index based livestock insurance - understanding risk€¦ · index based livestock insurance...
TRANSCRIPT
![Page 1: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/1.jpg)
IndexBasedLivestockInsuranceProtec4ngVulnerablePastoralistsfromDrought-relatedShocks
UR2016Geneva,May20thPanel:HowRisksandShocksImpactPoverty,andWhy,When,andWhereCanBeOerFinancialProtec4onHelp
AndrewMude,PrincipalEconomistandIBLIProgramLeader,Interna4onalLivestockResearchIns4tute
![Page 2: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/2.jpg)
IBLI:Coversdrought-relatedmortalityandmorbidityrisksforpastoralistlivestock
Mo4va4on:TargetPopula4onandEvents
• ASIZEABLECONSTITUENT• Over50millionpastoralistsinSub-Saharan
Africa:over20millionintheHornofAfrica
• THECENTRALITYOFLIVESTOCK• InnorthernKenyaandSouthernEthiopia:-Livestockproductsandsalesoflivestockare40%ofincomeforaveragehousehold
• VULNERABILITYTOLIVESTOCKLOSSES• CatastrophicherdlossduetodroughtidenEfiedasthemajorsourceofvulnerabilityandcauseofpoverty
• Between2008and2011KenyaneconomysufferedUS$12.1billionindamagesduetodrought,over70%duetolivestocklosses.
![Page 3: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/3.jpg)
Mo4va4on:PovertyTrapsandCatastrophicRisk
Thereisstrongevidenceofpovertytrapsinthearidandsemi-aridlands(ASAL)ofnorthernKenyaandsouthernEthiopia.Theseputapremiumonriskmgmt.Catastrophicherdlossriskduetomajordroughtsiden4fiedasthemajorcauseofthesedynamics.
Source:Lybbertetal.(2004EJ)onBoranpastoralistsins.Ethiopia.SeealsoBarreWetal.(2006JDS)amongn.Kenyanpastoralists,Santos&BarreW(2011JDE)ons.EthiopianBoran.
![Page 4: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/4.jpg)
Mo4va4on:IncreasedRiskFromClimateChange
Pastoralistsystemsadaptedtoclimateregime.Butresilienttoashi[inclimate?Manymodelspredictincreasedrainfallvariability(i.e.,increasedriskofdrought).
Herddynamicsdifferb/ngoodandpoorrainfallstates,andsochangewithdrought(<250mm/year)risk.Key:Inso.Ethiopia,doublingdroughtriskwouldleadtosystemcollapseinexpecta@onintheabsenceofanychangetoprevailingherddynamics.
Source:BarreWandSantos(EcolEcon2014)
![Page 5: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/5.jpg)
Mo4va4on:StandardResponsesToDrought
STANDARDRESPONSESTODROUGHTARECOSTLY&INSUFFICIENT• Destocking/Restocking–slow,expensive,targeEngchallenges,inefficiency• Foodaid–slow,expensive,targeEngchallenges,fosterdependency• Cashaid–targeEngchallenges,fiscalsustainability,notequallyeffecEveforall.• HSNPPlus–Needtosupplementtoprovisionofwelltargetedcashtransferstothepoor,withproducEvesafetyneedsinthefromoflivestockinsurancetominimizeslideintopovertyresulEngfordroughtshocks.ParEcularlyinpastoralsystemswherepovertytrapdynamicsenhancethisproblem.
![Page 6: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/6.jpg)
LivestockInsuranceasacomplement
Sustainableinsurancecan:• PreventdownwardslideofvulnerablepopulaEons• Allowsfocushumanitarianresourcesontheneedy• Crowd-ininvestmentandaccumulaEonbythepoor
ButcaninsurancebesustainablyofferedintheASAL?Conven4onalinsuranceunlikelytoworkinpastoralcontext.
INDEX-BASEDLIVESTOCKINSURANCEprogramlaunchedinNorthernKenya(Jan2010)andS.Ethiopia(July2012).
• Comprehensiveprogram–contractdesign,impactassessment,marketandcapacitydevelopment,policysupport….
• ProgramscalinginbothKenyaandEthiopiaspearheadedbyprivate/publicarrangements.
Inthistalk,willfocusonresearchevidenceaboutIBLIimpactsonarangeofsocioeconomicvariables.
