Examining the Feasibility of Livestock Insurance in Mongolia
Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance...
Transcript of Index Based Livestock Insurance - Understanding Risk€¦ · Index Based Livestock Insurance...
IndexBasedLivestockInsuranceProtec4ngVulnerablePastoralistsfromDrought-relatedShocks
UR2016Geneva,May20thPanel:HowRisksandShocksImpactPoverty,andWhy,When,andWhereCanBeOerFinancialProtec4onHelp
AndrewMude,PrincipalEconomistandIBLIProgramLeader,Interna4onalLivestockResearchIns4tute
IBLI:Coversdrought-relatedmortalityandmorbidityrisksforpastoralistlivestock
Mo4va4on:TargetPopula4onandEvents
• ASIZEABLECONSTITUENT• Over50millionpastoralistsinSub-Saharan
Africa:over20millionintheHornofAfrica
• THECENTRALITYOFLIVESTOCK• InnorthernKenyaandSouthernEthiopia:-Livestockproductsandsalesoflivestockare40%ofincomeforaveragehousehold
• VULNERABILITYTOLIVESTOCKLOSSES• CatastrophicherdlossduetodroughtidenEfiedasthemajorsourceofvulnerabilityandcauseofpoverty
• Between2008and2011KenyaneconomysufferedUS$12.1billionindamagesduetodrought,over70%duetolivestocklosses.
Mo4va4on:PovertyTrapsandCatastrophicRisk
Thereisstrongevidenceofpovertytrapsinthearidandsemi-aridlands(ASAL)ofnorthernKenyaandsouthernEthiopia.Theseputapremiumonriskmgmt.Catastrophicherdlossriskduetomajordroughtsiden4fiedasthemajorcauseofthesedynamics.
Source:Lybbertetal.(2004EJ)onBoranpastoralistsins.Ethiopia.SeealsoBarreWetal.(2006JDS)amongn.Kenyanpastoralists,Santos&BarreW(2011JDE)ons.EthiopianBoran.
Mo4va4on:IncreasedRiskFromClimateChange
Pastoralistsystemsadaptedtoclimateregime.Butresilienttoashi[inclimate?Manymodelspredictincreasedrainfallvariability(i.e.,increasedriskofdrought).
Herddynamicsdifferb/ngoodandpoorrainfallstates,andsochangewithdrought(<250mm/year)risk.Key:Inso.Ethiopia,doublingdroughtriskwouldleadtosystemcollapseinexpecta@onintheabsenceofanychangetoprevailingherddynamics.
Source:BarreWandSantos(EcolEcon2014)
Mo4va4on:StandardResponsesToDrought
STANDARDRESPONSESTODROUGHTARECOSTLY&INSUFFICIENT• Destocking/Restocking–slow,expensive,targeEngchallenges,inefficiency• Foodaid–slow,expensive,targeEngchallenges,fosterdependency• Cashaid–targeEngchallenges,fiscalsustainability,notequallyeffecEveforall.• HSNPPlus–Needtosupplementtoprovisionofwelltargetedcashtransferstothepoor,withproducEvesafetyneedsinthefromoflivestockinsurancetominimizeslideintopovertyresulEngfordroughtshocks.ParEcularlyinpastoralsystemswherepovertytrapdynamicsenhancethisproblem.
LivestockInsuranceasacomplement
Sustainableinsurancecan:• PreventdownwardslideofvulnerablepopulaEons• Allowsfocushumanitarianresourcesontheneedy• Crowd-ininvestmentandaccumulaEonbythepoor
ButcaninsurancebesustainablyofferedintheASAL?Conven4onalinsuranceunlikelytoworkinpastoralcontext.
INDEX-BASEDLIVESTOCKINSURANCEprogramlaunchedinNorthernKenya(Jan2010)andS.Ethiopia(July2012).
• Comprehensiveprogram–contractdesign,impactassessment,marketandcapacitydevelopment,policysupport….
• ProgramscalinginbothKenyaandEthiopiaspearheadedbyprivate/publicarrangements.
Inthistalk,willfocusonresearchevidenceaboutIBLIimpactsonarangeofsocioeconomicvariables.
