Pastoralists in Kenya receive insurance payouts in the event of extreme weather that threatens the survival of their livestock © Jeff Haskins
Pastoralists live precarious lives with extreme weather, such as drought, posing a potentially fatal threat to livestock – often pastoralists’ only asset and income source. To buffer livestock keepers from these risks, insurance schemes such as the Kenya Livestock Insurance Programme (KLIP), introduced by the government in July 2014, are starting to have an impact. As a result, the World Bank and the International Livestock Research Institute (ILRI), which both helped to develop the programme, have received enquiries from countries – including Mauritania, Mali, Niger, Senegal, Somalia, South Africa, Uganda, Zambia and Zimbabwe – that are looking to introduce their own livestock insurance schemes.
But, what do these countries need to bear in mind in order to develop their own sustainable livestock insurance scheme?
Consider an index
Insurance that is based on an index – for example, temperatures or rainfall measurements in an area – rather than an event, such as an animal’s death, prevents loss adjusters from having to visit herders. This makes the product cheaper and easier to scale up, and can lead to improved pastoral practices.
For example, under the World Bank-supported Mongolia Index Based Livestock Insurance Project, herders worked hard to feed and sustain cattle even in temperatures so low that they were due a payout to cover their likely death. Diego Arias, lead World Bank agriculture economist, points out that insurance paid out only when an animal actually dies would not have created this incentive.
Arias also points out that Caribbean insurers tend to have more appetite for index-based insurance that is triggered by a catastrophe, such as a hurricane or earthquake, which would inevitably leave farmers with losses. Payouts under such catastrophe schemes could help prevent farmers with both crops and livestock from having to sell animals if a disaster strikes.
For the KLIP scheme, the level of available vegetation for forage during the rainy season is assessed using satellite data; when the level falls below a certain point, farmers receive a payout to buy food, water or veterinary services to keep livestock alive.
Create awareness and involve aggregators
However, for programmes to be sustainable, scaling up is key, which requires more awareness creation as insurance is a new concept for most pastoralists, says Richard Kyuma, KLIP’s programme coordinator at Kenya’s State Department of Livestock. KLIP currently covers 18,000 households, or 90,000 animals, and as the programme continues to raise awareness of the benefits of insurance, it aims to increase its cover to 50,000 households by the end of 2018.
Channelling insurance through banks, traders, farmer organisations or other aggregators should also help livestock programmes grow, and KLIP is reviewing options in this area as it prepares to reduce its subsidisation from April 2018, says Caroline Cerrutti, senior World Bank financial sector specialist. This has already worked with the Kenya National Agricultural Insurance Program, whose number of policies is expected to increase from 2,000 to 200,000 within a year of insurers partnering with aggregators to sell crop insurance in a bundle with credit.
Target government resources
For any livestock insurance programme to work, public and private sector support is essential, states Andrew Mude, principal economist at ILRI. Even in developed countries, agricultural insurance is often subsidised. To be sustainable though, subsidies must reduce over time, says Cerrutti. The Kenyan government initially subsidised 100% of pastoralists’ premiums under KLIP, covering each household for five calves. In 2018, voluntary top-ups will be introduced under which households can opt to pay premiums to cover an additional five animals.
However, to help support livestock insurance, governments with limited financial resources should focus more on creating legal and regulatory frameworks and gathering data needed for index-linked products or building information systems for probabilistic analysis, says Arias. Countries looking to implement livestock insurance also need a relatively advanced insurance and re-insurance industry and a supportive regulator, emphasises Cerrutti.
Enrol the right insurers and adapt the model
Scaling up requires the involvement of as many insurers as possible. For this reason, Mude recommends against working with any insurer that demands exclusivity. Insurers’ ability to make fast payouts is also critical, especially for products aimed at preventing livestock death. Even in Kenya, where the mobile money market is relatively advanced, some KLIP payouts due in August 2017 have still not been made, Kyuma admits.
Factoring in the risks faced by insurers and government sponsors, as well as their appetite and available resources, relies on a finely calibrated model for insurance to work. One size will not fit all. So while KLIP’s model may already be benefiting pastoralists in Kenya, it is work in progress. New countries must first assess the unique risks faced by their herding communities as well as their needs. This will take time.