Livestock insurance: The new growth frontier for insurers

When you think of insurance, images of shiny skyscrapers, towering buildings, and large superhighways filled with cars often come to mind.

You may picture important-looking men and women in suits, bustling through the big cities.

Traditionally, insurance has meant coverage against theft, car accidents, or fire damage to buildings. These were once the cornerstone of the industry, the bread and butter for insurance companies. But that era is fading. While these traditional forms of insurance remain important, a newer, more innovative, and impactful class of insurance is emerging—and it’s transforming the industry.

This new type of insurance is coming to life in a completely different setting from the urban visualisation above.

At the heart of this new form of insurance are donkeys, cows, sheep and goats being heralded to pasture as well as a few scrawny chickens roaming around the homestead. Thanks to it, pastoralists in Tana River County in the country’s northeast are beginning to tell a tale that is radically different from the usual story of harsh relentless sun, drought, famine and death of livestock.

These farmers are beneficiaries of an innovative new support programme spearheaded by the government in partnership with private sector players and several aid organisations.

The programme aims at developing the beef and leather value chain to create jobs and enhance livelihoods, particularly in the arid and semi-arid lands (ASAL) counties.

Through the initiative, beef producers in these regions will access government insurance premium subsidies and savings incentives coordinated by ZEP-RE, formerly known as the PTA Reinsurance Company. The livestock sector contributes over 10 per cent and 40 per cent of Kenya’s and agriculture sector’s GDPs respectively, making it a timely intervention as the country emerges from a period of prolonged drought.

“Kenya is home to over 18 million cattle, 18 million sheep, 28 million goats, and three million camels with about 60 per cent of the households (about seven million) keeping some livestock that includes over 30 million poultry and over 300,000 pigs,” says the PS State Department of Livestock Development Jonathan Mueke. Access to valuable markets remains a key challenge for most livestock producers, especially in the beef value chain.

To address this, PS Mueke says the government has opened export opportunities in several countries and is working on strengthening the livestock value chain competitiveness by identifying and addressing the bottlenecks faced by producers and other market actors.

He further notes that the government is also committed to developing the country’s local beef market and leather industry by streamlining the entire leather value chain through numerous initiatives. This initiative is part of a World Bank-funded project commonly referred to as DRIVE (De-risking Inclusion and Value Enhancement of Pastoralist Economies).

The project aims at ensuring that livestock production is economical and sustainable for value-chain actors.

DRIVE is a national government initiative implemented in partnership with county governments in a public-private partnership model. It approaches the value chain development in two ways.

The first and most critical intervention aims at cushioning pastoralists against the impact of drought on grassland fodder and stockpiling and building fodder-saving buffers to respond to period mild climatic shocks and increase the bankability of the affected populace.

This is achieved through insurance, which is meant to support the pastoralists to access timely funds from insurance pay-outs to finance livestock fodder purchases and also to finance livestock health needs during times of drought.

To date, ZEP-RE, the Horn of Africa implementing agent for this component, has coordinated 14 insurance companies, or underwriters, in Kenya and seven international reinsurers to cover close to 140,000 pastoralists in 12 counties, which are prone to drought.

Insurance payouts totalling Sh640 million have already been paid out to pastoralists in the affected areas even as the country witnessed good rains in recent times. With climate change becoming a bigger and bigger concern for agriculture and businesses, insurance will become more critical than ever.

Many farmers relate how they have seen the seasons change from the prevailing good rainfall to poor rainfall without warning, like was witnessed in the last drought cycle where over 2.5 million livestock valued over Sh100 billion was lost.

“During the drought, our livestock died. You know that for us pastoralists, the livestock is our bank account. When our livestock is adversely affected by drought, it is like we have lost that account and are hopeless,” says Asna Ware Diba, a pastoralist from Tana River County.

The other component of DRIVE will aim at unlocking access to capital for farmers like Diba by opening up access to ready markets. This will be done through working with partners like Kenya Development Corporation (KDC) and Agricultural Finance Corporation to support aggregators and independent players along the beef and leather value chain to make other aspects of the beef value chain market-ready.

Access to high-value domestic and export markets is a major component of the project as well as developing the leather value chain.

To enhance the impact, the government is undertaking an entire value chain approach under the DRIVE project.

“The government is supporting the route to market function optimally so that value can be delivered at all levels of the beef and leather value chains,” says PS Mueke. He further notes that pastoralists will be accessing local and export markets through cooperative aggregation models, common in the dairy sector.

“This model does not only deliver more value to pastoralists but ensures the cost of doing business by market actors like local abattoirs and exporters is optimised,” says Mr Mueke. Besides the aggregation of pastoralists in cooperatives, livestock traceability systems development is underway to identify livestock and reduce theft, enhance food safety and strengthen Kenya’s competitiveness globally. The DRIVE project has already insured over 500,000 livestock herds to help pastoralists organise themselves into groups to easily access services and markets.

One such opportunity is the use of Community Mobilisers (individuals nominated by active pastoral producer groups or cooperatives) to undergo training at the ZEP-RE Academy in partnership with the State Department for Livestock and County governments. “We aim to enhance access to financial services like insurance and credit as well as livestock markets through the promotion of an aggregation model that ensures value is retained at the community level” says ZEP-RE Chief Executive Hope Murera.

She notes that the use of larger groups and the cooperatives model is critical in ensuring pastoralists, including women and people with disabilities can be served by the market efficiently where access to the factor of production and market functions like logistics are coordinated at the cooperative level.