Designing index based livestock insurance for managing asset risk in northern Kenya

Abstract

This article describes a novel indexbased
livestock insurance (IBLI) product piloted among pastoralists in
Northern Kenya, where insurance markets are effectively absent and uninsured risk exposure is a main
cause of poverty. We describe the methodology used to design the contract and its underlying index of
predicted areaaverage
livestock mortality, established statistically using longitudinal observations of
householdlevel
herd mortality fit to remotely sensed vegetation data. Householdlevel
performance
analysis based on simulations finds that IBLI removes 25–40 percent of total livestock mortality risk. We
describe the contract pricing and the risk exposures of the underwriter to establish IBLI's reinsurability on
international markets