![Page 7: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/7.jpg)
• IBLIsurveylaunchedinMarsabit,KenyainOct2009andinBorana,Ethiopia,Mar2012bothbeforetherespec4velaunchofIBLIsales
• Marsabitsurvey:925householdsover16loca4ons–currently5roundsofpaneldata• Boranasurvey:515householdsover17kebeles–currently4roundsofpaneldata
IBLIPilots,andresearchdesign,inEthiopiaandKenya
![Page 8: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/8.jpg)
IBLIImpacts:Herdmortalityrisk
Propor4onofhouseholdsforwhomIBLIimprovestheirposi4onwithrespectto
eachsta4s4c
Jensen,BarreW&Mude2014
Sta4s4c Propor4on Loaded&
UnsubsidizedSubsidized
Mean 0.232 1.000Variance 0.359 0.359Skewness 0.817 0.817Semi-Variance
0.374 0.609
• Evenatunsubsidizedpremiums(40%loading)purchasingIBLIincreasesherdsurvivalratesbyconsiderablyreducingriskofcatastrophicloss.
• MajorityofhouseholdsarebeWeroff(reducEonsinherdlosses)purchasingIBLIcoveragethanotherwise
![Page 9: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/9.jpg)
IBLIImpacts:Livestockproduc4vity/income
IBLIcoverage:• Increasesinvestmentsinmaintaininglivestockthroughvetexpenditures• IncreasestotalandperTLUincomefrommilk.
• Reducesherdsize(consistentwithprecauEonarysavingshypothesis)
Note:TLUveterinaryexpendituresarepos/signrelatedtomilkproducEvity
Jensen,BarreW&Mude2014
IBLI
DependentVariable CumulaEvePast
Coverage CurrentCoverage
(TLU) ProducEonstrategies:
HerdSize -5.634*** -0.270 (1.970) (0.693) [3.543] VeterinaryExpenditures(KSH)
584.8* -46.21 (324.7) (127.2)
[15.17] HouseholdisParEallyorFullyMobile
-0.0669 0.0386(0.111) (0.0481)
[14.86]ProducEonoutcomes:
Milkincome(KSH) 1,688* 840.6* (970.0) (473.6) [11.46] MilkincomeperTLU(KSH)
423.5*** 63.81 (118.1) (47.23)
[13.05] A complete list of covariates, coefficient esEmates, and modelstaEsEcscanbefound inJensen,Mude&BarreW(2014).Clusteredandrobuststandarderrorsinparentheses.ModelF-statinbrackets.***p<0.01,**p<0.05,*p<0.1.
![Page 10: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/10.jpg)
IBLIImpacts:Welfare
• IBLIimprovespost-droughtcoping.A[ercatastrophic2011drought,IBLIcoveredhouseholdsreportedbeWerexpectedbehaviours/outcomes
• 36%reduc4oninlikelihoodofdistresslivestocksales,especially(64%)amongmodestlybeWer-offHHs(>8.4TLU)
• 25%reduc4oninlikelihoodofreducingmealsasacopingstrategy,especially(43%)amongthosewithsmallornoherds
• IBLIshowntohaveaposi4veimpactonimprovementstomid-upperarmcircumference(MUAC),astrongpredictorofchildmalnutri4on
• IBLIhouseholdsalsopostgreaterhouseholdincomeperadultequivalent
• InEthiopianopayment(preNovember2014).Inprincipalinsuranceshouldbebeneficialevenwithoutpayingout(a“pieceofmind”effect).• OurEthiopiasurveycollectsmeasuresofsubjec4vewell-beingtogaugeoveralllifesaEsfacEon.
• IBLIhasaposiEve,statsigeffectonHHwell-being,evena[erpremiumpaymentandw/oanyindemnitypayments
Hirfrot,BarreW,LentzandTaddesse2014;JanzenandCarter2013NBER
![Page 11: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/11.jpg)
IBLI:Acost-effec4vesocialprotec4ontool
• PosiEveIBLIimpactsdonotnecessaryjusEfyinvesEngscarcedevelopmentorsocialprotecEonfundsinIBLI.
• Needtounderstandtheopportunitycostvis-à-viscomparaEveintervenEons:HSNP
• ResearchdesignresulEnginstrategicallyoverlappingIBLIandHSNPunits,andEmingofprovisionallowsforcomparaEveevaluaEon.
• RESULTS:• BothIBLIcoverageandHSNPparEcipaEonincreasehouseholdincomefrommilk,incomeperAE,andMid-UpperArmCircumference(MUAC)ofchildren.