• IBLIsurveylaunchedinMarsabit,KenyainOct2009andinBorana,Ethiopia,Mar2012bothbeforetherespec4velaunchofIBLIsales
• Marsabitsurvey:925householdsover16loca4ons–currently5roundsofpaneldata• Boranasurvey:515householdsover17kebeles–currently4roundsofpaneldata
IBLIPilots,andresearchdesign,inEthiopiaandKenya
IBLIImpacts:Herdmortalityrisk
Propor4onofhouseholdsforwhomIBLIimprovestheirposi4onwithrespectto
eachsta4s4c
Jensen,BarreW&Mude2014
Sta4s4c Propor4on Loaded&
UnsubsidizedSubsidized
Mean 0.232 1.000Variance 0.359 0.359Skewness 0.817 0.817Semi-Variance
0.374 0.609
• Evenatunsubsidizedpremiums(40%loading)purchasingIBLIincreasesherdsurvivalratesbyconsiderablyreducingriskofcatastrophicloss.
• MajorityofhouseholdsarebeWeroff(reducEonsinherdlosses)purchasingIBLIcoveragethanotherwise
IBLIImpacts:Livestockproduc4vity/income
IBLIcoverage:• Increasesinvestmentsinmaintaininglivestockthroughvetexpenditures• IncreasestotalandperTLUincomefrommilk.
• Reducesherdsize(consistentwithprecauEonarysavingshypothesis)
Note:TLUveterinaryexpendituresarepos/signrelatedtomilkproducEvity
Jensen,BarreW&Mude2014
IBLI
DependentVariable CumulaEvePast
Coverage CurrentCoverage
(TLU) ProducEonstrategies:
HerdSize -5.634*** -0.270 (1.970) (0.693) [3.543] VeterinaryExpenditures(KSH)
584.8* -46.21 (324.7) (127.2)
[15.17] HouseholdisParEallyorFullyMobile
-0.0669 0.0386(0.111) (0.0481)
[14.86]ProducEonoutcomes:
Milkincome(KSH) 1,688* 840.6* (970.0) (473.6) [11.46] MilkincomeperTLU(KSH)
423.5*** 63.81 (118.1) (47.23)
[13.05] A complete list of covariates, coefficient esEmates, and modelstaEsEcscanbefound inJensen,Mude&BarreW(2014).Clusteredandrobuststandarderrorsinparentheses.ModelF-statinbrackets.***p<0.01,**p<0.05,*p<0.1.
IBLIImpacts:Welfare
• IBLIimprovespost-droughtcoping.A[ercatastrophic2011drought,IBLIcoveredhouseholdsreportedbeWerexpectedbehaviours/outcomes
• 36%reduc4oninlikelihoodofdistresslivestocksales,especially(64%)amongmodestlybeWer-offHHs(>8.4TLU)
• 25%reduc4oninlikelihoodofreducingmealsasacopingstrategy,especially(43%)amongthosewithsmallornoherds
• IBLIshowntohaveaposi4veimpactonimprovementstomid-upperarmcircumference(MUAC),astrongpredictorofchildmalnutri4on
• IBLIhouseholdsalsopostgreaterhouseholdincomeperadultequivalent
• InEthiopianopayment(preNovember2014).Inprincipalinsuranceshouldbebeneficialevenwithoutpayingout(a“pieceofmind”effect).• OurEthiopiasurveycollectsmeasuresofsubjec4vewell-beingtogaugeoveralllifesaEsfacEon.
• IBLIhasaposiEve,statsigeffectonHHwell-being,evena[erpremiumpaymentandw/oanyindemnitypayments
Hirfrot,BarreW,LentzandTaddesse2014;JanzenandCarter2013NBER
IBLI:Acost-effec4vesocialprotec4ontool
• PosiEveIBLIimpactsdonotnecessaryjusEfyinvesEngscarcedevelopmentorsocialprotecEonfundsinIBLI.
• Needtounderstandtheopportunitycostvis-à-viscomparaEveintervenEons:HSNP
• ResearchdesignresulEnginstrategicallyoverlappingIBLIandHSNPunits,andEmingofprovisionallowsforcomparaEveevaluaEon.
• RESULTS:• BothIBLIcoverageandHSNPparEcipaEonincreasehouseholdincomefrommilk,incomeperAE,andMid-UpperArmCircumference(MUAC)ofchildren.
