‘Livestock insurance project an excellent example of innovative risk management in Kenya’s arid lands’ – Kenyan minister

Kenya Rural Development Programme launch in Kiboko, Kenya

Marjaana Sall, deputy head of delegation of the European Union to Kenya, Jimmy Smith, director general of ILRI, Mohammed Elmi, Kenya’s minister of state for development of northern Kenya and other arid lands and Romano Kiome, permanent secretary in Kenya’s ministry of agriculture at the launch of the Kenya Rural Development Programme (KRDP) at the KARI centre in Kiboko, Makueni on 7 Sept 2012 (photo credit ILRI/Paul Karaimu).

Kenya’s minister of state for development of northern Kenya and other arid lands, Mohamed Elmi, has praised a livestock insurance project implemented in Kenya by the International Livestock Research Institute (ILRI) and other partners for its role in improving the productivity of the country’s drought-prone arid and semi-arid lands.

‘The index-based livestock insurance project in Marsabit District is an excellent example not just of innovative risk management, but of how, with thought and imagination, basic services such as insurance can be brought within reach of those previously excluded,’ said Elmi.

The minister was speaking last week (7 Sep 2012) at the launch of a five-year Kenya Rural Development Programme at the Kenya Agricultural Research Institute rangeland research station at Kiboko, located in Makueni County. Representatives from the Kenya government, the European Union and international research organizations, including ILRI, participated in the launch.

The Kenya Rural Development Programme is a new five-year agricultural support program funded by the European Union at 66 million euros. It is seeking to improve drought response and management and agricultural productivity in the country’s arid lands and to reduce the vulnerability of people living in these areas.

Jimmy Smith, the director general of ILRI, who attended the launch, said the index-based livestock insurance project is making rangelands-based livelihoods more sustainable.

‘Promoting food security and reducing poverty in arid areas is a key priority for the government. I’m delighted the minister highlighted the role IBLI is playing in this process; ILRI is committed to making an important contribution,’ said Smith.

The insurance project, which was piloted in Marsabit District, in northern Kenya, in 2010, is a component of the Kenya Rural Development Programme. The project is a result of collaborative efforts between ILRI, UAP Insurance, Cornell University and the Index Insurance Innovation Initiative, based at the University of California at Davis. A second phase of the project, which started in southern Ethiopia in August 2012, has received 1 million euros from the European Union.

‘The Kenya Rural Development Programme responds to the development needs of the rural people in Kenya and the support given by the European Union to the agricultural sector will improve the lives of people in the country,’ said Marjaana Sall, deputy head of delegation of the European Union to Kenya.

The event featured displays of European Union-funded activities in Kenya’s rangelands from the Kenya Rural Development Programme, the Kenya Agricultural Research Institute and ILRI, among other exhibitors, and was attended by local community members and farmers in Kiboko.

Read recent stories about index-based livestock insurance: http://www.ilri.org/ilrinews/index.php/archives/8149

Read more about the Kenya Rural Development Programme: http://www.dmikenya.or.ke/

Short films document first index-based livestock insurance for African herders

For those readers interested to get more local context about the recent first insurance payouts to livestock herders in Kenya’s northern Marsabit District (go here for an assembly of recent stories on this), here are two films ILRI produced on the subject when the insurance was first made available to Marsabit’s pastoral herders, in January 2010.

Livestock Insurance for Pastoralists in Kenya
January 2010 saw the launch of the world’s first livestock insurance for remote African pastoralists as a result of years of research.
Running time: 2:49

Development of World’s First Index-Based Livestock Insurance for African Pastoralists Herders
In Kenya’s drylands, drought has always been the greatest hazard faced by livestock herding families. Modern pressures are making this situation worse.This film tells the story of a research project started in 2007, which this year introduced a new form of insurance to remote herding peoples who had never been provided with insurance before. This new insurance product has potential to protect many other herding communities throughout Africa.
Running time: 12.36.

Herders in drought-stricken northern Kenya get first livestock insurance payments

Education on livestock insurance

Pastoralists from Marsabit, in Kenya’s remote northern drylands, play a game crafted by ILRI scientists to simulate livestock losses that could occur due to drought, in which the local herding communities are educated about how index-based livestock insurance works (image credit: ILRI).

