By Alison Walkley
Published November 15, 2009

Satellite-based insurance for livestock has been developed in Kenya to measure the country’s “greenness”, safeguarding herders against droughts and other effects of climate change. ALISON WALKLEY reports.

Kenya is set to be the first developing nation to set up a satellite insurance mechanism to fight climate change beginning in 2010.

Specialists will study satellite images measuring the greenness of vegetation in the northern Kenya region of Marsabit. If there is a shift to brown, pastoralists who rely on the land will be paid for the deaths of their livestock predicted to follow such a vegetative transition.

Up until now, the International Livestock Research Institute (ILRI) has provided such herders with hay or animal vaccines in the event of a drought. Such a system has proven inefficient and expensive. The satellite insurance bypasses the need for veterinarians to go into the fields and certify animals have died before insurance payments can be distributed.

Andrew Mude, an economist and expert for ILRI and the Consultative Group on International Agricultural Research, says the idea for the satellite system came about as the result of an effort to investigate the risk-management needs of vulnerable pastoralists and attempt to develop policies or services that can reduce their vulnerability. He adds that the research showed that the greatest risk and source of livelihood vulnerability was drought-related livestock mortality. “The objective then became to identify and design a product that could help pastoralists manage drought-related livestock mortality. IBLI (index-based livestock insurance) was a natural choice that was very well-suited to managing the particular type of risk in that particular context.”

As climate change increases the frequency and severity of droughts, Mude explains, “Those pastoralists covered by insurance will have a means to reduce their climate-related livelihood vulnerability. While the pilot project is targeted at individual clients and is market mediated, such a system can also be used to help nations use insurance products to ensure the rapid receipt of resources to fund relief and rehabilitation, resulted from index-able phenomenon such as severe rainfall shortage or even excess rain.”

Mude says the system has been successfully implemented elsewhere: “There are several other nations that utilise the same basic principle, whereby an index based on satellite-generated data that is closely correlated with a risk-outcome is utilised as the foundation of an insurance contract. Ranchers and farmers in Canada, the USA, Spain and others have in the past insured their output using similarly designed instruments.”

While the satellite system seems like it would be expensive, Mude assures that “index-based insurance products are very well-suited to the conditions in developing nations, which are predominately agricultural (the key market of index insurance contracts), and whose deficient infrastructure make the transaction costs of traditional insurance restrictive.”

Talks are underway with Kenyan insurer UAP, Swiss Re and Kenya’s Equity Bank on insurance details. ILRI reports that “annual premiums are likely to be US$50-US$100 a year for households with 6-8 cattle.”

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The fact that satellite data is free plays a large part in Kenya’s utilisation of the system. Due to this reality, Mude notes, “The running costs of such products are relatively small. The research and development work is often sponsored by research institutions, academia, donors, etc. The question then is whether the target clientele have the capacity to purchase commercially sustainable insurance.”

ILRI has determined the capacity is there. According to Mude, “Our preliminary research among a sample of target clientele has shown a sufficiently high willingness-to-pay. In addition, microinsurance targeted at relatively poor populations in many developing countries is beginning to gain momentum, much as microfinance did several years ago. Our pilot, planned for early 2010, will give us more insight.”

A MediaGlobal News Service at the United Nations article