Andrew Mude, a Kenyan economist, has a way of explaining satellites. When he’s talking to pastoralists in his country’s north — people who roam the earth with a dozen head of cattle and very little else — he talks about the stars that don’t act like other stars. “They’re actually taking pictures of the ground,” Mude says. Herders, a stargazing people, understand.
Mude has figured out a way those fake stars can help. They can make it easier to assure rural Africans that they can survive a drought.
Because of climate change, life has become harder each year for pastoralists. What used to be every-five-year droughts now come every other year. Each time, they leave the land more parched, with less water and grass for forage. And pastoralists have nothing to fall back on when their animals die.
Wherever land cannot grow crops — it is too cold, too dry, too mountainous — people keep animals. More than 100 million of the world’s poorest live this way. Among the 50 million pastoralists in sub-Saharan Africa, the average income is $2 per day and dropping.
What can help them?
Historically, poor herders could never insure their livestock. The transaction costs were absurd. No agent could afford to take an all-terrain vehicle across vast expanses of roadless, arid lands to find a nomadic pastoralist and certify that a $140 cow had died.
But satellite technology has changed that. Satellites can tell us how much vegetation is on the ground. And we know how to use the density of ground cover to predict whether animals will starve. And that now allows herders to buy pre-emptive health insurance for their animals: At the end of a rainy season, they get a payment in time to buy fodder, water or veterinary services that will keep their cattle alive when a catastrophically bad dry season is foreseen. That’s cheaper and better than life insurance, which pays them after the cattle die.
Insurance that pays out when forage coverage drops — known as index-based livestock insurance — is an elegant idea. No all-terrain vehicles are necessary.
Mude, who earned his doctorate at Cornell, is an economist and principal scientist at the International Livestock Research Institute in Nairobi. Last month, he was awarded the Norman Borlaug Award for Field Research and Application. The award, a major prize in agricultural research, is given by the World Food Prize Foundation and financed by the Rockefeller Foundation.
Mude’s program began in one Kenyan county in 2010. Today, about 16,000 families are insured; most are in Kenya, and some are in southern Ethiopia.
The insurance works. It is associated with fewer distress sales of livestock, more milk production and household income from milk, better child nutrition and less stress. Compared with Kenya’s standard anti-poverty program, which is based on cash transfers, insurance is much more cost effective to scale up.
Insurance may also help even pastoralists who are not insured. When forage dries up, a whole region is hit at once. So insurance providers inject needed cash from outside reinsurers, and the resulting economic activity can lift everyone.
Commercial insurers sell the livestock insurance. But the government is trying to spread this approach by beginning to shoulder some of the cost of premiums. Kenya expects to cover 80,000 households by 2019 in the Kenya Livestock Insurance Program. But that’s a tiny percentage of households that need it, and the program will cover only five cows per household.
Mude said that numerous governments in Africa and parts of Asia have contacted him, eager to try the idea. So it’s worth looking at how Mude and his collaborators overcame some of the toughest problems — and what still needs to be solved.
Insurance is an unfamiliar and untrusted idea to herders.
Herders get risk mitigation. “Even though some cannot write, they remember livestock dynamics for the past 10 or 20 years,” said Mude. “They’re very clear about their key risk and receptive to an idea or service that could help them minimize risk.”
What’s harder is helping them understand that they should buy an invisible product that is likely to produce no financial benefit — and they should do it season after season.
Researchers developed picture books, comic books, videos and radio shows to explain the insurance. Christopher Barrett, a prominent agricultural economist at Cornell University (he’s been on The Daily Show!) who works closely with Mude, said that the group would come into a village, gather farmers, and explain the idea by leading them through a game of drawing chips from bags to determine who had losses, felling little toy plastic cows.
When forage fails, the insurance pays out, which helps explain the product and build trust. Some payments were awarded in ceremonies to garner maximum publicity. “It was not an empty promise,” one pastoralist, Abdi Adan Bulle, said at a ceremony in Wajir, in Kenya’s northeast.
Shariah and insurance.
Many pastoralists in the Horn of Africa are Muslim. But Shariah, or Islamic law, objects to the selling of risk, which can be considered the foundation of insurance.