As livestock deaths mount, a small group of herders in Kenya’s Marsabit District is first to benefit from program that tracks forage conditions via satellite.

In the midst of a drought-induced food crisis affecting millions in the Horn of Africa, an innovative insurance program for poor livestock keepers is making its first payouts today, providing compensation for some 650 insured herders in northern Kenya’s vast Marsabit District who have lost up to a third of their animals.

Known as index-based livestock insurance, or IBLI, payouts are triggered when satellite images show that grazing lands in the region have deteriorated to the point that herders are expected to be losing more than 15% of their herd. The current readings for which indemnities are now being paid show that between 18 and 33% of livestock have been lost to drought this season.

‘It’s terrible that we are seeing this level of loss, but gratifying that the policies are doing what they are supposed to do, which is to help herders avert disaster when weather conditions dry up pasture lands and animals begin to perish,’ said Isaac Magina, head of agriculture insurance at UAP Insurance Ltd.

‘When you look at a 33% loss, that is a significant portion of the asset base of any business and it would be difficult to survive without insurance,’ added Magina.

The insurance project was developed in partnership by the Nairobi-based International Livestock Research Institute (ILRI), Cornell University and the Index Insurance Innovation Initiative program at the University of California at Davis. Commercial partners Equity Bank and UAP Insurance Ltd implement the program. The IBLI project is funded by the United States Agency for International Development, the European Union, the British Government, the World Bank, the Microinsurance Facility and the Global Index Insurance Facility.

The Marsabit District alone is home to some 86 thousand cattle and 2 million goats and sheep that generate millions of dollars in milk and other products and serve as the main source of sustenance and income. ILRI estimates that up to one-third of all livestock in the region have perished during the current drought.

In East Africa, an estimated 70 million people live in the drylands, and many of them are herders. In Kenya, the value of the pastoral livestock sector is estimated to be worth USD800 million. And the Intergovernmental Authority on Development in Eastern Africa, which takes a regional approach to combating drought in six countries of the Horn, estimates that over 90% of the meat consumed in East Africa comes from pastoral herds.

Under the terms of the policy, insured herders are compensated for any losses above 15%, with the 15% threshold acting as a sort of deductible. For example, a cattle herder who lives in an area with a livestock mortality rate of 33% receives a payout covering 18% of his or her animals. With cattle valued at about 15,000 Kenyan shillings (Ksh) per head (about USD150), an insurance policy covering 10 animals, or Kshs150,000 in cattle, would pay out at about Kshs27,000 (about USD270).

When the 15% deductible is factored in, compensation ranges from 3% in areas where the drought has been more moderate to 18% in the areas where herders were hit particularly hard. But in an indication of the severity of the drought, all of the areas where the policies were sold have exceeded the 15%mortality threshold that triggers a payout. Thus far, the policies cover about 1,100 animals—mostly cattle, but some goats and sheep and a few camels as well.

The payments are being dispatched in the middle of a humanitarian crisis endangering 12 million people in the Horn that is prompting a call for new ways to manage food security risks in East Africa’s arid drylands. For example, a recent report from ILRI has found that the pastoral approach to livestock production, in which herders make do with marginal lands by regularly moving their herds, could be very effective at averting weather-related food shortages. ILRI experts say that in arid and semi-arid regions, keeping livestock can be a more effective coping strategy than cultivating crops—if herders have options for reducing their vulnerability to drought.

‘Drought insurance is one important way to help livestock keepers maintain food security even in very harsh environments,’ said Andrew Mude, the IBLI project leader at ILRI. ‘Insurance is not by itself sufficient,’ he added, ‘But if it is accompanied by other risk-reducing strategies, such as better access to grazing lands and watering areas, then the pastoralist approach, which some people dismiss as a backward lifestyle of the past, emerges as a very effective way to meet future food needs.’

Mude said that it is too early to tell just how the payouts from the policies will affect food security and other welfare indicators. For example, it’s not yet clear how many herders will use the compensation to replace animals lost to the drought. But Mude said one major success thus far is that the livestock mortality index that is at the heart of the program appears to be working. The fatality rate predicted by the satellite assessments of forage loss is tracking very closely surveys of animal deaths on the ground.

