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

Journal of Risk and Insurance, 2011

Posted: 20 May 2011

See all articles by Sommarat Chantarat

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government

Andrew G. Mude

Cornell University - Department of Economics

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Michael R. Carter

University of Wisconsin - Madison - Department of Agricultural & Applied Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2011

Abstract

This paper 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 simulated data finds that IBLI removes 25-40% of total livestock mortality risk. We describe the contract pricing and the potential risk exposure of the underwriter to establish IBLI’s reinsurability on international markets.

Keywords: Drought risk management, index insurance, Kenya, livestock insurance, livestock mortality, NDVI, pastoralists, remote sensing, vegetation index, weather derivatives

Suggested Citation

Chantarat, Sommarat and Mude, Andrew G. and Barrett, Christopher B. and Carter, Michael R., Designing Index Based Livestock Insurance for Managing Asset Risk in Northern Kenya (January 1, 2011). Journal of Risk and Insurance, 2011. Available at SSRN: https://ssrn.com/abstract=1844717

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government ( email )

7107 Coombs Building
Canberra, ACT 0200
Australia
612 6125 3756 (Phone)
612 6125 3700 (Fax)

HOME PAGE: http://www.schantarat.com

Andrew G. Mude

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Christopher B. Barrett (Contact Author)

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

Michael R. Carter

University of Wisconsin - Madison - Department of Agricultural & Applied Economics ( email )

427 Lorch St.
Madison, WI 53706-1503
United States
608-263-2478 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
363
PlumX Metrics