Index-based Livestock Insurance Research Articles

Climate risk adaptation through livestock insurance: evidence from a pilot programme in Nigeria

ABSTRACT This study investigates the option of choosing index-based livestock insurance (IBLI) to mitigate the adverse effects associated with climate change in Kwara State, Nigeria. Previous studies indicate that the failure to include farmers during the early stage of pilot programme design is a major factor in Africa’s poor participation rate in index insurance. We conducted a survey with 392 farming households across eight of the state's 16 Local Government Areas (LGAs). This survey employed a contingent valuation method (CVM) to assess the value respondents are willing to pay for such insurance and add to the growing literature on IBLI uptake. We discuss important issues ranging from the cost of the IBLI premium to the impact of social capital and access to alternative sources of income on adoption. Our findings show that farmers are willing to pay a 1.3% premium for IBLI, which is lower than the current premium charged for traditional agricultural insurance in Nigeria which typically ranges from 2% to 5%. The results also highlight the need to consider insurance uptake and access to credit as complementary measures, rather than substitute strategies for managing the risks posed by severe climate shocks and extremes.

Leveraging browse and grazing forage estimates to optimize index-based livestock insurance

African pastoralists suffer recurrent droughts that cause high livestock mortality and vulnerability to climate change. The index-based livestock insurance (IBLI) program offers protection against drought impacts. However, the current IBLI design relying on the normalized difference vegetation index (NDVI) may pose limitation because it does not consider the mixed composition of rangelands (including herbaceous and woody plants) and the diverse feeding habits of grazers and browsers. To enhance IBLI, we assessed the efficacy of utilizing distinct browse and grazing forage estimates from woody LAI (LAIW) and herbaceous LAI (LAIH), respectively, derived from aggregate leaf area index (LAIA), as an alternative to NDVI for refined IBLI design. Using historical livestock mortality data from northern Kenya as reference ground dataset, our analysis compared two competing models for (1) aggregate forage estimates including sub-models for NDVI, LAI (LAIA); and (2) partitioned biomass model (LAIP) comprising LAIH and LAIW. By integrating forage estimates with ancillary environmental variables, we found that LAIP, with separate forage estimates, outperformed the aggregate models. For total livestock mortality, LAIP yielded the lowest RMSE (5.9 TLUs) and higher R2 (0.83), surpassing NDVI and LAIA models RMSE (9.3 TLUs) and R2 (0.6). A similar pattern was observed for species-specific livestock mortality. The influence of environmental variables across the models varied, depending on level of mortality aggregation or separation. Overall, forage availability was consistently the most influential variable, with species-specific models showing the different forage preferences in various animal types. These results suggest that deriving distinct browse and grazing forage estimates from LAIP has the potential to reduce basis risk by enhancing IBLI index accuracy.

Impact of Livestock Insurance Schemes on Smallholder Farmers’ Resilience to Climate Change in Sub-Saharan Africa

Purpose: This study sought to investigate the impact of livestock insurance schemes on smallholder farmers’ resilience to climate change in Saharan Africa. Methodology: The study adopted a desktop research methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library. Findings: The findings reveal that there exists a contextual and methodological gap relating to the impact of livestock insurance schemes on smallholder farmers’ resilience to climate change in Saharan Africa. Preliminary empirical review revealed that livestock insurance schemes significantly enhanced the resilience of smallholder farmers to climate change in Sub-Saharan Africa by providing financial protection against climate-induced livestock losses, maintaining livestock assets, and stabilizing household incomes during climatic shocks. However, barriers such as high premium costs, limited awareness, and distrust in insurance providers hindered widespread adoption. Recommendations included premium subsidies, extensive education programs, and improved transparency to increase uptake. Integrating insurance with broader risk management strategies was also emphasized to maximize resilience benefits. Unique Contribution to Theory, Practice and Policy: The Theory of Planned Behaviour (TPB), Protection Motivation Theory (PMT) and Resource Dependence Theory (RDT) may be used to anchor future studies on livestock insurance schemes on smallholder farmers’ resilience to climate change. The study recommended integrating socio-economic factors into theoretical frameworks, enhancing practical training and capacity-building for farmers, and creating supportive regulatory policies to improve the adoption of livestock insurance schemes. It emphasized the importance of integrating insurance with broader risk management strategies, leveraging technological innovations to enhance accessibility, and conducting continuous monitoring and evaluation to ensure the schemes' effectiveness. These recommendations aimed to enhance smallholder farmers' resilience to climate change, maximize the benefits of livestock insurance, and ensure sustainable agricultural development in Sub-Saharan Africa. Keywords: Livestock Insurance Schemes, Smallholder Farmers, Resilience, Climate Change, Sub-Saharan Africa, Index-Based Livestock Insurance (IBLI)

