Livestock insurance, a cash cow?

Livestock insurance, a cash cow?

The livestock insurance industry began turning around some of the devastation that the majority of Kenya’s most vulnerable and poor people faced from widespread annual droughts in 2014. More than three million farming households are regularly hit by droughts in Kenya, which are becoming increasingly severe and which caused estimated economic losses of $12.1bn between 2008 and 2011.

Recent technology has allowed satellite imagery to assess weather damage. Over the last few years “index-based livestock insurance (IBLI)” has been able to provide insured pastoralists across Africa with a pay-out in times of drought, based on predicted rather than actual livestock deaths. This has gone some way towards limiting poverty as droughts hit certain areas of the globe worse than ever before in the creep of climate change.

However, livestock coverages haven’t just been having a hay day (no pun intended) in Kenya. Rob Wells, Markel’s senior underwriter for global livestock, said: “We are seeing more demand for global programmes. Farming businesses with facilities in multiple countries and continents are looking for a complete insurance solution for all their operations.”Due to the far-reaching demand for livestock coverage policies tend to be extremely varied and often bespoke. Markel insures livestock for farmers but equally, “we are just as interested to insure a couple of pandas involved in a zoo’s breeding programme,” added Wells.

“Some of the exciting developments we are seeing are in emerging markets, where meat and dairy industries are growing not only to provide basic protein but also to support the increasing need for high-quality food,” said Wells. There is a long way to go as, according to the US Department of Agriculture (USDA) 870m people around the world do not have a sufficient supply of nutritious and safe food, explains Wells. “The USDA estimates demand for food will rise by 70% by 2050 which, although has its obvious pressures, provides a lot of opportunity for agricultural business,” he said.

So far, the index-based livestock insurance programme has reportedly caused a 50% drop in ‘distress’ sales of livestock to raise cash in times of drought, a 33% reduction in the likelihood of having to eat significantly smaller meals and a 33% reduction in dependence on food aid.

Similar satellite technology to that being used in the index-based livestock insurance programme is been increasingly successfully employed in microinsurance. Microinsurance technology allows farmers to buy cheap livestock insurance via their mobile phone, even if they don’t have a bank account. Satellite technology can then predict weather related damage on a parametric basis. Kenya, Rwanda and Mongolia are three countries in which this has been particularly successful according to Wells.

“Some of the exciting developments we are seeing are in emerging markets, where meat and dairy industries are growing not only to provide basic protein but also to support the increasing need for high quality food,” said Wells. And as USDA figures showed earlier, the future isn’t too bright in terms of finding sufficient food for the planet’s ever-growing population. Wells said: “The USDA estimates demand for food will rise by 70% by 2050 which, although it comes with obvious pressures, provides a lot of opportunity for agricultural business.” There are vast opportunities for agriculture and livestock coverages to get big business as well as lessen world hunger here, he said.

“In Asia we are seeing medium sized farms with total animal values of a few million dollars increasing to tens of millions of dollars in a matter of two or three years. The speed and quality of the increases are exceptional,” said Wells. Many of these farms recruit the best managers and veterinarians from all over the world to make these projects work. They also are importing some of the best animal genetics to build their herds, Wells explained.

China would not previously have been considered one of Asia’s greatest livestock insurance opportunities. However, the main driver to change the agricultural insurance market in China over the past several years has been the government subsidising large proportions of the premium. Consequentially, “China has a relatively new but very large livestock insurance industry,” said Wells.

It is likely that China will be a pocket of exceptional growth for the industry thanks to the government subsidies. However livestock coverage is not just growing in developing markets. “We are seeing solid growth in developed countries such as the UK and the USA,” said Wells. Agriculture and livestock insurance and reinsurance has huge potential as a business line as world population continues to grow and climate change continues to damage food sources. Despite the growth in certain markets though rates have remained generally flat across the last year, according to Wells. “The livestock market is so varied; from insuring cattle farms in Poland to stables in South Africa, and each area has different forces affecting pricing. However, taking the global market into account I would say rating is flat,” he explains. 

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