Index-Based Livestock Insurance
Index-based livestock insurance (IBLI) protects livestock keepers in drought-prone arid and semi-arid lands from climate-related losses. Insurance pay-outs are tied to climatic conditions such as the amount of rainfall and distribution of pasture availability over a season.
The IBLI index is based on satellite data, which measures the quality of the pastureland every 10–16 days. These data are inputs to a statistical model of livestock mortality developed using historical data from the region. When evolving range conditions predict livestock mortality in excess of a critical threshold over a predetermined area, the insurance pays contract-holding pastoralists for their losses, allowing them to manage their individual risk. Pay-outs are calculated automatically (no individual filing of claims) hence solving issues of moral hazard and adverse selection. IBLI is available to livestock keepers through private insurance companies as well as government supported safety net programmes.