The role of heterogenous implementation on the uptake and long-term diffusion of agricultural insurance in a pastoral context

To make a difference in lower-income countries, agricultural innovations must be adopted and ultimately diffused across diverse local environments. This study contributes to the ongoing debate about the factors limiting the spread of agricultural innovations by considering the role of heterogenous supply in determining observed demand for the Index-Based Livestock Insurance (IBLI) product, which is a commercial insurance product serving historically uninsured pastoralists in the Horn of Africa. Analysis of sales data from 2010 to 2020 in Ethiopia and Kenya shows that local conditions can reduce the likelihood of supply channels reaching prospective clients, effectively excluding them from accessing insurance, while other factors can work towards increasing supply of insurance while also decreasing demand for it. Surveys collected from insurance sales agents reveals considerable heterogeneity in their ability to and effort in suppling IBLI. Discussions with IBLI’s providers confirms the role of supply constraints in observed demand; the firms consistently point towards the cost of last-mile extension and sales as their largest challenge to increasing sales, and emphasize that it is cost-prohibitive to provide equal access to well-trained insurance agents across the areas that they operate. These findings suggest that current investments aimed at increasing insurance coverage by increasing demand, for example through improved product design or by subsidizing premiums, should be accompanied by investments in developing more cost-effective marketing and distribution processes so that demand can be acted upon. On a broader level, the results highlight a need to consider non-random and incomplete supply as a factor when examining observed uptake of agricultural innovations.

Social Innovations for Empowering Pastoralist Women: Evidence from Dasenech, South Omo, Ethiopia

Innovations are vital for empowering women and youth by introducing alternative pathways for development. This study focuses on a social innovation project executed in Dasenech, South Omo, Ethiopia. The project introduced innovative initiatives (index-based livestock insurance (IBLI), a goat market value-chain system, an eco-friendly hydraulic ram pump, fodder production, and a vet drug store). Key among the goals of these initiatives was the empowerment of pastoralist women by promoting the livelihood base of the Dasenech Pastoralist Community. The present study assessed the contributions of these innovations to the empowerment of women and youth. We employed a mixed-method research approach to pool both quantitative and qualitative data using a household survey through Kobocollect, FGDs, KIIs, and case stories. We computed empowerment by employing a 5DE model with five domains, i.e., production, resources, income, leadership, and time use. The findings suggest that 93% of the project participants were empowered, recording “adequate achievements” in line with the 5DE model, i.e., with scores of at least 80% in four of the five requirements. Technological innovations that properly assess the context of the intervention area and, most importantly, that use proper avenues of implementation with women and youth as owners and leaders, have the capacity to empower such individuals in the economic, social, and political spheres.

Index Insurance for Forage, Pasture, and Rangeland: A Review of Developed (USA and Canada) and Developing (Kenya and Ethiopia) Countries

Index insurance for forage, pasture, and rangeland has gained ground in policy and academic circles. Stakeholders promote it as an innovative risk management tool for enhancing resilience to drought-induced perils and providing a way for consumption smoothing to livestock producers in drought vulnerable ecosystems. Index insurance, which avoids market failures such as moral hazard, adverse selection, and transactional cost, has been piloted and implemented all over the world. To support future development and research on index-based insurance in livestock systems, operational index insurance for forage, pasture, and rangeland systems in developed (USA and Canada) and developing (Kenya and Ethiopia) countries are reviewed and compared. This paper finds some similar characteristics (huge subsidy payments—ranging from 50 to 100 percent, significant government role, low adoption, insufficient payouts, data challenges, etc.), of this product between the two regions. A major difference between the PRF and NDVI is the number of choices available to users of rainfall index insurance who face close to 3000 choice options, while NDVI users have less than 5 choice options available for them. Based on these insights, we highlight opportunities where the two regions can benchmark and improve upon their respective index insurance schemes—index-based livestock insurance (IBLI) in developing and rainfall index insurance for forage in developed regions.

