niger and Senegal among others.
What is the Index in IBLI? The level of greenness of each and every area on the surface of the earth is measured by a satellite as it flies over it. This reading is called the NDVI or Normalized Difference Vegetation Index emodis NDVI product: Filtered MODIS time series. Available from 2000 every 10 days. 250m geometric resolution. Freely distributed. By accurately measuring the level of greenness of any location, we can get an idea of how healthy the forage is in that location. Not all that is green is equally palatable. This largely (though imperfectly) controlled for in contract design.
Precise Contract Design Constructing the IBLI Index Objective (Initially): To insure against drought- related livestock mortality. Asset Replacement. DATA - Livestock mortality - Remotely sensed NDVI Response Function Predicted Livestock Mortality Index: Predicted average livestock mortality. Contract Evolution: From Asset Replacement to Asset Protection Index: Seasonal Forage Availability For references please visit: https://ibli.ilri.org/publications/
Specifying IBLI contract features CONTRACT DESIGN (HOW TO MAKE THE INDEX SUITABLE?) Contract design is the critical step to translate the information obtained from the remote sensing data into an index reflecting drought impact on pastoralists resources. Key factors in contract design Geographic Coverage Delineating Index Units Temporal Coverage Setting out NDVI accumulation and potential payout periods Fitting the index to the risk Pricing (Payout Structure, Payout Frequency)
Geographic delination of index units The need to aggregate over IBLI units IBLI insurance is administered across IBLI units-clusters. If an insurance payout is made, it is made to all pastoralists in that unit. Hence it is necessary to calculate the average NDVI for the unit.
Geographic delination of index units Insurance Units need to be selected to balance effective coverage of risk with efficient administration of contract 1. Insurance units should take into account operational/administrative/practical considerations for efficient service delivery. 2. Insurance units should be representative of forage experience relevant for local population. 3. Herders within a single Insurance unit should have largely similar herd management and migratory patterns.
Geographic delination of index units Unit Building Blocks _ WARDS: Cluster to insurance unit based lowest order admin unit. Unit of Consultation _ COUNTIES: Require stakeholders/client representation with sufficient wide geographic catchment and some level of political and cultural autonomy
Precise contract design KLIP implementation GoK has stated an intention to scale to all 14 ASAL counties by 2020. Not all counties are equally suitable. Need careful analysis. (Case of Baringo and West Pokot) Balance between precision (basis risk), and simplicity (technical scaling, capacity building) Capacity to design, understand and administer contracts requires concerted and institutionalized capacity building beyond tools and training. Continue contract refinement; new technologies, data sources, and means of validation could result in considerable improvements in contract precision. Layering of contracts with macro level products; county level products under discussion. Structural layering with sovereign products such as Africa Risk Capacity.
Components of a Sustainable Index-Insurance Program 1. Precise contract design; Satellite NDVI data. The index and its evolution. Continuous efforts for increasing precision while supporting sustainable scale. 2. Evidence of value and impact; Establishing household impact and value of investment. 3. Establishing informed effective demand; Developing client awareness and stakeholder capacity. Extension and learning support. 4. Low cost, efficient supply chain; Leveraging technology to increase cost-efficiency of IBLI service delivery. 5. Policy and institutional infrastructure: Supporting design of policy to support PPP delivery of sustainable program.
The IBLI Program is a Collaboration of Many Players IBLI Policy and Academic Workshop July 2015
Precise Contract Design Outstanding Issues How can we improve the information content of remote sensing indicators beyond biomass availability? Can new technologies help supporting the collection of ground truth/validation data? How to guarantee long-term RS data continuity with changing Earth Observation platforms and sensors? HOW TO GUARANTEE OR ASSESS THE QUALITY OF INDEX INSURANCE PRODUCTS Growing proliferation of Index Insurance Products/Contracts. No clear signal of product quality or risk-protection value (insurance or lottery). Lack of clear mechanism for distinguishing quality offers disincentive for designing high value contract Critical need for developing standard, universally accepted metrics for identifying and signaling product quality (e.g., bond rating agency)
Thank you! For more information on IBLI, visit https://ibli.ilri.org/ better lives through livestock ilri.org The presentation has a Creative Commons licence. You are free to re-use or distribute this work, provided credit is given to ILRI.
Evidence of Impact and Value Methods: Panel survey for impact assessment Monitoring Evaluation and Learning surveys and interactions Evidence: Wide range of positive household impacts Quantification of risk-coverage precision of contracts Indication of value-for-money for public expenditure For references refer to https://ibli.ilri.org/publications/
Establish Informed Effective Demand Capacity Development, Training, Extension and Marketing Critical for ensuring impact and scaling efficiently Unlocks a rich and important new research agenda Level 1: Knowledge and tools for government and insurance industry policy makers Level 2: Knowledge, skills and job aids for IBLI/KLIP sales agents and promoters Level 3: Awareness raising for potential clients
Low-cost, Efficient Delivery Need to solve for the cost of service provision in the drylands Application of digital technological solutions will be critical to reducing costs and going to scale
Policy and Institutional Structure Sustainable, large-scale index insurance program requires a clear and well articulated policy structure 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, wellcoordinated public and private sectors In Kenya we serve together with the World Bank as invited technical and policy advisors for KLIP What are the key roles for each sector?
Moving Toward Sustainable Scale Growing body of evidence continues to highlight the socioeconomic and riskmanagement value of index insurance programs, and the logic of public support. IBLI experience has made a contribution to this evidence, and to identifying some of the barriers to scale and trying to solve for them Africa Classification for IBLI Relevance Zones Going to scale will require careful research and development efforts to further unlock the barriers, and an alignment of policy and technological forces. INVESTMENTS NEEDED IN: Additional evidence on household and poverty impacts of IBLI, integration with other complementary interventions targeting poverty alleviation, risk-management and graduation to prosperity (cash transfers, graduation etc) Improvements in contract design and validation and alignment with other related index-based products/programs (ARC, scalable HSNP etc) Development of internationally recognized product quality metrics Development of digital platforms and data infrastructure for cost-efficient product and information delivery, capacity development, impact assessment and product design (Mills et al., 2017 ILRI Brief)