Insure the grass and the cows won't die

It may not be possible to avert a drought, but it is now possible to insure against it. For those responsible for a community, there are financial tools available to make sure people remain resilient to drought and other climate risks.

In Africa today, we have the financial and technological tools to save farming families from losing their income when the rains do not come and they lose cattle or crops. People should not have to leave their land, and there is no need for communities and their livestock to die of thirst and starvation.

We can insure farmers, their livestock and the pasture they need to survive. We can provide pre-paid solutions to climate risks; and they work.

The Kenyan Livestock Insurance Programme (KLIP) is an example where insurance is used to pay for drought relief in advance. This programme was born when the Kenyan Government recognised that insurance could be geared to keep the animals of nomadic herders alive during periods of drought, therefore keeping their farmers’ livelihoods intact.

The trick to the Kenyan Livestock Insurance Programme is very simple. Rather than waiting for agricultural losses to happen and trying to replace the livestock, the government makes sure funds are available to keep the livestock alive through the drought.

This type of protection runs on very simple principles, but it is backed by sophisticated technology, mathematics and logistics. It is scalable, replicable, and cost-effective. Most importantly, the technology and insurance techniques mean that funds and drought relief can be delivered quickly.

KLIP works by using satellite technology to measure how much vegetation is available in a region and creating an index from this information. Put simply, when a pixel on a satellite photo of the given region shows up as green, there is enough food. Once the pixel is a certain shade of yellow, we know there is not enough vegetation and pay out a lump sum that can be distributed to the herders to buy feed, water and, if necessary, veterinary services and medicine for their animals.

In February this year, 12,000 Kenyan households in six counties received a $2 million insurance payment for this purpose.

KLIP is one of a long line of insurance techniques to provide pre-disaster funding. From an insurance point of view, new techniques such as index-based insurance are cutting-edge. They allow the insurance industry to provide cost-effective solutions for governments across a wide range of risks – from climate risks, through to pandemics and even energy and infrastructure risks.

For governments, pre-funded models are infinitely preferable to the alternative wait-and-respond approaches, which will always be too slow in comparison.

In the case of drought, the effects are often only known once animals have been lost and people face famine. Unlike the obvious damage of an earthquake or flood, the symptoms of drought are often only visible once there is a sharp increase in displaced populations or unrest. The effects of malnutrition may only surface much later in people's lives; while the financial impact of a drought may only be known once crops fail to arrive at market. When it comes to drought, wait-and-respond is simply too late.

Strengthening resilience to drought risk is all about identifying the risk early. It is also about putting pre-funded strategies in place to make sure that communities have the means to maintain their livelihoods through the dry period.

The success of the KLIP programme in Kenya is part of a movement we are seeing across the continent. Governments are exploring how preemptive risk management and innovative insurance techniques can improve climate, disaster and pandemic resilience strategies.

Another world-leading success is the African Risk Capacity (ARC). This was established in 2013 to help its member governments to plan for and manage the financial consequences of disasters better. The programme has paid out millions, and become a world-leading model for regional disaster management.

Government-backed programmes work because of the commitment of a vast range of stakeholders. It means bringing governments together with private insurers, and the reinsurers who back them. It involves the work of scientific agencies, donor organisations, development agencies, and international institutions such as the World Bank or the African Development Bank.

There is willingness and expertise, and with programmes like ARC and KLIP, we have the necessary proof and track-record to help us move ahead, replicate and scale. Initiatives like this, large or small, all contribute to building economic and social resilience in Africa.