That’s crucial because using freely available satellite images of pasture lands to accurately predict animal deaths overcomes a major barrier that has bedeviled past efforts to provide livestock insurance in poor regions: the prohibitively high costs and logistics of confirming animal deaths in herds that roam across vast distances in extremely remote areas.

‘This is all still a work in progress,’ said Jimmy Smith, director general of ILRI. ‘But the fact that our relatively inexpensive approach to estimating livestock deaths seems to be accurate could open the door to making livestock insurance widely available in many parts of Africa.’

Going forward, experts believe a key issue will be whether livestock insurance in East Africa would be commercially viable by itself or whether its ability to protect herders from the impact of prolonged drought might justify some level of financial support from governments or donors, as agricultural insurance programs in Western countries often do.

‘This is asset insurance for animals that are the centerpiece of livelihoods, providing a stream of income and nutrition for years and years,’ said Mude. ‘The investment in insurance=based asset safety nets protecting these herds could have a more cost-effective welfare impact over the longer term than other forms of response such a food and cash assistance.’

‘This insurance scheme is a great example of how partnerships with the private sector can lift people out of poverty and provide long-term solutions to food crises,’ said Andrew Mitchell, the British international development secretary.

‘To many farmers, losing their cattle means losing everything, as they are not just a source of income but are their only source of food. Support from Britain and others means that more than 600 herders in Northern Kenya can buy more cattle to replace those they have lost. This means they are better able to cope with this and future devastating droughts.’

Ongoing drought in Horn may trigger first-ever insurance payments to remote African livestock herders

ILRI researcher with local people in Marsabit, Kenya

ILRI researcher holds discussions with local pastoral herders in Marsabit, in Kenya’s northern drylands, for ILRI’s Index-based Livestock Insurance project (photo credit: ILRI/Mude).

SciDevNet reports that, due to the great drought engulfing the Horn of Africa, an ‘index-based’ livestock insurance scheme for herders in Kenya’s remote Marsabit District may make payments to those who had earlier purchased the insurance. This is the first time insurance has ever been offered Kenya’s remote livestock herders, and these would be the first payments for those who have insured their stock.

What is ‘index-based’ livestock insurance?
Index-based livestock insurance makes the risk-management benefits of insurance available to poor and remote clients. The product being piloted in Marsabit District by the International Livestock Research Institute (ILRI) and other partners, including the private sector, aims to provide compensation to insured pastoralists in the event of livestock losses due to severe forage scarcity. Incorporating remotely-sensed vegetation data in its design, delivered via mobile ICT-based transactions platforms, and with experimental extension methods used to educate the remote pastoral herders, this insurance product boasts many firsts in product development. Payments are triggered when severe drought makes forage scarce over a long period and when it can be predicted from that that more than 15 per cent of livestock in the area will have died of starvation.

SciDevNet reports the following.
‘Insurers will assess in October whether Kenyan farmers signed up to the Index-Based Livestock Insurance scheme will receive their first payment, after the worst drought in the region for 60 years.

‘The scheme, which has been piloted in northern Kenya since early 2010, uses freely-available satellite data to assess the state of pastures. When the images show that pastures have dried up, farmers can claim compensation for animals that have died as a result—without insurers having to verify the deaths in person.

‘In Kenya about 2,500 farmers have purchased the product since its inception, paying a yearly premium of up to US$100 for 6–8 animals. . . .

‘”So far, the predicted mortality [rate is] high—but we have to wait for the final tally at the end of October in order to determine whether or not there will be a payout,” said Brenda Wandera, project development manager at the International Livestock Research Institute (ILRI), Kenya, which implemented the scheme.

‘The scheme will be extended to southern Ethiopia in February 2012 to help mitigate the effects of drought. It will initially target 2,700 pastoralists.

The aim is to find a viable insurance tool that could cushion pastoralists from heavy losses experienced during droughts, according to Wandera.’

‘ILRI will partner with the Nyala Insurance s.c. company in Ethiopia, with support from the International Food Policy Research Institute, the US international development agency USAID and the World Bank. . . .’