• Fromatotalcostpointofview,HSNPandIBLIaresimilarintermsofimpact.• FrommarginalcostperspecEve(moreimportantforscalingout),IBLIconsiderablymorecosteffecEvethanHSNP– NotethatthisreferstoIBLIproductwhereclientpaysfullriskpremiumplusloadingof40%
Jensen,BarreW&Mude2014
Insurancevs.cashtransfers:Normalizedbycost
IBLIgeneratescomparableimpact/KShonaverageatpilotscale.Butphilanthropic/publicfundingislargelyfixedcost,sothemarginalbenefit/costra4osare>anorderofmagnitudelarger!
Allinreal2009KenyaShillings.ImpactsareesEmatedusingtheaverageclientvalueandcostsfromadministraEverecords,andparameteresEmates.1ResultsaremulEpliedby10.2ResultsaremulEpliedby1,000.
Income from Milk Income per AE MUAC Cost structure Cost/
Participant Impact Impact/
Cost Impact Impact/
Cost1 Impact Impact/
Cost2
Total Program Cost/Participant
HSNP 47,600 992 0.021 394 0.083 1.097 0.022 IBLI 37,600 2,631 0.067 263 0.070 0.337 0.026
Marginal Cost of an Additional Participant
HSNP 31,700 992 0.031 394 0.124 1.097 0.033 IBLI 1,580 2,631 1.667 263 1.666 0.337 0.623
Jensen,BarreW&Mude2014
Forrelatedinforma4on,visitibli.ilri.org/
ThankyouIBLIclearlyhasarangeoffavorableimpactsonpurchasersandcanbeshown–insomeinstances–tobemorecosteffec4vethancashtransfers.IBLIcanbeseenasapromisingop4onforaddressingcatastrophicdroughtrisk,mi4ga4ngagainstshock-relateddescentintopovertyandpromo4ngascentThankyoufor4me,interestandcomments.
IBLIUptakeSignificant…ButSoIsDisadop4on
MarsbitsurveyrespondentsuptakepaWerns(n=832)
Saleswindow New1Replace-ment2
Augment-ing3
Hold-ing4 Reenter5 Lapsed6 Total7
J-F2010 233 0 0 0 0 0 233
J-F2011 65 62 0 0 0 171 298
A-S2011 65 0 31 96 22 149 363
A-S2012 19 25 0 0 33 305 3821FirstEmepurchasers.2Replacedapolicyabouttoexpire.3PurchasedaddiEonalcoveragethatoverlappedwithexisEngcoverage.4NopurchasebuthadexisEngcoverage.5Letpolicylapseforatleastoneseasonbutpurchasedthisseason.6PastpolicieshavelapsedanddidnotpurchasedaddiEonalcoverage.7Totalnumberofhouseholdsthathavepurchasedtodate.
KeydeterminantsofIBLIuptake
Generaluptakefindings—robustacrossspecifica4onsandsurveysPrice:Responsivetopremiumrate(priceinelasEc).PriceelasEcitygrowsw/designrisk.DesignRisk:Designerrorreducesuptake;greatereffectathigherpremiumrates.Idiosyncra4cRisk:HhunderstandingofIBLIincreaseseffectofidiosyncraEcriskUnderstanding:Extension/markeEngimprovesaccuracyofIBLIknowledgebutno
independenteffectofimprovedunderstandingonuptake.Herdsize:LikelihoodofuptakeincreasinginHHherdsizeLiquidity:IBLIpurchaseincreasingw/HSNPparEcipaEonandHHsavingsIntertemporalAdverseSelec4on:HHsbuylesswhenexpecEnggoodcondiEons.Spa4alAdverseSelec4on:HHsindivisionswithcovariateriskaremorelikelyto
purchaseandwithgreatercoverage(spaEaladverseselecEon).Gender:nogenderdiffinuptake.WomenmoresensiEvetoriskofnewproduct.
Bageant2014;Jensen,Mude&BarreW2014;Takahashietal.2014
Covariateriskisimportantbuthouseholdlossesvaryalot…
andtheindexdoesnotperfectlytrackcovariatelosses.
- Onlysuchstudyofindex-insuranceproductsthatweknowoff.Crucialforassessingvalueandprecisionofthecontract.
Jensen,BarreW&Mude2014
IBLIMarsabitContract:AnImperfectProduct