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/