Index-Based Insurance for Livestock in the IGAD Region

1. 24 06 2019 MAKING LIVESTOCK INSURANCE WORK FOR THE PASTORAL ECONOMY Index-Based Insurance for Livestock in the IGAD Region • Ministerial Policy Roundtable 24 June 2019

2. Development of Livestock Index insurance has followed 2 distinct paths since the first index policy was introduced in Spain in 2001 • For commercial cattle ranchers in developed countries as a pasture drought insurance policy to protect again the “additional costs of working” to purchase animal feed supplements: • e.g. Spain (2001), USA (2007), Canada (2001) – commercial scale-up • Other programs: Uruguay (pilot 2015-17); R&D Argentina; Chile • For small-scale livestock producers and migratory pastoralists in developing countries to act as: • An “asset replacement policy” in the event of death of the animal: Mongolia livestock freeze index 2006; Kenya 2010 IBLI predicted livestock drought-mortality index, or • An “asset protection policy” to keep core breeding animals alive during severe droughts when pasture/grazing are depleted, by making timely payouts to the pastoralists to purchase animal feeds: Mexico, CADENA (since 2006); Kenya (2015/16) and Ethiopia (since 2018)

3. When droughts occur in IGAD Countries large numbers of livestock die due to lack of forage and grazing resources and die of starvation: Livestock are the key form of assets of Pastoralists and also the main source of income from sales of milk, live animals and animal products • Studies from Ethiopia and Kenya show it is generally more cost-effective to keep core breeding stock alive during droughts that to restock animals after the event. • Northern Kenya: 3 times more expensive to restock a core herd of sheep and goats than keep animals alive through feeding • Afar region, Ethiopia: restocking sheep and goats costs about 6.5 times more than supplementary feeding. Restocking cattle costs 14 times more than feeding Source: Pastoralists Livelihoods Initiative, Ethiopia. Policy Brief. November 2007 Source: ILRI Project baseline 2009 (924 Marsabit Households)

4. The Normalised Vegetative Difference Index (NDVI) or “Green Index” is a very good measure of the nutritional quality of pasture and grazing for livestock • NiR = Near Infra Red spectrum • R = Visible Red spectrum • Source: Earth Observatory – Measuring Vegetation (NDVI & EVI)http://earthobservatory.nasa.gov/Features/ MeasuringVegetation/measuring_vegetation_2.php Sun NDVI (Green Index): (NIR-R)/(NIR+R) Most livestock pasture drought index insurance programs are based on NDVI Indexes

5. Micro-level insurance program Meso/Macro-level insurance program Insurer Insurer Policies, premiums, claims Policies, premiums,claims Distributor Policyholder is National or State Government Policies, premiums, claims Government sets the payout rules to livestock producers Insured Policyholder is an individual Livestock Producer Beneficiaries (Vulnerable Livestock Producers) Livestock Index Insurance, can be marketed on a Micro-Level voluntary retail basis to Individual Livestock Producers or as a Meso/Macro-Level Cover purchased by Government as a Livelihoods Protection cover on behalf of Small-scale Vulnerable Livestock Producers Micro-level programs include: Spain, USA, Canada, Uruguay. Index-based Livestock Insurance, IBLI, in Mongolia, Kenya, and Ethiopia Macro-level programs include: CADENA program, Mexico; Kenya Livestock Insurance Program, KLIP; SIIPE Ethiopia

6. Micro-Level Voluntary Commercial Livestock Index Insurance vs Meso/Macro-level Automatic Government Programs • Micro-Level: Individual Herder/Pastoralist (Voluntary) • Spain (2001), Agroseguro program, national PPP, heavily subsidised • USA (2007), FCIP, national PPP, heavily subsidised • Canada (2001), various State Governments, heavily subsidised • Uruguay (pilot 2015-17) Pilot PPP 100% subsidised; • Kenya (2010); IBLI (40% premium subsidies by Donors to cover operational costs: farmers charged the actuarially fair price) • Ethiopia (2012): IBLI program in Borana, Oromia Region • Other programs in R&D: Argentina, Chile • Meso/Macro-Levels: Livelihood Protection Cover (Automatic) • Mexico, CADENA (2006) fully funded by govt. (Federal 80%; States 20%) • Kenya (SR 2015/16), 8 Counties, 100% funded by Government of Kenya • Ethiopia (since 2018), Somali Region fully funded by WFP. (Assets for Insurance approach, linkage to PSNP)

