Insuring against drought-related livestock mortality: Piloting index-based livestock insurance in northern Kenya

Climate related shocks are among the leading cause of

production and efficiency losses in smallholder crop and

livestock production in rural Africa. Consequently, the

identification of tools to help manage the risks associated

with climactic extremities is increasingly considered to be

among the key pillars of any agenda to enhance agricultural

growth and welfare in rural Africa. This paper describes the

application of a promising innovation in insurance design –

index-based insurance – that seeks to bring the benefits of

formal insurance to help manage the weather-related risks

faced by rural crop and livestock producers in low-income

countries. In particular, we highlight the research and

development agenda of a comprehensive effort to design

commercially viable index based livestock insurance aimed at

protecting the pastoral populations of northern Kenya from the

considerable drought-related livestock mortality risk that they

face. Detailing the conditions that make the pastoral economy

in northern Kenya an ideal candidate for the provision of indexbased

insurance products, the paper describes the contract

design, defines its structure, offers analysis that indicates a

high likelihood of commercial sustainability among the target

market and describes the process of implementation leading up

to the launch of a pilot in Marsabit District of northern Kenya in

early 2010.