Designing Index-Based Livestock Insurance for Managing Asset Risk in Northern Kenya

Sommarat Chantarat, Andrew Mude, Christopher B. Barrett, Michael R Carter

    Research output: Contribution to journalArticle

    Abstract

    This article describes a novel index-based 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 area-average livestock mortality, established statistically using longitudinal observations of household-level herd mortality fit to remotely sensed vegetation data. Household-level 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.
    Original languageEnglish
    Pages (from-to)205-237
    JournalJournal of Risk and Insurance
    Volume80
    Issue number1
    DOIs
    Publication statusPublished - 2013

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