Families in Kenya’s dry northern region, who make their living primarily from livestock, depend on rainfall. When drought destroys the vegetation that livestock need to survive, people’s lives become tenuous.

For more than ten years now, communities in Kenya’s drylands have been able to buy an innovative form of insurance to protect themselves from drought. For the research paper that first described the technical design underpinning the insurance, MRR Innovation Lab director Michael Carter and his co-authors have just received the Robert I. Mehr Award from the American Risk and Insurance Association.

“I am honored to receive this award with my colleagues,” said Carter, a distinguished professor of agricultural and resource economics at UC Davis. “When we first published this paper, we knew our approach was a good one. It took a lot of work from many collaborators to turn it into the prominent program it has become.”

The paper, “Designing Index-Based Livestock Insurance for Managing Asset Risk in Northern Kenya,” published in the Journal of Risk & Insurance in 2012, established a technical foundation for a new type of insurance for pastoralist households in northern Kenya. Index-based livestock insurance (IBLI) releases payouts automatically if some external index, such as estimates of vegetation or rainfall, predicts excessive livestock deaths.

“Index insurance overcomes many of the limitations for conventional insurance, of them being the cost of providing insurance across such a vast and dispersed geography,” said Carter.

Carter and his collaborators at Cornell University and the International Livestock Research Institute (ILRI) in Kenya built the index for IBLI using Kenya government data on livestock mortality and Normalized Difference Vegetation Index (NDVI) satellite data from the US National Oceanic and Atmospheric Administration (NOAA).

NDVI is a type of imaging that estimates plant cover and health based on wavelengths of reflected light. IBLI was not the first index-based livestock insurance, but it was the first to use NDVI.

In 2010, ILRI launched the first IBLI product in pastoralist communities in northern Kenya. In 2013, IBLI’s success led to its adoption by the Government of Kenya for the Kenya Livestock Insurance Program (KLIP). Since then, KLIP has reached millions of pastoralist families who experienced severe drought.

IBLI and the research team that created it have been widely recognized for their impacts on people’s lives. Andrew Mude, who led IBLI as an economist at ILRI, received the 2016 World Food Prize. That year, Carter, Mude and Cornell University economist Christopher Barrett were also awarded the 2016 BIFAD Award for Scientific Excellence in a Feed the Future Innovation Lab for its body of research with IBLI as the flagship project.

Carter continues to advise international organizations and insurance companies on how to develop high-quality index insurance contracts that provide real value to the families who buy it. This includes the World Bank in its effort to expand index-based livestock insurance across East Africa. Carter also works closely with Kenya-based Takaful Insurance of Africa.

“The ideas in this paper remain fresh,” said Carter. “In this paper, we combined satellite measures with on-the-ground data to create an index insurance contract that works. Combining these two types of data is a critically important step for designing a high-quality index insurance contract.”

The American Risk and Insurance Association presents the Robert I. Mehr Award each year for the paper published ten years ago in the Journal of Risk and Insurance that “has best stood the test of time.” Carter and his co-authors will receive their award at a formal ceremony on August 8, 2023 in Washington, D.C.

Carter’s co-authors on the paper are:

• Sommarat Chantarat, development economist at the Puey Ungphakorn Institute for Economic Research
• Andrew Mude, World Food Prize honoree and development manager at the African Development Bank
• Christopher Barrett, Stephen B. & Janice G. Ashley Professor of Applied Economics and Management at Cornell University.

Learn more about the Mehr Awards from the American Risk and Insurance Association: https://www.jri.pub/mehr-awards/