Index Insurance

Index Insurance to Finance Livestock Feed Availability and Access

Drought is widely recognized as one of the most significant risks in sub-Saharan Africa. In particular, the pastoral sector is very vulnerable to climatic risks in this region where intense droughts lead to a significant deficit of pastures and strong competition for resources, with significant economic, social and environmental consequences.

Develop a proposal for an indexed insurance scheme to cover drought risks in the Sahel regions that would enable rapid response and finance actions coordinated by RAFF in emergency situations while respecting the principle of subsidiarity.

The above financial mechanism is of the maximum importance, coordinated with livestock feed purchases, enabling a rapid response during such emergencies, aligned with the Sustainable Development Goals of the 2030 Agenda.

Proposed Strategy

  1. Develop index-based insurance for drought risks in the Sahel regions.
  2. Enable RAAF to give a quick answer and be able to finance coordinated actions during emergencies.
  3. Integrate mechanism into existing risk management framework.
  4. Consider the specific needs of transhumant herders across national borders to reduce their vulnerability and increase their resilience to drought episodes.
  5. Alleviate the conflict between breeders and farmers, which, although structural, is exacerbated in the event of drought.

TASKS

Develop Risk Reduction Strategies

Obtain NDVI data, review ARC studies, apply machine learning to correlate with food expenditure.

Conduct Risk Analysis

Use Moran index and VaR to assess risks in the livestock sector.

Review Index Insurance Suitability

Analyze technical conditions, livestock importance and institutional capacity

Analyze Pastoralist Needs

Engage with pastoral organizations, feed producers, and other stakeholders

Define Insurance Mechanism

Develop a Monte Carlo simulation model to estimate premiums

Explore Complementary Mechanisms

Consider option contracts to improve the livestock feed value chain

DELIVERABLES

Systemic Risk Map
Detailed map of drought risks in the region.

Insurance Index Conditions
Technical requirements for a regional drought
insurance index

Premium Simulation Model
Monte Carlo Simulation to estimate indurance premiums

Feed Supply Strategies
Recommendations to improve the livestock feed value chain

NDVI Indexed Insurance

  • NDVI accumulative over one year —> Good indicator of pasture production potential
Vulnerability Index
Danger Index
Risk Index
Productive Potential of Pastures

CONTRY’S RISK MAPS

RISK = Hazard  *  Vulnerability   *  Exposure

Hazard : Probability and intensity of a drought or other important climate-occurring event.

  • Pasture deficit
  • Consecutive/total weeks of drought

Vulnerability : Susceptibility of exposed elements to damage caused by drought or other important climate event.

  • Proximity to rivers or bodies of water
  • Proximity to cities, roads
  • Poverty / rural population density
  • Proximity to conflict zones

Exposure : Presence of elements exposed to danger.

  • Presence of crops
  • Length of growing season
  • Density of Cattle, sheep and goats.
  • Annual average NDVI