World Bank, Swiss Re backed Kenya livestock index insurance pays out

An index-based livestock insurance program in Kenya, which was launched with the backing of the World Bank and with reinsurance from Swiss Re, 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.

“This is the largest livestock insurance payout ever made under Kenya’s agricultural risk management program and the most important as well, because without their livestock, pastoralist communities would be devastated,” commented Willy Bett, Cabinet Secretary for Kenya’s Ministry of Agriculture, Livestock and Fisheries. “This insurance program is not just an effective component of our national drought relief effort. It’s also a way to ensure that pastoralists can continue to thrive and contribute to our collective future as a nation.”

Esther Baur, Director, Swiss Re Global Partnerships EMEA, added; “KLIP provides an important safety net to Kenyan herders who for centuries have grazed their animals across vast stretches of arid and semi-arid lands. The programme highlights Kenya’s pioneering role in providing financial drought protection for its people. This public private partnership combines local engagement and expertise with global financial strength and we see it as a role-model for the rest of Africa, and beyond.”

“The government and its partners have brought the latest technological and financial tools from a group of committed and innovative private sector players to functionality. The payouts prove that the program is delivering a financial safety net where it is most needed,” explained Lovemore Forichi, Swiss Re’s Head of Agriculture Reinsurance Africa.

There is so much buzz and noise about technology in insurance right now, with the Insurtech wave driving change throughout the sector.

Examples like this show how technology can drive real benefits to the people who need it most. With satellites sensing conditions on the ground, data being analysed to derive payouts under the insurance policy and policyholders receiving payouts directly to their mobile phones being about as cutting edge as insurance can get (so far).

It’s also a great example of reinsurance capital supporting another weather linked insurance program in emerging economies, opportunities that the likes of Swiss Re and other reinsurance capital providers are likely to find increasingly attractive ways to put capacity to work in future.