Index insurance and the moral economy of pastoral risk management in Mongolia

ABSTRACT Rural livelihoods worldwide are being transformed by the increasing financialization of agricultural production. Microlending and the deeper integration of production cycles in commodity markets are clearly at the vanguard of these transformations, but insurance and similar financial products have become a new frontier. Here, we explore index-based livestock insurance in Mongolia, where even in the face of disaster and worsening climatic conditions, herders have expressed limited interest in, and some outright rejection of, index insurance. Using a decade of ethnographic research, we explore herder perceptions of index insurance, its effects, and the contrast with local moral economies of mutual aid.

Uncertainty in the drylands: Rethinking in/formal insurance from pastoral East Africa

Amidst climatic and economic volatility, agricultural development and climate adaptation policies have increasingly turned to weather microinsurance to manage uncertainties, particularly in dryland pastoral and agricultural settings. While the political embrace of insurance has been cause for concern amongst those who fear insurance will undermine embedded coping mechanisms and moral economies, economists have puzzled over low insurance adoption rates amongst target populations. This article argues for an approach that scrutinizes insurance in relation to dynamic social practices and norms for responding to uncertainty. We employ this approach to investigate pastoralists’ encounters with index-based livestock insurance in Northern Kenya and Southern Ethiopia. Drawing on interview, ethnographic, and survey data, we demonstrate how insurance is understood within larger moral economies and collective imaginaries for living with and managing uncertainty in the drylands. Relational understandings shape pastoralists’ participation in risk-sharing arrangements, collective and individual decisions about livestock insurance purchase, and eventual uses of insurance payouts. Payouts also support a broad array of social reproductive purposes and investments in social and political life. As we conclude, these findings upset the binary between formal and informal insurance, revealing how “formal” index insurance must be negotiated with embedded social affiliations, rights, obligations, and understandings of uncertainty.

The gendered impacts of index-insurance on food-consumption: Evidence from southern Ethiopia

Index insurance has been promoted as an innovative strategy for enhancing long-term resilience to climate-related shocks and providing financial inclusion, particularly to poor women farmers in developing countries. In this paper, we evaluate the gendered impact of an index-based livestock insurance product on food consumption among pastoral households in southern Ethiopia. We exploit intertemporal variation in household risk exposure and insurance payouts to evaluate the ex ante and ex post insurance impacts and use randomly distributed discount coupons to instrument the insurance purchase variables. We find that during the pre-drought period, a previous season insurance purchase and the intensity of insurance coverage significantly and equally reduces food expenditure in male- and female-headed households. In the post-drought period, we find that an insurance payout significantly increases food expenditure per adult equivalent among female-headed households.

Insuring Peace: Index-Based Livestock Insurance, Droughts, and Conflict

Insuring Peace: Index-Based Livestock Insurance, Droughts, and Conflict

Unravelling the pastoralist paradox – preferences for land tenure security and flexibility in Kenya

AbstractIn this paper, we use a discrete choice experiment conducted among pastoralists in four different semi-arid counties in Kenya characterized by different land tenure regimes to analyze how pastoralists make tradeoffs between tenure security and grazing flexibility – the so-called pastoralist paradox. Results show that there is one group of respondents who are desperate for change and seem to prefer either group or private title deeds to their current situation. A second, smaller group has strong preferences for the status quo, which could be driven by their relatively short migration distances. Concerning index-based livestock insurance, the basis risk suffered by insured pastoralists due to underprediction is high, but willingness to pay (WTP) for livestock insurance should still be high enough to ensure maximum uptake, leaving current low uptakes hard to explain. The worry about climate change is high but does not translate into increased WTP for more secure tenure or formal livestock insurance.

