Index Based Livestock Insurance for Northern Kenya’s Arid and Semi-Arid Lands: The Marsabit Pilot

Abstract

In Kenya’s arid and semi arid lands (ASALs), drought is the most pervasive hazard, natural or otherwise, encountered by households on a widespread level. This is especially true for northern Kenya, where more than 3 million pastoralist households are regularly hit by increasingly severe droughts. In the past 100 years, northern Kenya recorded 28 major droughts, 4 of which occurred in the last 10 years. For livelihoods that rely solely or partly on livestock, the resulting high livestock mortality rate has devastating effects, rendering these pastoralists amongst the most vulnerable populations in Kenya. As the consequences of climate change unfold, the link between drought risk, vulnerability and poverty becomes significantly stronger.Index-based insurance products represent a promising and exciting innovation for managing the climate related risks that vulnerable households face. The creation of insurance markets for events whose likelihood of occurrence can be precisely calculated and associated to a well defined index is increasingly being championed as a way to make the benefits of insurance available to the poor. Over the past year, the International Livestock Research Institute (ILRI), in collaboration with its partners at Cornell University, the BASIS Research Program at the University of Wisconsin-Madison, and Syracuse University, has pursued a substantial research program aimed at designing, developing and implementing market-mediated index-based insurance products to protect livestock keepers - particularly in the drought prone ASALs – from drought-related asset losses.Much of the initial preparatory phase, which included an extensive program of field work and stakeholder consultation, is now complete. An index-based livestock insurance (IBLI) contract has also been modeled, priced, and is ready for implementation. The remainder of this note defines the key features of a general index-based contract, highlighting the specifics of our IBLI contract, and lays out a pilot strategy to test its effectiveness and commercial sustainability.