Presentation of my research at the International Agricultural Risk, Finance, and Insurance Conference, Zurich.

1. .
......
Index-based insurance: a new tool to control
vector borne disease under climate change ?
Ahmadou H. Dicko
@dickoah
PhD candidate in climate change economics
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 1 / 25

2. Introduction
The demand for livestock products will double in the 2050
horizon (Herrero et al. 2009)
Most of the livestock products are made by smallholders in
developing countries
These households are vulnerable to socio-economic and climatic
shocks
They face many challenges on their daily activities:
▶ Climate variability and drought (Arid area)
▶ Livestock diseases and mainly animal trypanosomiasis
(Sub-humid to humid zone)
(Thornton et al. 2007)
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3. Introduction
Figure: Study area in light green (Guinea Savannah
Zone)
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4. Outlines
...1 Livestock health and climate change
...2 Index-based insurance for livestock disease
...3 Preliminary results
...4 Conclusion and perspective
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5. Livestock vector-borne disease
The risk of livestock diseases is high on sub-humid zone of West
Africa
Most of the the livestock diseases are transmied by arthropod
(vector)
Vector-borne disease are highly sensitive to climate change and
variability (Moore et al. 2012)
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6. African Animal Trypanosomosis
African animal Trypanosomiasis (AAT) is a fatal vector borne
disease that causes serious economic losses in livestock.
Most trypasonomoses are transmied by tsetse flies.
There are two ways to control the disease:
▶ control tsetse flies (insecticide, bush and game clearing, etc.)
▶ treat the infected host (treat cale with drugs)
(Bouyer et al. 2006)
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7. African Animal Trypanosomosis
Figure: A cow suffering from AAT (Image from ILRI)
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8. African Animal Trypanosomosis
Figure: Tsetse flies Figure: Traps
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9. African Animal Trypanosomosis
..Trypanosomosis risk.
Tsetse density
.
Habitat suitability
.
Tsetse infection rates
.
Climate
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10. African Animal Trypanosomosis
..pastoral
activities
.....
Climate
change
.
Trypanosomosis
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11. Index insurance in a nutshell
Based on a index (e.g rainfall) correlated to the losses
Payout are made on a agreed-upon threshold of the index
Advantages : Low transaction cost and no moral hazard and
adverse selection
Disadvantages : Imperfect correlation between chosen index and
losses ( Basis risk )
Basis risk have to be as low as possible in an optimal insurance
design
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12. Demand for index-based insurance
Demand for index insurance is lower than expected specially from the
most risk averse :
credit constraint (Giné, Townsend, and Vickery 2008; Cole et al.
2012)
competition with cheaper self-insurance mechanism
(Binswanger-Mkhize 2012)
Basis risk and uncertainty (Clarke 2011a)
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13. Some known index-based livestock insurance
IBLI in Mongolia (Mahul and Skees 2007)
Combine three hedging products to cover from small to
catastophic losses
Public-private partnership (backed by World Bank)
IBLI contracts in Northen Kenya and Ethiopia (Chantarat
et al. 2012) :
NDVI based index (estimated mortality) built using predictive
modeling on rich herd history data
Seasonal contracts with private insurance companies
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14. Challenge in scaling up IBLI
Index based on remote sensing data :
▶ Solve data scarcity problem
▶ Build a response function that map satellite images into average
loss (morbidity, mortality, etc.)
▶ Predictive modeling to build the index −→ low basis risk
Demand driven product design :
▶ Insurance contract that meet an existing (rational) demand
(Clarke 2011b)
▶ In some countries compliance with islamic finance
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15. Index-based animal disease insurance
Traditional animal disease insurance are usually costly :
▶ moral hazard and adverse selection
▶ administrative and loss assessment cost
Traditional insurance diminish the effort of livestock owner to
adopt beer management practices (bad incentive)
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16. Index-based animal disease insurance
Our hypothesis is that only index-based insurance can (at the
same time) :
▶ hedge against the risk of livestock (vector-borne) diseases
▶ encourage herders to beer manage their livestock and control
the disease
However the design of an effective index-based animal disease
insurance (IBADI) remains a complex task.
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17. Steps (we choose) to design an IBADI
Risk assessment:
▶ A thorough understanding of the epidemiology of the disease
▶ A quantification of the risk of disease (prevalence, factors, etc.)
▶ An analysis of livestock keepers risks perceptions
Design of the index:
▶ Directly related to the disease (e.g predicted prevalence in
space/time)
▶ Indirectly related to the disease (e.g predicted density of the
vector in space/time)
Demand driven contract based on field experiments:
▶ Strike points (multiple triggers ?)
▶ (Fair) Premium price
▶ Delivery channel (microfinance institute, veterinary offices, etc.)
▶ Create a risk management portfolio (with early warning system )
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18. Risk assessment framework
The chosen index is known by epidemiologist as entomological
innoculation rate or tsetse challenge. It is the product of:
Suitability index
▶ Using species distribution models
▶ 10 years average of monthly MODIS and precipation data (NOAA
RFE)
Tsetse density
▶ Spatio-temporal model of tsetse density (vector abundance)
▶ Time series of monthly satellite images (temperature and NDVI)
Tsetse infection rates
▶ Generalized linear mixed models
▶ Time series of monthly satellite images (mainly temperature)
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19. Remote sensing data
Cum. prec
100 120 140 160 180 200
NDVI
−0.2 0.0 0.2 0.4 0.6 0.8
MIR
0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
LST Day
24 26 28 30 32 34 36 38 40 42
LST night
20 21 22 23 24 25
Vector presence
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0.6 0.8 1.0 1.2 1.4
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 19 / 25