Shariah-compliant insurance, however, has existed for 16 centuries, and now it includes cattle. The biggest commercial seller of Kenya’s livestock insurance is Takaful Insurance of Africa, based in Nairobi. Takaful, a word that comes from“mutual guarantee,” in Arabic, is a form of insurance that puts premiums into a fund belonging to customers, to be paid to those who suffer losses. Instead of selling their risk, members are considered to be insuring themselves. A separate pot of money pays shareholders for managing the fund. “It’s not so different than how we manage pension funds,” said Hassan Bashir, the founder and chief executive of Takaful Group.
The company insures against every kind of loss, but livestock insurance is close to Bashir’s heart. He was born in Wajir — he doesn’t know exactly when — in a pastoral family. His father still lives there and owns 150 head of (insured) cattle. Bashir himself still owns cattle and goats as investments.
Commercial profitability? Not soon.
Insurance relies on the laws of large numbers. There is probably no bigger challenge in the insurance business than finding large numbers of customers among impoverished, uneducated, nomadic pastoralists.
“We don’t have to find them to verify the animal loss,” said Bashir. “We don’t even need to know if animal died. But we do have to sell them the policy and find them for payout.” Using agents to do that didn’t work very well, he said; Takaful sold only about 120 policies per season.
Then the company did something different: It provided village shopkeepers in pastoralist areas with training and low-end Android smartphones with which to do most of the work. “You press a picture of a cow when you want to insure a cow. It asks for the number, and the back end calculates the premium,” Bashir said.
“Then we started selling 2,000 to 3,000 policies,” he said. Using familiar, respected storekeepers who won’t be going anywhere as Takaful’s agents increased confidence.
Richard Kyuma, coordinator of Kenya’s government program, said the program’s purpose was to set the stage for unsubsidized private insurance. “We’re identifying a very small number of people and covering very few animals,” said Kyuma. “We want to tell people this can work, and can be used as a way of mitigating against drought. Then we will pull out slowly, and in two or three years we will have weaned them totally to commercial insurers.”
This seems unrealistic. Many farmers will never buy insurance if they must pay. And without widespread acceptance, this insurance has no chance of becoming commercially viable. “Break-even depends on insuring a million animals and above,” said Bashir. “We’re at slightly over a tenth of that — so not even near it.”
An imperfect index.
Satellites can tell you how much vegetation is on the ground, but they can’t identify the type. Some of it is stuff animals don’t eat. Mude is trying to solve that problem by crowdsourcing — asking herders to send photos of vegetation.
The bigger problem is that satellite data on forage cover is only a proxy for animal death. Mude has spent years looking at actual animal death, comparing it with ground cover data to see what correlates. Nevertheless, forage data will never be a perfect proxy; in insurance-speak, that’s called a high basis risk. “There can be rain in one area and none a kilometer away,” said Barrett. “If it’s uncorrelated, it’s a lottery ticket, not an insurance policy. Andrew and I for half a dozen years have had the conversation: how do we make sure we’re selling insurance and not lottery tickets?”
This is a problem for the government program, Kyuma said. “There are areas where some locals are saying you should be paying, but the model is saying ‘no, it’s not the time to pay,’” he said. “If people are stressed and yet this product is not responding, then we can be in a terrible fix.” He said the government was working with the World Bank to improve the model’s ability to predict animal death.
If livestock insurance spreads to new regions of the world, each will have to begin from scratch to gather data. That means even more basis risk, at least initially. “Trying to meet demand for scale without reducing the rigor of careful design — this is a particular challenge for us,” said Mude.
But even a flawed model has created real improvements for policy holders. “It doesn’t do away with drought risk, but it still works,” said Barrett — to keep children betternourished and alive, to improve the well-being of families. “You can demonstrate real benefits.”
Tina Rosenberg won a Pulitzer Prize for her book The Haunted Land: Facing Europe’s Ghosts After Communism. She is a former editorial writer for The Times and the author, most recently, of Join the Club: How Peer Pressure Can Transform the World and the World War II spy story e-book D for Deception. She is a co-founder of the Solutions Journalism Network, which supports rigorous reporting about responses to social problems.