De-mystifying
Livestock Insurance - Conventional & Index-Based Livestock Insurance
Livestock Insurance is a
relatively new concept in Kenya but, is being considered seriously by farmers.
Initially, farmers have been skeptic but, this is changing.
Farming is a high risk
business; Farmers are actively involved in Risk Management on a day-to-day
basis and, they try to mitigate those risks using various methods. Risk has
various components
Livestock Insurance is a
relatively new practice in Kenya. Some farmers are curious but skeptical, as
they are not sure whether livestock insurance is an "intellectual
exercise", a fad or an effective risk mitigation tool.
What is Livestock
Insurance?
Livestock are domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. Livestock
are generally raised for profit. Raising animals (animal husbandry) is a component of modern agriculture. It has been practiced in many cultures since the
transition to farming from hunter-gather lifestyles.
Livestock
Insurance that provides a lump sum benefit to the insured if an animal listed in the policy dies from one of the perils specified in the contract.
General insurance cover is offered for short periods, usually one year. Most schemes cover large animals from six months of age to the economic lifespan of the animal. It is important therefore to seek advice from specialists in livestock when insuring livestock.
Livestock
|
Cattle
|
Sheep
|
Goats
|
Camels
|
Donkeys
|
Pigs
|
Indigenous Chicken
|
Chicken Commercial
|
Bee Hives
|
Total
|
17,465,774
|
17,129,606
|
27,740,153
|
2,970,911
|
1,813,213
|
334,669
|
25,756,487
|
6,071,042
|
1,842,496
|
From these figures, we can deduce how
important livestock farming is considering that Kenya is estimated to have a
population of 41 million (2011)
What is covered?
Indemnity, in respect to
the insured’s livestock during the period of insurance, due to death as a
result of:
·
Accidents (lightning, internal and external injuries, windstorms,
snake bites and flooding)
·
Illness and diseases of terminal nature
·
Epidemics (except those arising from Rift Valley Fever or Foot and
Mouth, after declaration by government)
·
Emergency slaughter on advice of a qualified veterinary surgeon
Livestock
Age Limits are applicable, and imply that the farmer must keep good records of
the herd structure.
Calves (Heifers And
Bulls)
|
91 Days - 1 Year Old
|
Heifers Not Inseminated
|
1 Year - 2 Years Old
|
Heifers Pregnant,
Milking Cows
|
1 Year - 5 Years Old
|
Heifers Pregnant,
Milking Cows
|
5 Years - 8 Years Old
|
Bulls
|
90 Days - 5 Years Old
|
Bulls
|
5 Years - 8 Years Old
|
Sheep
|
2 Months - 5 Years Old
|
Goats
|
2 Months - 5 Years Old
|
Pigs
|
2 Months - 5 Years Old
|
Some benefits of
Livestock Insurance
·
Reducing Investment Risk
·
Insurance Policies are acceptable as Bank Security
·
In the event of loss of Livestock bought through a finance
facility, both the farmer and the financing institution don't lose since
insurance pays the loss
- Pastoralists are able to restock animals
lost following a severe drought.
- Insurance policies can be used by herders
as collateral to buy food or drugs to help their animals survive difficult
periods. Livestock insurance can provide herders with the means to obtain
credit from financial institutions that are currently unwilling to lend
due to climatic risks.
- Some insurers add value to this service by joining hands with other stakeholders, such as banks, to create
a market for insurance services. This is by educating farmers on avoiding
risks, ensuring that farmers have loans to do their farming and initiating
the drilling of boreholes in the low rainfall areas.
- Livestock insurance is a risk management
tool for livestock farmers facing frequent or severe drought.
What is not Covered
- The first 10% of the loss for each and every loss
- The first 20% of the loss for theft
- Famine malnutrition and feed poisoning
- Impotence and infertility
- Prior diseases and deformities
- Any death due to neglect and poor husbandry practices
- Transit risks of insured livestock, unless the Insurer has been informed at least 3 days prior to the transportation.
- Losses arising from feed or spray poisoning.
- Death of animal arising from pre-existing conditions.
- Inability of the insured animals to perform the tasks for which it is employed.
- Treatment and vaccination costs.
- Theft of animals in areas prone to cattle rustling and banditry.
- Unaccounted disappearance.
- Losses due to Wildlife attacks are already covered under the Kenya Wildlife Service Act.
What is Required
·
A current veterinary and valuation report from a registered
veterinary surgeon
·
Identification by ear tags, tattoos or any other practical mode
of identification
·
Completed application form and payment of premium
The cover can be extended
to cover theft of animals, transit risks and calving/furrowing risks.