20. Habitat Suitability
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0.0 0.2 0.4 0.6 0.8 1.0
0.0
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False positive rate
Truepositiverate
AUC = 0.91
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 20 / 25

21. Tsetse (apparent) density
Jan 2010 prediction
−0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0
2.2
2.3
2.4
2.5
2002 2004 2006 2008 2010 2012 2014
date
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 21 / 25

22. Predicted index
March 2013
0 10 20 30 40 50
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Predictedtsetsechallenge
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 22 / 25

23. Conclusion and perspective
Targeting other major climate sensitive diseases (create a single
product)
Coupling index-based product to a disease early warning system
A need to integrate a feeding component to the index
▶ Animal stressed by hunger are more sensitive to diseases
Climate change simulations
▶ MIROC C5 and CSIRO MK3 will be used to simulate the built
index
▶ Spot area with high risk variability (in space and time)
Field experiments and pricing in Burkina Faso and Senegal
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 23 / 25

24. References
..
Binswanger-Mkhize, Hans P (2012). “Is there too much hype about index-based agricultural insurance?” In: Journal of
Development Studies 48.2 (2012), pp. 187–200.
Bouyer, J. et al. (2006). “Mapping African Animal Trypanosomosis risk from the sky”. In: Veterinary research 37.5 (2006),
pp. 633–645.
Chantarat, Sommarat et al. (2012). “Designing Index-Based Livestock Insurance for Managing Asset Risk in Northern Kenya”.
In: Journal of Risk and Insurance (2012).
Clarke, Daniel J (2011a). A theory of rational demand for index insurance. Department of Economics, University of Oxford, 2011.
– (2011b). “Insurance design for developing countries”. PhD thesis. Oxford University, 2011.
Cole, Shawn et al. (2012). “Barriers to household risk management: evidence from India”. In: Harvard Business School Finance
Working Paper 09-116 (2012), pp. 104–35.
Giné, Xavier, Robert Townsend, and James Vickery (2008). “Paerns of rainfall insurance participation in rural India”. In: The
World Bank Economic Review 22.3 (2008), pp. 539–566.
Herrero, Mario et al. (2009). “Livestock, livelihoods and the environment: understanding the trade-offs”. In: Current Opinion in
Environmental Sustainability 1.2 (2009), pp. 111–120.
Mahul, Olivier and Jerry Skees (2007). “Managing agricultural risk at the country level: The case of index-based livestock
insurance in Mongolia”. In: World Bank Policy Research Working Paper 4325 (2007).
Moore, S. et al. (2012). “Predicting the effect of climate change on African trypanosomiasis: integrating epidemiology with
parasite and vector biology”. In: Journal of The Royal Society Interface 9.70 (2012), pp. 817–830.
Thornton, P.K. et al. (2007). “Coping strategies in livestock-dependent households in East and southern Africa: a synthesis of
four case studies”. In: Human Ecology 35.4 (2007), pp. 461–476.
Ahmadou H. Dicko @dickoah Index-based insurance: a new tool to control vector borne disease under climate change ? 24 / 25

25. Thank you for your aention
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