Competing Expectations in an Index-Based Livestock Insurance Project

Abstract

Despite donor enthusiasm for index-based microinsurance, globally, pilots have struggled to realise its promises. This paper considers the Kenyan Index-Based Livestock Insurance pilot, investigating the competing expectations held by actors including (re)insurers, researchers, donors, NGOs, and pastoralists. We explore expectations’ impacts on partner involvement, project outcomes, sales, and the future outlook for Kenyan livestock insurance. Quantitative analysis suggests early demand and subsequent backlash were not results of systematic mis-selling, but rather stemmed from clients’ unfulfilled expectations of patron-like relationships with insurance partners. We caution against exaggerated expectations of profitability and call for reflection and transparency amidst the embrace of insurance tools.

Acknowledgements

We are grateful for the time and candour of all participants interviewed and surveyed for this work, including private sector insurance staff, NGO partners, IBLI team members, and pastoralists of Marsabit county. Philemon Chelang’a at ILRI contributed to the quantitative analysis; Mohamed Shibia at ILRI was a patient and indefatigable source of institutional memory; Alethea Steingisser at the University of Oregon produced the maps. We thank two anonymous reviewers and the following individuals for comments on earlier drafts and presentations: Andrew Mude, Chris Barrett, Masresha Taye, Christian Berndt, Katie Meehan, Michael Carter, Erin Lentz, the Economic Geography Group at the University of Zurich, and participants in the ADRAS academic workshop in Nairobi in June 2015. The household survey data used in this manuscript are public and freely available at https://ibli.ilri.org/ibli-dataset-information-and-resources/. All code is available from the corresponding author upon request. IBLI was funded by the Australian and UK governments, and the EU through a UKAID Accountable Grant Arrangement for Index-Based Livestock Insurance, Arid Lands Support Programme, project code 202619-101, and the CGIAR Research Program on Dryland Agricultural Production Systems. Johnson’s work was partially supported by a University of Zurich Forschungskredit award and a Swedish Research Council grant for the project ‘Climate Change and Transformations of Financial Risk’ (2015-01694).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. See the Appendix for definitions of insurance terms throughout the paper.

2. ILRI is a non-governmental research organisation and one of the 15 institutes forming the Consultative Group on International Agricultural Research system.

3. Partners and donors are detailed in the Appendix.

4. Counties were referred to as ‘districts’ prior to the 2013 devolution of government. For consistency, we use ‘counties’ throughout the text.

5. ‘Tropical livestock unit’ is a standardised measure to compare number of animals based on their average metabolic weight.

6. An ‘actuarially fair’ price, calculated using historical records, is the price at which premiums are expected to exactly offset payouts, such that the insurer’s net is zero.

7. KLIP coverage of 5000 households began in 2015 in Turkana and Wajir; Marsabit, Mandera, Isiolo, and Tana River counties were added in 2016.

8. Despite current increasing frequency of droughts, long-term climate models project increasing precipitation over East Africa with climate change (Rowell, Booth, Nicholson, & Good, 2015).

9. Respondents were numbered to maintain anonymity. We report interview data using the respondent number and year in which the interview was conducted.

Additional information

Funding

This work was supported by the UK DfID [202619-101] and the Swedish Research Council [2015-01694].