Morbidity and Mortality Analysis for Risk-based Pricing in Cattle Insurance

Abstract Morbidity and Mortality have also been a reason for concern for the insurers as increased morbidity and mortality contribute to a higher cost of claims including claim frequency. Currently, there are only two rating factors (Age and types of cattle) being adopted by the insurers while determining the premium rates and there is no risk-based pricing adopted for Cattle Insurance in India. The main objective of this paper is to identify the important rating factors influencing the mortality and morbidity trends among different cattle types in India. Secondly, there is a need to examine whether the mortality and morbidity trends vary across different parameters like animal type, breeds, age, gender, agro-climatic zone, types of formers/animal owners, etc. If it varies, then to find out the degree of variations and also measure the impact of these rating factors on cattle mortality. This paper focuses on the analysis of the morbidity and mortality of cattle across different types of cattle, breeds, age groups, gender, and different agro-climatic regions, etc. Further, it also examines the differences in cattle management practices; particularly the frequency and the quantity of feed, types, and quality of feed (nutritional value) given, animal healthcare management, exposure to catastrophic risk hazards, etc., with a view to developing risk-based pricing for cattle insurance. This would help insurers to understand the changes in cattle mortality and morbid trends and also build a comprehensive mortality table across different types and breeds of cattle. This would also immensely help the insurers in determining risk-based premium rates among different types of animals, their breeds, geographic regions, customer types, etc. which would enable in developing sustainable cattle insurance portfolio in the Indian insurance market. The output of the analysis can also be used by the insurers to develop index-based livestock insurance as well as parametric insurance.

The willingness to offer livestock insurance in rural China: a discrete choice experiment among Chinese insurance agents

Purpose This paper investigates Chinese agricultural insurance agents willingness to offer (WTO) livestock insurance based on the variations of eight main attributes of livestock insurance.Design/methodology/approach This study implements discrete choice experiments (DCE) with actual insurance agents who design, sell and operate livestock insurance in China. The choice experiment of this study is based on the D-optimal approach, a six-block design, with 15 cards per block and two choices per card. The sample size was 211. Econometrics results are based on conditional and mixed logit models.Findings The authors find that the subsidy effect is enormous; a one level increase of subsidy leads to 3.166 times higher probability to offer. This subsidy effect is important as it confirms the endogenous structure between price and quantity in insurance offering, where subsidy does not only incentivize demand but also the supply. Another main factor of insurance investigated is the impact of different coverage types on agents' WTO. The authors find that agents prefer mortality insurance the most, followed by revenue insurance and profit insurance, while Index-Based Livestock Insurance (IBLI) is the least preferred to offer. Agents' knowledge about these newer types of insurance supports their WTO as well; thus, proper education is necessary to promote the more advanced types of livestock insurance.Research limitations/implications A limitation is that in the presence of COVID 19, and administrative issues at the local level, the sample was not randomly drawn. Nonetheless, the authors believe that there is enough diversity across participants, insurers and provinces and have done sufficient robustness checks to support results and conclusions.Practical implications This study provides further validation for the DCE research method that could potentially be applied to different analyses: using choice experiments to study insurers and reveal their preferences, through combinations of various levels of core attributes for insurance products. The findings and contribution are critical to the reform and improvement of livestock insurance in China and for insurance markets more broadly. The authors find that insurers do not place equal weights or values on insurance product attributes and do not view types of insurance equally. In other words, while farmers may hold different preferences about the type of insurance they demand, the results suggest that insurers also hold preferences in the type of insurance they sell.Originality/value So far as the authors are aware, this is the first DCE designed around the supply of insurance products with the subjects being insurance agents, marketers and executives.

The Welfare Effects of Index-Based Livestock Insurance: Livestock Herding on Communal Lands

Agricultural (index) insurance for smallholders in developing countries has gained traction in academic and policy circles. The expectation is that the uptake of insurance will protect smallholders from production shocks and incentivize them to modernize production. We develop a simple theoretical model to demonstrate that the welfare effects of insurance are fundamentally ambiguous—even in the absence of transaction costs or basis risk. The second-best nature of the institutional context within which smallholders operate implies that the uptake of insurance may accentuate pre-existing inefficiencies. This idea is worked out in detail for the case of livestock herding on common grazing lands. Our theoretical model predicts that insurance invites overstocking of communal lands, and lowers the profitability of herding when common pastures are degraded.

