Parametric livestock insurance pays out to Ethiopian farmers

An index-based livestock insurance program has paid out to almost 3,000 smallholder farmers in Ethiopia, after its parameters were breached by satellite data inputs, triggering payouts of the drought protection the scheme provides.

The Index-Based Livestock Insurance (IBLI) was an early index or parametric microinsurance solution targeted at pastoralists in African nations, having first emerged and been trialled back in 2011.

The program was spearheaded by the International Livestock Research Institute (ILRI) and was originally launched with the support of the the World Bank Group. In Ethiopia the roll-out of the parametric insurance product was achieved with the help of commercial partner, Oromia Insurance SC (OIC), a local bank owned insurer.

After rainfall levels fell during the key rainy season of March to June this year the insurance policies have paid out to almost 3,000 Borana (part of the Oromia Region) pastoralists.

According to the organisations behind the index insurance scheme, the decline in rainfall at a key time of the year led to a noticeable drop in milk production for farmers in the region, which impacts their livelihoods and well being.

Drought has plagued the region for the last two years and as a result the payouts from insurance pilots such as this are key to the ability of farmers to support themselves, their families and also their animals.

This particular index insurance program utilises parametric triggers based on satellite derived data.

The satellites transmit data that recording the coverage of ground vegetation, as well as its colour which implies health, using both visible and infrared frequencies.

By comparing the differences between the two types of satellite data, the program providers can establish whether there is enough green food available for cattle to eat and data is compared to an index. If there isn’t, then the parametric triggers have been breached and index insurance product is triggered.

It’s a novel product as it also triggers in advance of when the drought conditions are at their worst, enabling payouts to be delivered to pastoralists in time for them to secure food for their families and make efforts to mitigate the coming lack of foraging food for their animals.

Examples like this show how technology and parametric insurance can drive real benefits to the people who need it most and at the right time when it can have the largest impact.

With satellites sensing actual farming conditions on the ground, then data being analysed and compared to an index to derive payouts under the parametric insurance policies, while in some cases policyholders receive payouts directly to their mobile phones, despite being small schemes and targeting low-income countries, these schemes are about as cutting edge as insurance gets (so far).