Index insurance for agriculture in Ethiopia Addis Ababa, Ethiopia, 9 December 2010
Design and Development of IBLI
for Southern Ethiopia
Andrew G. Mude International Livestock Research Institute
Outline Developing IBLI Ethiopia Research Agenda
Ø Objective
– To discover the viability and poverty reduction impacts of index-insurance and establish whether, how and when these impacts can be realized and sustained
Ø Key Steps
• Design a livelihood-focused IBLI
• Identify suitable contract structure
• Identify suitable delivery mechanisms
• Address impacts of climate change and induce climate change adaptation
Ø PARIMA (2000-02)
• Quarterly household survey (30 hhs/kebele)
• 5 kebeles in 4 woredas
Ø Desta (1999)’s Herd Recalls Data (1981-97)
• Annual household herd recalls (~15 hhs/center)
• 35-km radius of 4 town centers
Existing Data Longitudinal household data
LIBEN
DIRE
MOYALE
Arero TELTELE Yabelo
ODO SHAKISO
BORE URAGA
GELANA ABAYA
ADOLANA WADERA
Dillo
Negele
ARERO
Qorate
Moyale
Finchawa
HAGERE MARYAM
YEBELO
Mega
Wachille
KENYA KENYA
Dida Hara
Desta’s Town Center PARIMA’s Kebele
Note on Studied Sites:
Borana and Guji Zones
Existing Data Longitudinal household data Ø Livestock Mortality rate (%)
0
1
2
3
4
5
6
7
8
LR 2000 LD 2000 SR 2000 SD 2001 LR 2001 LD 2001 SR 2001 SD 2002 LR 2002
Livestock loss (T
LU) p
er hou
seho
ld
DroughtDiseaseCCPPPredatorSnake biteAccidentAgingOthers
PARIMA (2000-02)
0%
10%
20%
30%
40%
50%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Livestock Mortality Recalls in Desta's Data (1981-1997)
Yabello
Mega
Negele
Arero
0%
10%
20%
30%
40%
50%
LR2000 LD2000 SR2000 SD2001 LR2001 LD2001 SR2001 SD2002 LR2002
Livestock Mortality experienced in PARIMA (2000-02)
Dida Hara
Dillo
Finchara
Qorate
Wachille
Drought 2000 Drought 2009 Good forage condition 2010
Satellite imagery NDVI (8km resolution, available every 10 days in real-time)
Liben
DireMoyale
AreroTeltele
Yabelo
HegermariamOdo Shakiso
Bore
UragaGelana Abaya
Adolana Wadera
Liben
DireMoyale
AreroTeltele
Yabelo
HegermariamOdo Shakiso
Bore
UragaGelana Abaya
Adolana Wadera
Liben
DireMoyale
AreroTeltele
Yabelo
HegermariamOdo Shakiso
Bore
UragaGelana Abaya
Adolana Wadera
-‐3-‐2-‐101234
0%
10%
20%
30%
40%
50% Drought 84-85 Drought 90-91 Drought 99-00 Drought 05-06 Drought 09
Area livestock loss (%) (Recalls from Desta 1981-97, PARIMA 1998-2002)
Standardized NDVI
Key Questions:
1. Other longitude household-level data? Verification of past data?
2. The need to collect recent herd recalls?
Existing Data NDVI and Livestock Mortality
Ø Objectives
1. To introduce IBLI to local communities/authorities
2. FGD to learn the local opinions on IBLI
3. To meet with local authorities, financial institutions, NGOs
Ø Key discussions 1. Contract design
(Group-based, ex-ante payout)
2. Delivery mechanism 3. Climate change
Scoping Mission (2010)
Individual IBLI Group as delivery channel Group as client
+ Substitute for absence financial facilities in remote locations + Use group learning to enhance education and extension + Use group rules to reduce individual basis risks + Enhance prospect for linking credit access with insurance -- Groups need to be well-established, participated by pastoralists
Contract design/delivery/regulation Group-based IBLI
i i i
G
Financial Institution
i i i
Financial Institution
i i i
G
Financial Institution
Ex-ante payout for asset protection
Contract design/regulatory Ex ante/ Ex post payout Observed loss Start of the contract
Ex-post payout for asset replacement
IBLI payment to insured to protect animals before drought
+ Could be cheaper to protect animals than to replace them
- Rely on accuracy in predicting livestock mortality ex-ante
Potential use:
• Supplementary feed and water • Hired transport to access market
IBLI payment to insured to replace animals after drought
+ Higher accuracy in predicting livestock mortality
- May be more expensive to replace animals
Key Questions:
1. Which product could provide more effective risk management?
2. What are regulatory pre-requisites of ex-ante product?
à Reducing risk coverage for commercial insurers for lower premiums
à Cap commercial provision of risk to an intermediate risk layer.
à Catastrophic zone can be explicitly taken up by government or donors who already offer some response in times of catastrophic loss
Contract design/regulatory Risk Layering
Ø Climate change à more/worse droughts à IBLI more expensive … mitigation to limit premium rise, adaptation to cushion against premium rise?
Ø Evidence of change in NDVI à Climate change?
Ø Incorporating Climate Change in IBLI modeling and delivery: Ø Feeding climate change predictions into IBLI response functions and
pricing in expected climate change
Ø Conditional Insurance Transfers
Climate change adaptation/mitigation
y = -6E-05x*** + 0.321
0.000.100.200.300.400.500.600.70
1981
1982
1983
1985
1986
1987
1988
1990
1991
1992
1993
1994
1996
1997
1998
1999
2001
2002
2003
2004
2005
2007
2008
2009
NDVI Trend in Dida Hara(1981-2010)
• Follow a similar impact evaluation strategy as 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.
Impact Evaluation
Thank you
For more information please visit:
www.ilri.org/ibli/