How does index based insurance work?

Index-based livestock insurance is slowly gaining popularity in North Eastern Kenya mainly because of the unpredictable weather, which decimates their livestock.

Andrew Mude, a programme officer with the International Livestock Research Institute, says insuring livestock and assessing the value of  damage during severe drought may not be profitable for conventional insurers.

 “It is difficult and costly for assessors to come to the arid and semi-arid areas to establish the cause of death for animals,” he said

Index insurance, therefore, insures the pastoralists against conditions that lead to stock losses.

 “The key nutritional input for livestock is forage and there is a very big correlation between the availability of forage and health of livestock,” he explained.

 “The more limited the forage, the more likely the animals will die.” 

 To assess the scarcity of  forage,  Ilri uses various sensors, like those owned by Nasa, European Union and the  other research  satellites to tell the level of photosynthesis activity. 

 

The high resolution sensors normally cover areas of 250 metres by 250 metres, taking photos of the vegetation in a particular area every 10 days.
 

When the research began in  2008, Ilri  was using satellite images covering eight square kilometres, which, over the years, they have  scaled down to improve the accuracy of their  predictions.

The data collected on the availability of grass and vegetation is measured against data on livestock death from both the arid lands management programme and the World Bank.

A model with a precise relationship between forage availability and livestock death is formed, leading to the formation of an index-based insurance cover for a particular area.

Images of the devastation the severe drought of 2011 had on livestock in the Horn of Africa PHOTO: OXFAM

If the trigger level is reached in a particular area, the insurance company compensates the affected pastoralist, regardless of livestock loss.

“The more the index is above the trigger levels the higher the payout, which enables them to buy feeds for the livestock and compensates them against any loss they may have incurred,” he said.


 Apart from insuring livestock, the indexing can be used to insure crops like maize and wheat in areas where farmers  rely on them for their livelihood but productivity is affected by adverse weather.