Herders in northern Kenya who suffered large cattle losses during recent droughts are to be offered livestock insurance in a pioneering project that uses satellite imagery of available grazing to determine when payouts occur.

The scheme, billed as a world first by the International Livestock Research Institute, is being launched today in the arid Marsabit district. Pastoralists in Marsabit keep more than 2m cows, camels, goats and sheep, worth an estimated $67m, but currently have no way of rebuilding herds decimated by starvation because of the lack of the grazing after rains fail with increasing frequency.

While there have been 28 droughts in the area over the past century, four have struck in the past decade alone, causing significant animal loss and pushing many families towards poverty.

Previously, insuring livestock for pastoralists has proved near impossible due to the difficulty of verifying the death of animals over a wide and remote area. But ILRI said it has found a way around the problem with a scheme that pays out not on death but when satellite imagery shows that available forage is so scarce that animals are likely to starve.

Under the new scheme, which will be administered by local firms Equity Bank and UAP insurance, around a thousand farming households are expected to pay between 3.25% and 5.5% of the value of their herds to insure them for a year. For a cow the cost would start at £3.25 an animal, for a goat or sheep 33p. Payouts will depend on the predicted mortality levels.

To build the insurance model, which was developed together with several US universities and local officials, ILRI researchers collected satellite images of plant growth in Marsabit since 1981 from the Normalised Difference Vegetation Index, a global database updated by Nasa and the US National Oceanic and Atmospheric Administration. The information was combined with data on livestock deaths in Marsabit since 2000 to produce a programme that can reliably predict when a reduction in grazing will lead to animal deaths.

There will be two potential payouts each year based on satellite images at the end of the long dry season in September, and the short dry season in February. ILRI said that the policies could also be used by herders as collateral to buy food or drugs to help their animals survive difficult periods.

"Insurance is something of a holy grail for those of us who work with African livestock, particularly for pastoralists who could use insurance both as a hedge against drought – a threat that will become more common in some regions as the climate changes – and to increase their earning potential," said ILRI director general Carlos Seré.

If successful, the project is expected to be expanded to other parts of east Africa.