An index-based livestock insurance program in Kenya, which was launched with the backing of the World Bank and with reinsurance from Swiss Re (OTCPK:SSREF), has been triggered and will pay out $2 million to farmers hit by drought.

The index insurance product utilises satellite technology to monitor and measure the state of vegetation available to livestock, particularly looking for the effects of drought, with payouts being made based on the index data when drought becomes particularly severe and the livestock's health are at risk.

The Kenya Livestock Insurance Program (KLIP), launched in 2016, was developed by Kenya's Ministry of Agriculture, Livestock and Fisheries, with technical assistance from the International Livestock Research Institute (ILRI), the World Bank Group, and Financial Sector Development (FSD) Kenya. The project is now part of the Kenya governments national drought response strategy.

Global reinsurance firm Swiss Re provided the capacity to underpin the program, with the insurance coverage offered as part of a public-private partnership between the Kenya government and seven insurers: UAP, CIC, Jubilee, Heritage, Amaco and Kenya Orient, led by APA Insurance.

The payments to livestock owners are expected by the end of this month (February 2017) and the amounts to be received are based on the vegetation conditions, according to the index of satellite data.

Kenya's drought in 2016 was the worst in 16 years and payouts are now due to over 12,000 pastoralist farmers.

The average payment will be $170 per household, which is said to be enough to support 70,000 tropical livestock, largely cows, goats and camels, which sustain approximately 100,000 people across the counties of Turkana, Wajir, Mandera, Marsabit, Isiolo and Tana River in Kenya.

Payments are made either directly into farmers bank accounts, or can be made via mobile phone accounts using M-PESA technology a popular mobile money alternative, with cheques available to those who do not have accounts.

In order to derive the index, satellites record the colour of ground cover vegetation using both visible and infrared frequencies, then by comparing the differences between the two the data can establish whether there is enough green food available for cattle to eat. If there isn't, then the index insurance product is triggered, as has happened this year.