Herders in Kenya: Innovating with Insurance

If you're a cattle or goat herder the bulk of any wealth you have is, well, bulky. It's tied up in the animals themselves. This can be a problem because raising livestock is a risky business: you face the possibility of disease, raids from thieves, predators, loss of traditional pasturage, bad weather, etc.

Millions of people still live as herders, moving their stock from one area to another, selling animals when necessary, making a living in this traditional way and relying on strategies for bearing risk that haven't changed much, if at all, in centuries.

Here's a story from the BBC about a new option for herders in Kenya. The program was created by the International Livestock Research Institute. Working with a number of partners, the ILRI has developed a program to insure against the risk of death from drought in Northern Kenya (this is the most substantial risk these herders face).

Using satellite technology, ILRI will help identify areas at high and low risk of drought. Based on this information, policies will be offered with varying premiums to match risk levels. Participants in riskier areas will pay approximately 5.5% of the value of their herd to purchase insurance. People living in less risky areas will pay less. The BBC story points out that although this means that herders might pay upwards of $50 to insure a herd of 10 cattle, a single cow is worth approximately $150, so paying for insurance looks like a good deal.

Hundreds of thousands of animals have died in the recent drought in East Africa and it may be difficult for farmers to find the funds right now to participate, but if they do, this kind of program will help protect them from the hardships of bad weather at the least.

A nice policy innovation, the program currently has financial support from a number of international donors (US AID, World Bank among others). Hopefully it will turn into a sustainable market innovation.

- Karol

(The photo is from ILRI's website).