A Business Evaluation of the Sales and Distribution Model for Index-Based Livestock Insurance in Kenya

This post was written by the 2018 Kenya Student Multidisciplinary Applied Research Team, comprised of Francine Barchett (International Agriculture and Rural Development), Rafia Farooqui (Public Administration), Tara Hammonds (Global Development), and Rabia Zulfiqar (Public Administration). The team was supported by Cornell University’s Emerging Markets Program and led by Research Associate Joanna Upton (Dyson).

“Developing the insurance product was the easy part. The tweaking, monitoring, and adapting – that has been much more complicated.” This, in essence, was what Cornell development economist Christopher Barrett informed us as we began discussing our upcoming Kenya research trip with him. He was right. Since the International Livestock Research Institute (ILRI) formulated Index-Based Livestock Insurance (IBLI) ten years ago, the product has been lauded as a strategy to prevent drought-induced livestock losses among Kenyan and Ethiopian pastoralists. By combining satellite observations of forage conditions with longitudinal livestock mortality rates, it calculates clients’ seasonal payouts. While by and large successful – and already showing evidence of positive impacts on pastoralists’ wellbeings – the rollout of IBLI has faced numerous challenges, as Takaful Insurance of Africa, IBLI’s current private sector partner, can attest.

In 2017, ILRI published a study that pinpointed such challenges specifically related to Takaful’s IBLI agency model, revealing weaknesses in agent incentivization, motivation, community outreach, and communication. The study then suggested alternative agent models that could create a more expansive and efficient insurance agent network. To follow up on ILRI’s recommendations, our SMART Team devoted January 2018 to conducting an evaluation of both IBLI’s current sales and distribution model as well as the viability of alternative models proposed by the 2017 study.

Our project goal was relatively straightforward: identify how to make IBLI’s business model cost-efficient and sustainable. But practically speaking, what did this mean?

Core Challenges

To help identify the scope of our work, we consulted not only the 2017 ILRI study but also met with Takaful management in Nairobi. From both sources, we learned that the Takaful sub-agents, who locally sell IBLI contracts to pastoralists for commission, have a high turnover rate and often lack the education or technology to conduct sales appropriately. On top of that, selling IBLI often entails traveling, which becomes challenging due to the fact that few transport options are available and it is not financially feasible for Takaful to offer transportation compensation across vast distances.

In addition to evaluating IBLI’s current state-of-affairs, our task was to consider the feasibility of introducing new sub-agent types recommended by the 2016 ILRI study. Hence, our fieldwork would involve interviews not only with Takaful’s sub-agents, the lead agents who managed them, and their county coordinators but also with cooperatives and agro-vets. Splitting into two teams, we spent four days tackling Isiolo and Garissa counties, representative regions of Kenya’s Arid and Semi-Arid Lands with significant infrastructural, geographical, and IBLI-related differences. The key challenges we encountered, which vary county-to-county but share some common themes, were:

• Cooperatives (mostly for camel milk) are promising potential sub-agents in one county, but hold less appeal in the other
• Agro-vets were another prospective sub-agent type, yet they do not have as strong a customer network as expected
• Sub-agents’ current 8% commission is insufficient given their travel time and foregone work if they hold another job
• Local monitoring and evaluation of agents does not occur, while the only consistent post-sales meetings happen among county coordinators
• Communication  of the IBLI model is still a priority as many clients do not understand when and why they receive payouts
• Minimal communication, branding, or events are in place to foster Takaful pride or identity in and among employees

With these observations in mind, our team reunited after our fieldwork to brainstorm. As much as we hoped for simple solutions, there could be no such thing, for the problems at hand were complicated and regionally variant. But to summarize, we believe the central issues to be recruitment, talent management, incentives, and outreach.

Recommendations

Recruitment: We argue that for recruitment, standardized hiring criteria (with county-to-county variations) can streamline the hiring process instead of furthering wide sub-agent disparities and under-qualifications. Concerning talent management, we suggest post-sales sub-county meetings so sub-agents can voice their concerns to lead agents, connect with a community of fellow sub-agents, and become involved in a cost-effective monitoring and evaluation process.

Talent management: Talent management could be strengthened with standard operating procedures that differentiate the tasks of sub-agents, lead agents, and county coordinators due to the aforementioned overlap in job duties.

Incentives: While the 8% commission is low, it likely could become sufficient if agents were provided with variant travel and airtime stipends instead of having to cover such costs out of pocket. Additional incentives could include Takaful merchandise to inspire a sense of belonging to Takaful, as well as a graduated incentive structure that rewards high and consistent sales and encourages agent retention.

Outreach: Additionally, we encourage instituting Takaful ID cards, which could promote brand identity while establishing a sub-agent’s legitimacy among pastoralists. Above all, we stress that more community awareness must be promoted, and as pastoralists become educated about the IBLI product, Takaful’s long-term costs will decrease.

An overarching theme in our findings is the essential role of technology and partnerships in making IBLI cost-effective and efficient. Leveraging radio networks and social media while improving Takaful’s mobile application platform are steps that could aid in streamlining IBLI and reducing in-person interaction costs. Realistically, technology could assist in the entire value chain process, from pre-recruitment to agent training and post-sales evaluations. In regards to partnerships, Takaful recently won the contract for the first government livestock insurance scheme in Africa, the Kenya Livestock Insurance Program (KLIP). Now as the national face of livestock insurance, Takaful can not only leverage partnership with KLIP but also explore partnerships with private companies in technology, insurance, and elsewhere.  

During our final week in Kenya, we presented our findings to Takaful management and the IBLI-ILRI team and received positive feedback, along with concerns over standardization procedures and the practical implementation of some recommendations. With that in mind, while we pursue publishing our report and case study, we look forward to engaging with ILRI, Takaful, and other interested parties on feasible ways to strengthen Takaful’s IBLI agency model. We do it with the confidence that IBLI – as not a panacea, but one piece of the larger development policy puzzle – has the potential to help reverse pastoralist poverty not just in eastern Africa but across and beyond the continent.