Insuring Against Drought‐Related Livestock Mortality:  Piloting Index Based Livestock Insurance in Northern Kenya

25 Pages Posted: 18 May 2011

See all articles by Andrew G. Mude

Andrew G. Mude

Cornell University - Department of Economics

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government

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

Munenobu Ikegami

Hosei University - Department of Economics

John G. McPeak

Syracuse University - Department of Economics

Date Written: June 1, 2010

Abstract

Climate related shocks are among the leading cause of production and efficiency losses in smallholder crop and livestock production in rural Africa. Consequently, the identification of tools to help manage the risks associated with climactic extremities is increasingly considered to be amongst the key pillars of any agenda to enhance agricultural growth and welfare in rural Africa. This paper describes the application of a promising innovation in insurance design – index‐based insurance – that seeks to bring the benefits of formal insurance to help manage the weather‐related risks faced by rural crop and livestock producers in low‐income countries. In particular, we highlight the research and development agenda of a comprehensive effort to design commercially viable index‐based livestock insurance aimed at protecting the pastoral populations of Northern Kenya from the considerable drought‐related livestock mortality risk that they face. Detailing the conditions that make the pastoral economy in Northern Kenya an ideal candidate for the provision of index‐based insurance products, the paper describes the contract design, defines its structure, offers analysis that indicates a high likelihood of commercial sustainability among the target market and describes the process of implementation leading up to the launch of a pilot in Marsabit district of Northern Kenya in early 2010.

Suggested Citation

Mude, Andrew G. and Chantarat, Sommarat and Barrett, Christopher B. and Carter, Michael R. and Ikegami, Munenobu and McPeak, John G., Insuring Against Drought‐Related Livestock Mortality:  Piloting Index Based Livestock Insurance in Northern Kenya (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1844745 or http://dx.doi.org/10.2139/ssrn.1844745

Andrew G. Mude

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

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

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)

Munenobu Ikegami

Hosei University - Department of Economics ( email )

Tokyo
Japan

John G. McPeak

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

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