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

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
agricultural GDP

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.

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.
DROUGHT RESPONSE

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
finance

Objective: Offer a timely, sustainable, safety net against catastrophic drought shocks on
pastoralists.
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
https://www.drylandinnovations.com/

WHAT IS INDEX-BASED INSURANCE
Conventional 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

o Since 2010 IBLI has been scaled-up commercially in
Kenyan and Ethiopian drylands through various
programs
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
households.
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)
IBLI SCALING

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

Z-scoring to get seasonal index
Vrieling et al., 2014, IJAEG
Standardization and deviation
from ‘historical’ mean
Temporal accumulating
Seasonal cumulated NDVI
NDVI spatially aggregated
1-10 May 2011
MODIS NDVI image (10 day)
Spatial
aggregation
400 km
PRODUCT DESIGN – INDEX OF FORAGE AVAILABILITY

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

If the trigger threshold is reached, the payout is proportional do the degree of forage scarcity
severity (as estimated from z-cum NDVI)
PAYOUT FUNCTION
PRODUCT DESIGN – PAYOUT MODEL

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
insured
o Payouts are delivered directly to beneficiary Households
o Voluntary purchase options under implementation
KLIP POLICY

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
milk productivity
 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)

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
the payment?
EVIDENCE OF IMPACT AND VALUE

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
mechanism.
IBLI CAPACITY DEVELOPMENT STRATEGY
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
ESTABLISH INFORMED DEMAND

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

Snapshot of Use of Digital Technology in IBLI/KLIP
DIGITAL INNOVATION – M-factor

INSTITUTIONAL INFRASTRUCTURE
 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, well-coordinated public and private
sectors

RISK MANAGEMENT MULTI-LAYER FRAMEWORK
Maher et al., 2018
INSTITUTIONAL INFRASTRUCTURE

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

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
diseases.
 Similar activities are now expanding in the adjacent Erer
zone of Somali Regional State (SRS).
Kumbi
Meyu Muleke
Golo Oda
Midhaga Tola
Girawa
Bedeno
Burqua Dhintu
Fedis Fedis
Lege Hida
Meyu North
Meyu East
Meyu South
Meyu Central
¯
0 25 5012.5
Kilometers
Legend
IBLI Clusters
Meyu Woreda
Neighboring Woredas
SOMALI REGION
Somali
Oromia
Afar
Amhara
SNNPR
Tigray
Gambela
Beneshangul Gumu
Dire Dawa
Hareri
Addis Ababa

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;

Conflicts
 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

Interventions for conflict mitigation
WHY INSURANCE?
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
resources
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

Feasibility assessment
-
• Idea conceptualization: problem statement and conceptual framework design based on direct experiences, literature review and interactions with index-
insurance actors.
3-6m
• 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.
6m-1y
• 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.
3-5yrs
• 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
sustainability.

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?

Biophysical
Rangeland dominance
Seasonality

Biophysical (summary)
Meyu North
Meyu East
Meyu South
Meyu Central
Feasibility
IBLI Clusters
Suitable
Rangeland Review
¯
0 25 5012.5
Kms
IBLI Suitability

Socio-economic (vulnerability)

Socio-economic (summary)
Pros
• Shared interest toward the product
• Centrality of livestock for pastoralist welfare
• Extreme vulnerability to drought
• High cost of drought response in the area
Challenges
• Strong interaction between drought and disease.
Potential confusion.
• Need of subsidies
Pros & Cons
• Existing traditional social support mechanisms
during drought
• Existing safety net programs (PSNP)

Operational
Pros
• 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
under development
Challenges
• 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

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
distribution
 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

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?

THANKS!
https://www.drylandinnovations.com/
f.fava@cigar.org

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.
Sentinels)?
 Poor characterization of rangeland systems (e.g. in relation
to palatability/quality and land condition)
Rangeland mask, multi-scale mapping (high/very high res.
satellites).
 Poor link between vegetation and livestock production.
Forage quality, grazing patterns, livestock mapping, water
points mapping
 Lack of long term data for “validation” of mapping products.
Crowdsourcing, ground networks (webcams), drones.
SOME GAPS & OPPORTUNITIES FOR THE
EO COMMUNITY