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Index Based Livestock Insurance

The question of how to cushion the pastoralists communities against the devastating effects of drought has been a challenge for the government of Kenya. A new project launched with support of donors may go a long way in improving a lot in pastoralist communities.

Accordingly, some herders will be able to purchase insurance policies for their livestock based programme that will use satellite images of grass and other vegetation to indicate whether drought has put the pastoralist’s camels, cows, goats and sheep at risk of starvation.

The information of the satellite is matched against records of livestock deaths collected over the last decade to calculate stock losses for insurance purposes. This index based insurance eliminates the need to verify the individual deaths of animals.

It will cost approximately 5.5 percent of the value of livestock to insure the animal.  The programme has the potential to succeed because it has the elements insurers need to operate, a well-known risk(drought) and an external indicator that is verifiable and cannot be manipulated, in this case, satellite images of the vegetation. The risk cover is being provided by number of local insurers.

The policy can be used as security to obtain credit with which to buy feeds or drugs that could help animals survive tough conditions. Expanding herds may also be made easier s private creditors will be more willing to lent if the risk of losing animals to drought is insured against.

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