Implementing IBLI in Northern Kenya and Investigating Feasibility in Southern Ethiopia

1. Implementing IBLI in Northern Kenya and Investigating Feasibility in Southern Ethiopia Andrew G. Mude International Livestock Research Institute July 12, 2010

2. Presentation Layout • Project Documentary: Describes and summarizes the suite of project activities. • Explanation of the key features of the Marsabit contract. • Brief Discussion about our proposal to adopt IBLI to Southern Ethiopia and how.

3. IBLI Marsabit: Contract Features • The Risk • Designed to provide compensation in the event of widespread drought –related livestock losses. • The Index • Predicted area-based livestock mortality • The Insurable Livestock Unit • Camel, Cattle, Sheep and Goat • Insurance provided on standardized Tropical Livestock Unit (TLU) • 1 Cattle = 1 TLU. • 1 Camel = 1.4 TLU. • 1 goat/sheep = 0.1 TLU. • Example: To insure 4 cattle, 7 camel, and 12 goats/sheep, • TLU insured is 4×1 + 7×1.4 + 12×0.1 = 15 TLU. • Value of the Insured Herd • 1 TLU = Ksh15,000 • To insure 15 TLU, insured value is thus: Ksh 225,000

4. IBLI Marsabit: Contract Features • Payout Structure • Payouts are made when predicted livestock mortality is above the “Trigger” index level. Trigger set at 15%

5. IBLI Marsabit: Contract Features • Geographical Coverage • - Two response function clusters , • Upper and Lower Marsabit • - Index calculated at Division level.

6. Temporal structure of IBLI contract IBLI Marsabit: Contract Features

7. IBLI Marsabit: Contract Features • Contract Premiums • Premiums for contract with trigger level 15%, providing annual coverage with two potential payout periods • To insure 15TLU valued at Ksh 225,000 • Upper Marsabit: Ksh 12, 375 • Lower Marsabit: Ksh 7, 312.50

8. IBLI Contract Sales Figures for Jan/Feb 2010

9. IBLI for Southern Ethiopia • Proposal to Develop, Implement and Evaluate • IBLI for Southern Ethiopia.  To discover the viability and poverty reduction impacts of index-insurance and establish whether, how and when these impacts can be realized and sustained

10. IBLI for Southern Ethiopia • Design a Livelihood Focused and Demand-Driven Product • Match product design to local risk experience by coupling statistical design work with preparatory design activities. • Exploit Current Data Sets • USAID Pastoral Risk Management Project (PARIMA) • 5 locations (Dida Hara, Dillo, Finchawa, Qorate and Wachille) • Quarterly from 2000 – 2002 • Desta 17-year herd recall data (1980-1997) • Augment with Comprehensive Fieldwork

11. IBLI for Southern Ethiopia • Investigate Alternative Contract Structures • Group-based Delivery or Provision •  Reduce cost of marketing, financial education and delivery •  Basis risk can be reduced by sharing •  Re-enforce existing risk management institutions • Ex-ante asset protection insurance •  Can we predict mortality sufficiently well in advance? • Linked credit and insurance •  Bundling IBLI with credit provision •  Loans for IBLI purchase • Climate change-sensitive contracts •  Incorporate climate change based predictions into IBLI modelling •  Conditional Insurance transfers

12. IBLI for Southern Ethiopia • Investigate Alternative Contract Structures (Cont’d) • Risk layering •  Reducing risk coverage for commercial insurers for lower premiums •  Cap commercial provision of risk to an intermediate risk layer. •  Catastrophic zone can be explicitly taken up by government or donors who already offer some response in times of catastrophic loss

13. IBLI for Southern Ethiopia • Develop Financial Educational Tools for Informed and Sustainable Demand • Educational games to educate and test demand • More cost effective extension system to reach scale

14. IBLI for Southern Ethiopia • 4. Impact Evaluation • Objective is to design and implement a product that sustainably improves welfare by managing drought-related mortality risk • Our impact evaluation strategy in Marsabit: • Baseline of 920 households with 3 annual repeats • Should allow us to rigorously establish impacts directly attributable to IBLI • Discount coupons and educational games to encourage uptake • Also plan for qualitative surveys to generally establish perspective of target clientele.

15. IBLI for Southern Ethiopia • 5. Partners for Progress • The research, development, implementation effort requires effective collaboration across a range of dedicated partners • Our Marsabit Partners included: • Technical Partners (ILRI, Cornell, BASIS CRSP, University of Syracuse) • Commercial Partners (Equity Insurance Agency, UAP Insurance Co., Swiss Re) • Development Partners (Financial Sector Deepening Trust, Food for the Hungry, Hunger Safety Net Program…) • Government of Kenya (Arid Land Resource Management Program) • Donors (DfiD, USAID, World Bank, ILO-MIF, GIIF)

16. Feasibility of IBLI in Southern Ethiopia I-Four • Economics and social values of IBLI in Ethiopia under I-4

17. Thank you For more information please visit: www.ilri.org/ibli/