7. Summary on livestock Index Insurance • Most experience to date is with satellite-based NDVI index insurance for drought in pasture in the countries of • Spain, USA, Canada, Mexico, Argentina, Uruguay, Kenya, Ethiopia • NDVI index insurance product is very versatile and can be retailed as a micro-level individual producer cover, or used at meso-level by governments as a livelihoods protection cover for vulnerable pastoralists • NDVI index insurance has been shown to be beneficial to livestock producers and has reached scale in Spain, USA, Canada and Mexico. • Basis Risk continues to be a challenge on livestock index insurance programs • Research & development is being carried out into new & more specialised livestock index products: • Dairy cattle loss of milk production due to rainfall deficit and excess rainfall (using a Standardized Precipitation Index, SPI • Dairy cattle loss of milk production due to heat stress in cows (Index based on excess temperature and humidity)

8. Key Questions for Governments in IGAD Countries • How does livestock Insurance (micro-level and meso/macro-level) fit into your national DRM Strategies? • What roles does (should) Government play in promoting livestock insurance? • What successes / benefits have resulted from these livestock insurance programs in your countries? • What are the main issues and challenges? • Do you propose to scale-up your livestock insurance programs in future? If so, how? • Interest in joining some form of IGAD Regional initiative? • Are there any key recommendations you would give to your neighbouring IGAD countries who may wish to introduce livestock insurance?

9. Key Questions for Private Sector Insurers • Private sector experience with underwriting voluntary IBLI and automatic KLIP / SIIPE? • Can you achieve scale and financial profitability through micro-level voluntary sales only? • Do you believe public-private partnerships are necessary to insure pastoralists? • Views on large-scale livelihood protection covers – KLIP and SIIPE? • What are the key supporting roles you require from Government and why? • Issues, opportunities for a regional IGAD initiative?

10. ANNEXES

11. WhatLivestockInsuranceProductsMight be suitablefor Uganda Suitability for Uganda

12. Livestock Index Insurance Contents • Why livestock index insurance? • Options for livestock index insurance (micro/meso/macro) • International experience with livestock Index Insurance: • Micro-level Livestock Mortality Indexes: • IBLI Mongolia and Kenya • Micro-level, Pasture Drought Indexes: • Spain, USA, Canada, IBLI Kenya and Ethiopia, • Meso/Macro-level Pasture Drought Indexes: • CADENA Mexico, KLIP Kenya, SIIPE Ethiopia

13. Why consider Livestock Index Insurance particularly for small-scale livestock producers? • Conventional Individual Animal Livestock Mortality cover is generally too difficult for Insurers to offer to small-scale herders, due to: • High costs for Insurers to administer individual animal mortality cover; • Many small producers cannot meet the exacting pre-conditions for insurability (animal husbandry and sanitation, individual animal tagging etc). • Some countries have therefore experimented with livestock mortality indexes (e.g. Mongolia and Kenya) • In Developing Counties droughts leading to loss of pasture and grazing are a major cause of widespread starvation and death of livestock. • Natural pasture and rangeland cannot be insured under a conventional crop insurance policy because: • There is no accurate way of establishing an insured yield and for measuring and distinguishing between yield loss in pasture due to insured perils as opposed to pasture that is consumed by grazing animals and which is not insurable; • Remote sensing/satellite imagery is offering innovative solutions in the form of loss of pasture/grazing index insurance covers

14. KLIP insures against loss of pasture and grazing in the Long Rains season (Mar - Jun) and Short Rains season (Oct - Dec) The World Bank Group designed the KLIP pasture drought insurance contract and also developed an excel based tool to provide capacity building and training to GoK (State Department of Livestock) and to the Insurance Companies Source: World Bank Group 2015; 2016

15. KLIP: Roles of Key Stakeholders • Government of Kenya – State Department of Livestock • Policy holder on macro-level program • Funds 100% of premiums for vulnerable pastoralists and 50% premium subsidies for voluntary sales • Implementing agency through the SDL PMU • Insurance Companies • Pool of 7 Kenyan Insurers underwrite KLIP and settle claims • 1 specialist Takaful insurance company underwriting IBLI & KLIP • Farmer promotion, marketing and voluntary policy sales • World Bank Group (WBG) in partnership with International Livestock Research Institute (ILRI) • Technical Assistance to GoK (2013 to 2018) • KLIP Contract Design and Actuarial • Capacity building and training for all KLIP stakeholders • Monitoring and Evaluation • Funding for IRLI

16. KLIP has achieved “proof of concept” and made very significant drought payouts to Pastoralists over the past four years • Short Rains 2015/16 No Payouts • Long Rains 2016. Small Payouts in Wajir • Short Rains 2016/17. Payoutsof US$ 2.2 millionto 12,000 pastoralists • Long Rains 2017. Major payouts of US$ 3.1 million to >14,000 pastoralists • Short Rains 2017/18. Major payouts >1.5 million in 8 counties

17. Kenya: KLIP Drought payouts to Pastoralists 2015 to 2018 (KSh) Source: ILRI 2018

18. Kenya: Drought Coping Strategies of pastoralists, ASAL Counties Source: ILRI 2018

19. Use of KLIP Payouts: % of HHs receiving a payout Source: ILRI 2018