Impact of index insurance on downside income risk: Evidence from northern Kenya

Abstract

We assessed the impact of index-based livestock insurance (IBLI) on household income and its higher-order moments (i.e., variance and skewness). The study uses four waves of panel survey data from northern Kenya and applies a two stage least squares (2SLS) instrumental variables regression to estimate the causal impacts. We found that uptake of IBLI increased household income and reduced pastoralists' exposure to downside risk. Our results imply that policies and investments promoting the scaling of index insurance will be effective for climate risk management and welfare improvement in Sub-Saharan Africa by increasing income and reducing exposure to downside risk.