INSURANCE VALUATION
The insurable value of
animals is on an “Agreed Value Basis”
provided to Jubilee Insurance by the insured.
PREMIUM RATING AND EXTENSION
LOADING
The premium rate for
Jubilee Insurance is 5% for individuals and 4% for corporate clients.
UAP Insurance’s premium rate depends on
Livestock type and population. This rate ranges between 3.0% and 6.0% on the
Sum Insured but, subject to a minimum premium of Kshs. 12,500 per farmer.
In summary, the premium rates in Kenya range from 3% to 6%, subject to a minimum premium.
Here’s an overview of how
Livestock Insurance premium rates compare across the globe.
Malawi
|
5.1% of value of cow
|
Zimbabwe
|
2.5%
|
India
|
3.5% to 4%
|
Kenya Marsabit (Index-Based
Insurance)
|
3.25% - 5.5%
|
US
|
2.5% or $33/cow for farm
insurance
|
EXTENSION LOADING
Extension Loading is a
mechanism by which additional risks can be covered.
Extension Premium
|
|
Milk Protection
|
Kshs. 1000
|
Calving/Furrowing Risks
|
10% of the premium
|
Theft
|
20% of the premium
|
Transit Risk
|
10% of the premium
|
BASIS OF CLAIM
SETTLEMENT
Claims Settlement is
fairly standard across Insurance Providers and will basically include, but not
limited to, the following terms and conditions:
- The policy cover for the insured animal(s) must be in force.
- Veterinary Certificate of Loss and a written Post-Mortem Report from a qualified veterinary surgeon must be provided.
- Loss assessment will be based on the value of the animal(s) as proposed in the proposal form, less salvage value where applicable.
- Positive identification of the carcass.
- This policy will not pay for losses arising from negligence on the part of the farmer.
- In the event of loss the Insured must notify the Insurance Company or Agents immediately.
- Disposal of carcass before a postmortem extermination amounts to no loss.
- In the event of theft, the insurance will require a period of 6 weeks to allow for recovery before settlement of loss.
Some of the farming
practices adopted by large dairy farms include a digital photograph of each
farm animal. This is filed with the Cow Card.
IDENTIFICATION
All insured livestock will
be tagged using free Jubilee Insurance Company and other Insurance Companies.
RFID-chipped ear tags are
added for the purpose of identification. The tag remains the property of the
Insurance.
Please note that this RFID
ear tag should be an addition of the normal ear tag which identifies the cow
and gives its breeding information.
Index-Based
Livestock Insurance
Index-Based Livestock
Insurance has been introduced as a pilot project in Northern Kenya through a
collaboration between the International Livestock Research Institute (ILRI),
Equity Bank and UAP Insurance
Conventional insurance
|
Index
based insurance
|
Suitable for independent
(uncorrelated) risk such as a car accident
|
Suitable for correlate(widespread)
risk such as drought
|
Compensation done on
actual losses. The actual losses have to be assessed by claim assessors
before payout is made
|
Compensation is based on the index
reading for a locality such as the predicted livestock deaths for a division
|
Payout process is long,
cumbersome and subject to bias
|
Objective triggers and structured
rules exist. When they occur payment is automatically done
|
Claim is slower
|
Claim is faster
|
Payment made to
individuals according to verified individual loss
|
Payment made to all individuals
within a coverage area as per the index level
|
The Mortality Index is a
computation of Pasture Availability Data, derived from data collected in each County or District.
The sum assured is the value
of livestock insured but not the expected compensation. The expected compensation
is dependent on level of drought severity and a 15% deductible.
Compensation based on the estimated
mortality rates is done automatically if predicted mortality is above 15 per
cent within the specified region. Pastoralists do not have to prove the death of
their livestock. For example if mortality rate is 25%, herders receive
compensation amounting to 10% of the value of the animals they insured
I’ve summarized this
section otherwise it would be an academic exercise.
Important Notice
First Liberty Insurance
Agency (“FirstLiberty Kenya”) is not a “Tied-Agent”. As an Independent Agent,
we are not limited in providing professional services by Board / Group Policies
or Competitive considerations. Our main goal is to ensure that our clients get “the
best deal on the market”, to the best extent possible. For the purposes of this
blog article, we do not endorse products of any one Insurance Provider. Please
seek the advice of a Finance Professional before you make a decision on which
product to pursue.
All the imagery used is
not the property of FirstLiberty Kenya and, is only included to educate people
on financial products.
Sources:
