Building Resilience to Extreme Weather Events: Index-Based Livestock Insurance in Mongolia
By Kirsten Luxbacher
In the grassy steppe pastures of Mongolia, herding is the life-blood of the economy, employing around 40% of the nation’s workforce. However, the sector is vulnerable to severe winter weather events known as dzuds that can decimate livestock herds, triggering significant financial losses. In response, the government of Mongolia is piloting innovative index-based livestock insurance, a system in which payouts are based on aggregate livestock mortality rates in a district rather than individual losses. The project offers both base insurance, which is market-based, and disaster insurance, provided by the government as a safety-net in case of catastrophes.
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In the four years since the project was launched, with World Bank support, severe weather has triggered the base insurance three times and the disaster insurance twice. On each occasion the system proved effective, with all eligible herders receiving the indemnity payments owed. From 2006 through 2010, 3.2 million head of livestock have been insured, although owners typically cover only 30% of their herd.
High quality data on livestock mortality, outreach efforts to educate herders on the insurance products, and capacity-building among government officials, insurance companies and financial institutions have all contributed to success. Challenges remain, including redesigning the insurance to limit the government’s exposure , a decline in the price of cashmere affecting herder incomes, and inefficiencies in the way insurance is sold. But the Index-Based Livestock Insurance Project’s performance has exceeded expectations, representing a successful, proactive effort by national government to respond to climate shocks before they occur.