• Fromatotalcostpointofview,HSNPandIBLIaresimilarintermsofimpact.• FrommarginalcostperspecEve(moreimportantforscalingout),IBLIconsiderablymorecosteffecEvethanHSNP– NotethatthisreferstoIBLIproductwhereclientpaysfullriskpremiumplusloadingof40%
Jensen,BarreW&Mude2014
![Page 12: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/12.jpg)
Insurancevs.cashtransfers:Normalizedbycost
IBLIgeneratescomparableimpact/KShonaverageatpilotscale.Butphilanthropic/publicfundingislargelyfixedcost,sothemarginalbenefit/costra4osare>anorderofmagnitudelarger!
Allinreal2009KenyaShillings.ImpactsareesEmatedusingtheaverageclientvalueandcostsfromadministraEverecords,andparameteresEmates.1ResultsaremulEpliedby10.2ResultsaremulEpliedby1,000.
Income from Milk Income per AE MUAC Cost structure Cost/
Participant Impact Impact/
Cost Impact Impact/
Cost1 Impact Impact/
Cost2
Total Program Cost/Participant
HSNP 47,600 992 0.021 394 0.083 1.097 0.022 IBLI 37,600 2,631 0.067 263 0.070 0.337 0.026
Marginal Cost of an Additional Participant
HSNP 31,700 992 0.031 394 0.124 1.097 0.033 IBLI 1,580 2,631 1.667 263 1.666 0.337 0.623
Jensen,BarreW&Mude2014
![Page 13: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/13.jpg)
Forrelatedinforma4on,visitibli.ilri.org/
ThankyouIBLIclearlyhasarangeoffavorableimpactsonpurchasersandcanbeshown–insomeinstances–tobemorecosteffec4vethancashtransfers.IBLIcanbeseenasapromisingop4onforaddressingcatastrophicdroughtrisk,mi4ga4ngagainstshock-relateddescentintopovertyandpromo4ngascentThankyoufor4me,interestandcomments.
![Page 14: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/14.jpg)
IBLIUptakeSignificant…ButSoIsDisadop4on
MarsbitsurveyrespondentsuptakepaWerns(n=832)
Saleswindow New1Replace-ment2
Augment-ing3
Hold-ing4 Reenter5 Lapsed6 Total7
J-F2010 233 0 0 0 0 0 233
J-F2011 65 62 0 0 0 171 298
A-S2011 65 0 31 96 22 149 363
A-S2012 19 25 0 0 33 305 3821FirstEmepurchasers.2Replacedapolicyabouttoexpire.3PurchasedaddiEonalcoveragethatoverlappedwithexisEngcoverage.4NopurchasebuthadexisEngcoverage.5Letpolicylapseforatleastoneseasonbutpurchasedthisseason.6PastpolicieshavelapsedanddidnotpurchasedaddiEonalcoverage.7Totalnumberofhouseholdsthathavepurchasedtodate.
![Page 15: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/15.jpg)
KeydeterminantsofIBLIuptake
Generaluptakefindings—robustacrossspecifica4onsandsurveysPrice:Responsivetopremiumrate(priceinelasEc).PriceelasEcitygrowsw/designrisk.DesignRisk:Designerrorreducesuptake;greatereffectathigherpremiumrates.Idiosyncra4cRisk:HhunderstandingofIBLIincreaseseffectofidiosyncraEcriskUnderstanding:Extension/markeEngimprovesaccuracyofIBLIknowledgebutno
independenteffectofimprovedunderstandingonuptake.Herdsize:LikelihoodofuptakeincreasinginHHherdsizeLiquidity:IBLIpurchaseincreasingw/HSNPparEcipaEonandHHsavingsIntertemporalAdverseSelec4on:HHsbuylesswhenexpecEnggoodcondiEons.Spa4alAdverseSelec4on:HHsindivisionswithcovariateriskaremorelikelyto
purchaseandwithgreatercoverage(spaEaladverseselecEon).Gender:nogenderdiffinuptake.WomenmoresensiEvetoriskofnewproduct.
Bageant2014;Jensen,Mude&BarreW2014;Takahashietal.2014
![Page 16: Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance Protec4ng Vulnerable Pastoralists from Drought-related Shocks UR2016 Geneva, May 20th](https://reader034.vdocuments.us/reader034/viewer/2022051909/5ffdefe32da5234c1e59c071/html5/thumbnails/16.jpg)
Covariateriskisimportantbuthouseholdlossesvaryalot…
andtheindexdoesnotperfectlytrackcovariatelosses.
- Onlysuchstudyofindex-insuranceproductsthatweknowoff.Crucialforassessingvalueandprecisionofthecontract.
Jensen,BarreW&Mude2014
IBLIMarsabitContract:AnImperfectProduct