Understanding pastoralists’ dynamic insurance uptake decisions: Evidence from four-year panel data in Ethiopia

Despite the demonstrated benefits of index insurance, its adoption rate remains low in many developing countries. While a growing literature explores the factors associated with insurance uptake, we still know little about its dynamic patterns. Using a unique data set covering four years and six semi-annual sales periods of an index-based livestock insurance (IBLI) product in southern Ethiopia, we examine the dynamics of pastoralists’ demand for IBLI. We find that reduced insurance premiums induce households to purchase IBLI. While a one-shot subsidy can create a price reference point that may reduce the subsequent uptake, we do not find such price-anchoring effects. We also find that overall uptake decision is positively correlated intertemporally, although there is no strong evidence for learning by doing or learning from others. Finally, we show that pastoralists are more likely to purchase IBLI when drought risk is high, consistent with the existence of spatiotemporal adverse selection. We discuss the potential of distributing discount coupons to trigger initial uptake and adjusting premium rates dynamically to avoid spatiotemporal adverse selection as effective policy tools toward sustainable livestock insurance. Overall, our study signifies the importance of an empirical analysis that considers the dynamic demand structure.

Farmers’ Willingness to Pay for Index-Based Livestock Insurance in the North West of South Africa

Rural livelihoods in most developing countries are threatened by climate-related risks such as drought, flood, heat waves, storms, and so on. Although farmers have adopted several adaptation strategies, they have proven less effective than hoped. Hence, index-based livestock insurance, an innovation that significantly assists farmers to acclimatise to climate-related risks, has been proposed; and its adaptability has attracted a notable increase in other African countries. However, the success of its adoption is dependent on the inclination of the farmers to pay for the service. Accordingly, this study investigates their willingness to pay for index-based livestock insurance and its determinants, and the factors influencing the total livestock units to be insured in the North West province of South Africa. Cross-sectional data were obtained from 277 cattle farmers, drawn randomly from the study area. The contingent valuation method was applied to determine the farmers’ willingness to pay; and only 10.8% were willing to pay. Simultaneously, the Heckit sample selection model was used to analyse the data to identify the factors responsible for farmers’ willingness to pay and total livestock units to insure. The findings revealed that farmer’s experience, age, education, marital status, awareness of insurance and household dependents were statistically significant, and influenced the maximum price R600 ($42, max willingness to pay, WTP) of those who accepted index-based livestock insurance. However, by implication, the study concluded that to adopt index-based livestock insurance in the study area among the livestock farmers, there should be policies to cater for the aforementioned factors.

Can Insurance Payouts Prevent a Poverty Trap? Evidence from Randomised Experiments in Northern Kenya

Index-based insurance can have welfare-enhancing effects through two pathways: by inducing policyholders to change their investment and risk-management decisions or by mitigating weather-related shocks through payouts. Most studies fail to distinguish between these two; thus, we know little about which effects dominate and their long-term welfare implications. This study uses a random distribution of discount coupons and drought events that trigger payouts as exogenous variations in order to identify both the ex ante risk-management and ex post payout effects of index-based livestock insurance in a pastoral-dominant society of northern Kenya, where the literature has detected asset-based poverty traps, represented by bifurcated herd-size dynamics. We find that, first, both risk-management and payout effects help reduce the probability of distress sales of livestock. Second, payout effects also reduce the slaughter of livestock. Finally, while payout effects remain robust for the sub-sample of poorer households below the poverty-trap threshold, statistically significant risk-management effects on reduced livestock sales disappear for them. Overall, our results suggest that insurance payouts can help the poor escape poverty traps, while the impact of behavioural changes accompanied by insurance purchases is more subtle in our settings.

