Insuring Kenyan Smallholder Farmers Against Drought: Does Livestock Index-Based Insurance Increase Climate Resilience?

Abstract: While index insurance has received increased attention as an instrument for adaptation to climate change, evidence supporting its effectiveness remains limited. This thesis explores the potential of normalized difference vegetation index (NDVI) based livestock index insurance in Northern Kenya to help small-scale farmers to manage climate change risks in the event of livestock-reducing drought. This research uses the corresponding longitudinal data for 924 households over six rounds between 2009 and 2015. The conducted analysis seeks to identify (1) which household characteristics influence the IBLI product take-up and (2) whether a households’ insurance status affects its income and consumption levels in the case of livestock loss from drought. Results indicate that subsidies and daily mobile phone access influence IBLI product take-up. We find little evidence supporting the value of IBLI as a useful tool to manage climate change risks from its measured impact on income and consumption. Overall, findings show that index insurance as a relatively new climate management tool faces considerable start-up challenges, to which new digitalization and funding techniques could provide solutions.