The technical partners in this project
Cornell University
Index Insurance Innovation Initiative
Syracuse University (Maxwell School)
University of Wisconsin (BASIS Research Program)

The implementing partners
Equity Insurance Agency
UAP Insurance Limited
Financial Sector Deepening (FSD) Kenya
Kenya Meteorological Department
Kenya Ministry of Development of Northen Kenya and other Arid Lands
Kenya Ministry of Livestock

The donor agencies
UK Department for International Development (DFID)
United States Agency for International Development (USAID)
World Bank

Read the whole article at SciDevNet: Kenyan farmers may soon receive first drought payout, 15 Aug 2011.

For more information, visit the blog of ILRI’s Index-Based Livestock Insurance project.

World’s first livestock insurance supports African herders

Drought is the greatest hazard facing livestock herders in Kenya. Their livelihoods have been greatly affected, and often devasted, by animal losses as a result of severe droughts, especially in the past 10 years.

In this 12-minute film, Andrew Mude, an economist working with the International Livestock Research Institute (ILRI), shares the story of a pilot project introduced in Marsabit District of northern Kenya in 2007 to provide a new and innovative livestock insurance scheme to Kenyan herders. The project is a result of joint research and collaboration by partners from different sectors, including private insurance companies, working in the region as well as institutions overseas.

This initiative is helping livestock keepers in some of Kenya’s most marginal areas to escape poverty and, as the film shows, has great potential to help other herding communities in Africa.

ILRI, Equity Bank and UAP Insurance launch first-ever project to insure cows, camels and goats in Kenya’s arid north

Satellite images of remote African lands are used to insure herders from devastating droughts

Arid lands

Thousands of herders in arid areas of northern Kenya will be able to purchase insurance policies for their livestock, based on a first-of-its-kind program in Africa that uses satellite images of grass and other vegetation that indicate whether drought will put their camels, cows, goats and sheep at risk of starvation.

The project was announced today in northern Kenya’s arid Marsabit District by the Nairobi-based International Livestock Research Institute (ILRI), microfinance pioneer Equity Bank and African insurance provider UAP Insurance Ltd.

The index-based livestock insurance program will use satellite imagery to determine potential losses of livestock forage and issue payouts to participating herders when incidences of drought are expected to occur. If successful in the Marsabit District—where few of the 86,000 cattle and two million sheep and goat populations, valued at $67 million for milk and other products, are rarely slaughtered—the program would be offered to millions of semi-nomadic pastoralists and livestock keepers in other parts of the east African region.

“Today, our agents will begin selling insurance policies backed by UAP that for the first time will provide pastoral families in Kenya’s remote Marsabit District with a simple way to reduce their drought risk —the biggest threat to their cherished herds of cattle, sheep, goats, and camels—from devastating lives and livelihoods,” said Equity Bank Managing Director James Mwangi. “Livestock is the key asset for families in this region and securing this asset is critical to their ability to obtain credit and investments that can allow them to grow and prosper.”

ILRI, which is part of the Consultative Group on International Agricultural Research (CGIAR), developed the project with partners at the Ministry of Development of Northern Kenya, Cornell University, Syracuse University, the BASIS program at University of Wisconsin, and the Index Insurance Innovation Initiative. The project is funded by UK’s Department for International Development (DFID), United States Agency for International Development (USAID), the World Bank and Financial Sector Deepening Trust (FSD Kenya).

Insuring livestock of pastoral families has long had been considered impossible due to the formidable challenges of verifying deaths of animals that regularly are moved over vast tracts of land in search of food. ILRI and its partners have overcome this impediment by combining satellite images of vegetation in the Marsabit District with monthly surveys of livestock deaths to pinpoint the level of forage reduction that will cause animals to die. This program is different from all others because it does not pay clients based on the actual loss of their livestock assets, but rather on indicators that the animals are at risk of death.

“The reason this system can work is that getting compensation does not require verifying that an animal is actually dead,” said Andrew Mude, who is the project leader at ILRI. “Payments kick in when the satellite images, which are available practically in real time, show us that forage has become so scarce that animals are likely to perish.”

Droughts are frequent in the region—there have been 28 in the last 100 years and four in the past decade alone—and the losses they inflict on herders can quickly push pastoralist families into poverty. For example, the drought of 2000 was blamed for major animal losses in the district.

