What is index-based insurance?
Index-based insurance pays everyone in an area when a measured figure crosses a trigger, instead of inspecting each farm. In Kenya, livestock cover reads satellite pasture data, and crop cover uses rainfall or the area's average yield from crop cuts. It is the cheapest form of agricultural insurance and pays without a claim form, but it can miss a loss on your own farm.
Three kinds of index cover in Kenya
Satellite pasture (livestock)
Measures how green the grazing is in each insurance unit. Pays herders per Tropical Livestock Unit when forage fails, before animals die. Used by KLIP and DRIVE.
Area yield (crops)
Measures the average harvest in a unit area through crop cuts. Pays every insured farmer the same rate when the area yield falls below the insured level. Used by KAIP.
Weather index (crops)
Measures rainfall or temperature at a weather station or by satellite. Pays when the season is too dry or too wet for the crop's growth stages.
How the trigger is decided
Pasture index
KLIP reads satellite measurements of pasture (NDVI) for each insurance unit. When forage falls far enough below normal, every insured household in the unit is paid, timed for the start of the dry season, without a claim form.
Area-yield index
KAIP payouts come from crop-cut experiments: county staff harvest sample plots (5 m by 5 m for cereals, 2 m by 2 m for pulses) on 5 to 15 randomly chosen farms in each unit area, and every insured farmer in the unit is paid at the same rate.
What the law says
The Insurance Act defines index-based insurance as cover where the insurer's payment is triggered by, and worked out from, one or more indices instead of an assessment of the loss.
Index or indemnity: which suits you?
| Index cover | Indemnity cover | |
|---|---|---|
| What triggers a payout | A measured index for the whole area | Your own loss, inspected |
| Inspection of your farm | None | Vet or loss assessor |
| Claim form | No | Yes |
| Price | Low, often subsidised | Higher |
| Speed | Automatic after the season | After inspection and documents |
| Risk you keep | Basis risk | The excess |
| Suits | Smallholders and pastoralists | Dairy, greenhouse, commercial and financed farms |
- Index cover
- A measured index for the whole area
- Indemnity cover
- Your own loss, inspected
- Index cover
- None
- Indemnity cover
- Vet or loss assessor
- Index cover
- No
- Indemnity cover
- Yes
- Index cover
- Low, often subsidised
- Indemnity cover
- Higher
- Index cover
- Automatic after the season
- Indemnity cover
- After inspection and documents
- Index cover
- Basis risk
- Indemnity cover
- The excess
- Index cover
- Smallholders and pastoralists
- Indemnity cover
- Dairy, greenhouse, commercial and financed farms
Indemnity cover for your most valuable animals or a greenhouse closes the gap an index can leave.
Basis risk: the catch with index cover
The national policy rates basis risk as medium for area-yield crop cover and livestock index cover, and high for weather-index cover.
Source: National Agricultural Insurance Policy (December 2023)
In Marsabit the livestock index covered only 62–77% of the herd-loss risk households faced, because one family's losses can differ from the area's: this gap is basis risk.
Ask what the index measures, which unit area or weather station your farm falls under, and how the trigger level was set.
Questions to ask before you buy index cover
- Which index is used: rainfall, satellite pasture or area yield?
- Which unit area or weather station decides my payout, and how far is it from my farm?
- At what level does it trigger, and how much does it pay per acre or per TLU?
- When in the season is the index read, and when is payment made?
- How is the payout sent: M-Pesa, bank or e-wallet?
- Is part of the premium subsidised, and by whom?
Does index insurance work? The evidence
Studies of index-based livestock insurance in northern Kenya found insured households were 22–36% less likely to sell animals in distress and 27–36% less likely to skip meals.
Draft Insurance (Index Insurance) Regulations 2025 would require IRA approval of every index product, accredited calculation agents and payouts within 10 days of a trigger. In February 2026 the IRA was still reviewing comments, so they are not yet law.
The draft rules would also make insurers document and reduce basis risk; until they are law, ask for the trigger in writing.
Frequently asked questions
What is index-based insurance?
Index-based insurance pays when a measured figure crosses a set trigger, such as rainfall at a weather station, satellite readings of pasture, or the average yield in your area. Nobody inspects your own farm, so it is cheap and pays automatically, but the payout follows the index, not your own loss.
How does index-based livestock insurance work in Kenya?
Satellites measure how green the pasture is (NDVI) in each insurance unit, usually a sub-county. If forage falls far enough below normal after a failed rainy season, every insured herder in the unit is paid per Tropical Livestock Unit, before animals start dying, so they can buy feed, water and vet drugs or move the herd.
Do I need to file a claim for index insurance?
No. Once the season's data is in and the index triggers, the insurer pays everyone in the unit. You only need to be registered with correct M-Pesa or bank details.
What is basis risk?
Basis risk is the gap between what the index shows and what happened on your farm. If your crop fails from a local storm but the area's average yield is normal, an area-yield cover will not pay. The national policy rates this risk as highest for weather-index cover.
My animals died but the index did not pay. What can I do?
Under an index policy the trigger decides, so a loss the index does not show is not paid. Check the published result for your unit and raise any error with the insurer, and complain to the IRA if you think the index was applied wrongly. For valuable animals, add indemnity mortality cover, which pays on a vet's post-mortem.
How fast do index payouts arrive?
Pasture-index payouts are timed for the start of the dry season after a failed rainy season. Area-yield payouts follow the crop cuts after harvest, which can take a month or more. Draft IRA rules would require payment within 10 days of a trigger, but they were still a draft in 2026.
Are camels, goats and sheep covered by livestock index insurance?
Yes. Pastoral index cover counts animals in Tropical Livestock Units: 5 TLU equals 5 cattle, 50 goats or sheep, or 1 camel and 4 goats.
What is weather index insurance?
Weather index cover pays when rainfall or temperature at a reference weather station, or from satellite data, falls outside the normal range for your crop's growth stages. It suits rain-fed smallholders but carries the highest basis risk, because a station can miss rain that fell on your farm, or rain that did not.
Where can I buy index insurance in Kenya?
Most index cover reaches farmers through the government schemes (KAIP for crops, DRIVE for pastoralists) and through seed, fertiliser or credit providers that bundle it. A few insurers also sell weather or area-yield crop cover directly. Tell us your crop, county and acreage and we will check what is available.
Not sure index cover is enough?
Tell us what you farm and where. We check which index covers reach your county and where indemnity cover should fill the gap.
Licensed by IRA · No obligation · We reply within 1 hour
Sources (9)
- Insurance Act (Cap 487), s.2, as amended by the Insurance (Amendment) Act
- ILRI, with the State Department for Livestock
- State Department for Agriculture, KAIP presentation (March 2024)
- National Agricultural Insurance Policy (December 2023)
- UC Davis / ILRI policy brief on IBLI
- IGAD Centre for Pastoral Areas, case study
- EY Global Tax News, 11 February 2026
- ILRI (March 2020)
- Insurance Act (Cap 487), s.204A
Facts and published prices checked 18 Oct 2026; last reviewed October 2026 by Naveah Capital. Rates shown are published bands, scheme figures and market estimates before levies, not a quote or a promise. Naveah Capital Insurance Agency is an IRA-licensed insurance agency in Nairobi; this page is general information, and your policy wording decides your cover.
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