Study of Selected Livestock Innovations in Ethiopia

Ethiopia is endowed with significant livestock resources and holds the largest livestock population in Africa, estimated at around 60 million cattle, 60 million sheep and goats, 52 million chickens, 4.5 million camels, 10 million bee colonies and 7.2 million equines. The livestock production and management system in Ethiopia is mainly extensive, where indigenous breeds are kept under low input/low-output husbandry practices. This study is part of a multi-country African livestock innovation study covering three East and West African countries (Ethiopia, Kenya and Mali) supported by the Program of Accompanying Research for Agricultural Innovation (PARI). The purpose of the study was to provide guidance to policy makers and private and public investors on promising innovations in Ethiopian livestock value chains and their contexts, which could enable transformation of the livestock sector. The study also aimed at providing private and public decision-makers with guidance on investment opportunities building on a review of broad trends of Ethiopian livestock development and in-depth analyses of success stories from selected innovations to encourage wider lesson-learning and knowledge-sharing. The study is based on a desk review of important documents, key informant interviews, consultations with major stakeholders on respective innovations and analyses of official customs data and other data from the national statistical agency of the country. The study focused on four selected livestock innovations: beekeeping, feed production and marketing, integrated feedlot operation and index-based livestock insurance. These innovations were selected at an inception workshop held in Kenya, Nairobi, in October 2019. Results of the study reveal the possibility to increase honey production six fold through improved frame hive, from the current level of 15-20 kg/hive/year to 90-120 kg/hive/year by raising farmers’ skill and knowledge on apiary site management, and facilitating access to inputs. On the other hand, an assessment of feed innovations revealed attractive investment opportunities in the harvesting, conserving and proper utilization of crop residues, hay and other feed resources. Harvesting and conservation of crop residues alone can create employment opportunities for over 245,000 youths for two months a year. Investments in industries that produce feed premixes and additives to supply the Ethiopian livestock sector also hold promise, in light of imports over 4,000 tons of these feed ingredients per annum an. Investment in integrated feed production, feedlot operation, slaughter and export of beef is also indicated as an promising business opportunity to enhance benefits from the Ethiopian beef industry. Index-based livestock insurance is also found to be a scalable innovation in the Ethiopian livestock industry that can benefit both livestock producers and the financial sector actors. The study has shown adoption and impact, trade-offs/externalities, potential for scaling and broad policy and development implications of all the four selected livestock innovations in Ethiopia.

Investing Sustainably in African Livestock Development: Opportunities and Trade-Offs

The production and consumption of animal source foods is central to the ongoing discussion of global food systems. The objectives of this report are first to describe the patterns and changing structures of the Sub-Saharan Africa (SSA) livestock sector and secondly to explore innovations that can help to address the complex trade-offs involved in investing in the development of a sustainable livestock sector. The report reviews trends in consumption, production and trade of major livestock commodities and feed in the four subregions of SSA and presents an overview of key issues facing the sector. A scenario for the SSA livestock sector in 2030 is developed using the IMPACT model. It shows significant growth of production across all major livestock commodities with poultry and pork growing faster than ruminant meat production. A series of technical and institutional innovations show opportunities to address the challenges of sustainably intensifying livestock production in SSA. They include improved forages, improved fodder conservation, artificial insemination combined with estrus synchronization, intensive beekeeping, livestock masterplans, livestock asset transfer programs, indexbased livestock insurance and livestock market information systems. The report concludes that livestock plays multiple key roles in the food systems in SSA and will continue to do so in the coming years. The complexity of the system and the multiple trade-offs imply a need for policy makers to shift from frequent “benign neglect” to actively invest in the analytical capacity to understand the changing roles and issues in SSA livestock development. In spite of important divergences on the future role, opportunities and risks associated with livestock production and consumption, developed economies and SSA nations will benefit from international scientific cooperation to jointly tackle the complex issues facing livestock production as part of the envisaged global food system.

Effect of index-based livestock insurance on loan uptake

Purpose The purpose of this paper is to weigh up the effect of index-based livestock insurance (IBLI) on loan take up behavior of the pastoral households in the Borena zone of Southern Ethiopia. Although the insurance was introduced over the last decade and it appears to have promising welfare benefit, there is a lack of pragmatic evidence on its effect in leveraging the household’s future wealth for the hope of better productivity in the present. Design/methodology/approach The authors analyze household-level unique panel data collected in three rounds using descriptive statistics and the fixed effect model estimated by least squares dummy variable analysis. Findings The authors found that the IBLI appears to have a positive and significant effect on the loan uptake behavior of the herding households. Social implications This increased likelihood of loan uptake suggests that the insurance can reduce the cognitive cost of loan default that would occur due to weather shocks and build-up of the household’s confidence to uptake loan. Consequently, this likelihood can promote the creditworthiness of the insured and reduce his/her fear and worry regarding the possibility of loan delinquency. Originality/value The paper is, except where otherwise stated, entirely new work.