Oromia Insurance Company (OIC), the lone index based insurer of livestock in the country, has launched a new scheme that will entail paying compensation for livestock ahead of the drought season instead of after, as it was originally done.
The company uses what is called index-based-livestock-insurance (IBLI). This insurance coverage is applicable only in the Borena Zone of the Oromia Region, and targets the two drought seasons of the area called Hageya and Hudulissa.
Owners of livestock insured under the IBLI will be getting money for the sustenance of their animals, an asset protection, through the two major dry seasons in the region. The new scheme, introduced this month in response to demands from policy holders, calculates the cost resources needed to keep the animals alive during the anticipated drought.
Though premiums are lower than those of the previous scheme, the asset replacement, OIC has also found it more profitable, according to Daniel Negassa, head of OIC’s Micro-insurance Department.
The premium for camels is 5,000 Br; 3,000 Br for cows and oxen, and 500 Br for sheep and goats. These values are calculated based on the market price of forage, and administration and labour costs involved in the animals having access to the forage. The respective figures under the old system were 10,000 Br, 5,000 Br and 800 Br, based on the average market value of the livestock.
OIC started this insurance coverage in August 2012 in collaboration with Cornell University and the International Livestock Research Institute (ILRI). The scheme currently covers 2,612 households.
It has made payments twice so far, the first, in October 2014, when 500 households were paid a sum of 570,000Br. The second payment of 16,000 Br was made in April 2015 to 16 households.
“Payments are made depending on a map generated using satellite imaging to indicate the amount of forage availability,” Daniel explained.
Previously the payment was made by looking at the trigger point when the forage availability was 15pc lower; the current payment has raised that to 20pc.
Cattle breeders can also benefit from the new system, Daniel told Fortune. Because of liquidity problems, the people formerly paid for the insurance by selling their livestock when the drought set in – a time when the animals sold very cheaply.
“ILRI’s IBLI was able to identify which risk management practices are effective and efficient for pastoralists in mitigating risk of drought arising from shocks as to build resilience of pastoralists. Therefore, ILRI/IBLI identified first the options of these contract features,” Masresha Taye IBLI Ethiopia programme coordinator, research officer at ILRI told Fortune.
Conventional livestock insurance works by tagging insured animals for identification; the IBLI approach provides compensation if as many animals as are insured are affected, going for the numbers rather than for the specific herds.
According to the Central Statistics Agency of Ethiopia 2014/15 Agricultural Sample Survey, Borena Zone has 1.1 million cattle, 439,082 sheep, 878, 355 goats and 77,147 camels.
For the appropriateness of the insurance and the payment, the 10 weredas of the zone are divided into four clusters based on the climate in the area. The premium differs based on the vulnerability of the specific area of the zone through the drought seasons.
The company, the only one to offer this coverage, promotes the service using the Aba Geda (leaders of traditional Oromo system of conflict resolution), and cooperatives in the area. The cooperatives also work as agents selling the insurance policy.
But the penetration is very low, according to Daniel, mainly because of limited awareness in the region.
Scaling up the programme is being done through engagement with the community and other partners including government, NGOs and donors, supported by two studies in the past ten months. Other strategies include raising awareness through extension activities.
“Activities are underway to work with the government of Ethiopia and big multilateral donors are showing interest to scale up the product in other pastoral regions of Ethiopia, mainly Afar and Somali regions,” Masresha, who is in Kenya, told Fortune through an email interview.
Regionally, IBLI was first introduced in January 2010 in Marsabit, northern Kenya and it then expanded to Isiolo, Wajir, Garissa, and Mandera in Kenya and Borena in Ethiopia in 2013.
In all of these areas, 10,067 policies have been sold and 149,007 dollars have been paid as indemnities until April 2015, according to research by the International Livestock Research Institute titled The Favourable Impacts of Index-Based Livestock Insurance: Evaluation Results from Ethiopia and Kenya.
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