“Insurance is something of the Holy Grail for those of us who work with African livestock, particularly for pastoralists who could use insurance both as a hedge against drought—a threat that will become more common in some regions as the climate changes—and to increase their earning potential,” said ILRI Director General Carlos Seré.

The cost of the plans offered will vary depending on the number of animals and the area of coverage. The policies contain a clause akin to a deductible, in which a family would buy coverage that would pay-out when livestock losses are expected to exceed a certain level. “We believe this program has potential because it has the elements insurers need to operate, which is a well-known risk (drought), and an external indicator that is verifiable and can’t be manipulated, which in this case is satellite images of the vegetation,” said James Wambugu, Managing Director of UAP Insurance.

The data on forage availability are derived from satellite images of plant growth in the region that are part of a global survey known as the Normalized Difference Vegetation Index, or NDVI, a database regularly updated by scientists at the US National Oceanic and Atmospheric Administration (NOAA) and the US National Aeronautics and Space Administration (NASA). To develop the livestock insurance program, ILRI used NDVI data collected since 1981 estimating forage availability vegetation in the Marsabit District. This information was combined with data on livestock deaths that have been collected monthly since 2000 by the Kenya Arid Lands Resource Management Project (ALRMP) and USAID’s Pastoral Risk Management Project. The result is a statistical model that reliably predicts when and to what degree forage reductions will result in drought-related livestock deaths.

Given the complexity of index-based livestock insurance, ILRI and its partners have developed an insurance simulation game for local communities to explain the key features of the insurance policy and tested it across the Marsabit District. ILRI’s Mude said many of the herders who played the game became intensely involved in the simulation. “It helps them understand how insurance can protect them against losses. They also appear to simply enjoy playing the game itself, which generates a lot of animated discussion,” said Mude.

Mude said there is a potential for livestock insurance to be valuable even without a drought that triggers payments. For example, a policy could prevent stock losses by providing pastoralists the means to obtain credit for purchasing feed and drugs that would allow animals to survive the tough conditions. Similarly, pastoralists who want to expand their herds to take advantage of Africa’s rising demand for livestock products are likely to find it easier to obtain capital from private creditors now unwilling to lend due to the risks associated with droughts.

But more fundamentally, ILRI believes insurance can help avert an all too common catastrophe, and one that could occur with more regularity if climate change alters rainfall patterns in the region: droughts pushing pastoralist families into chronic impoverishment by inflicting losses from which the people cannot recover.

For further background information on project details visit the IBLI website and associates ILRI stories

Satellite images of remote African lands to be used to insure herders from devastating droughts

ILRI, Equity Bank, and UAP Insurance Launch First-ever Project to Insure Cows, Camels, and Goats in Kenya’s Arid North Thousands of herders in arid areas of northern Kenya will be able to purchase insurance policies for their livestock, based on a first-of-its-kind program in Africa that uses satellite images of grass and other vegetation that indicate whether drought will put their camels, cows, goats, and sheep at risk of starvation. The project was announced today in northern Kenya's arid Marsabit District by the Nairobi-based International Livestock Research Institute (ILRI), microfinance pioneer Equity Bank and African insurance provider UAP Insurance Ltd. “The reason this system can work is that getting compensation does not require verifying that an animal is actually dead,” said Andrew Mude, who is the project leader at ILRI. “Payments kick in when the satellite images, which are available practically in real time, show us that forage has become so scarce that animals are likely to perish.” Droughts are frequent in the region—there have been 28 in the last 100 years and four in the past decade alone—and the losses they inflict on herders can quickly push pastoralist families into poverty. For example, the drought of 2000 was blamed for major animal losses in the district. “Insurance is something of the Holy Grail for those of us who work with African livestock, particularly for pastoralists who could use insurance both as a hedge against drought—a threat that will become more common in some regions as the climate changes—and to increase their earning potential,” said ILRI Director General Carlos Seré. For more information, please contact: Jeff Haskins at +254 729 871 422 or +254 770 617 481; jhaskins@burnesscommunications.com or Muthoni Njiru at +254 722 789 321 or m.njiru@cgiar.org Background Materials Project Summary