Joy Agwunobi
As climate risks accelerate across Africa, leaving behind a trail of social, environmental, and economic disruption, traditional insurance mechanisms are increasingly being tested and in some cases, found wanting. In this evolving landscape, parametric insurance has emerged as a fast-rising innovation, offering a model of climate risk management that emphasises speed, transparency, and predictability.
From Ghana to Zimbabwe, and now more urgently in Nigeria, parametric insurance is gaining traction as governments, insurers, and development partners explore more responsive and inclusive ways to protect livelihoods particularly in rural, agriculture-dependent communities.
A recent report by international law firm RPC, titled “Annual Insurance Review 2025”, sheds light on this shift, pointing to a growing consensus: for countries facing extreme weather volatility, traditional indemnity-based insurance may no longer be sufficient. Instead, parametric insurance structured around pre-defined, measurable triggers like rainfall levels or wind speed is proving more effective in delivering timely financial relief to vulnerable populations.
Unlike conventional insurance, which compensates based on assessed damage, parametric policies pay out automatically when specific environmental thresholds are breached. These could include rainfall exceeding a particular level, wind speeds reaching a certain velocity, or floodwaters surpassing pre-set depths. Once the trigger is met, payouts are issued, no claims process or loss assessment needed.
According to the RPC report, this model significantly reduces delays in financial support after climate-related events. “The fact that the policies respond when a predetermined trigger is reached, as opposed to indemnifying insureds based on their assessed losses, means that payments under the policy can be provided more quickly, thereby reducing the disruptive effect of extreme weather events,” the report notes.
This speed and predictability are especially critical in agriculture, where delays in financial recovery can result in cascading losses, missed planting seasons, depleted savings, and heightened food insecurity.
RPC’s report highlights Ghana as a notable example, where insurers have collaborated with flood risk management firms to roll out parametric products specifically for flood-prone communities. These initiatives are not merely pilots; they represent a shift in how insurers are thinking about risk in the age of climate volatility.
Elsewhere in southern Africa, the report notes that Malawi, Mozambique, Zambia, and Zimbabwe have also embraced parametric drought insurance, often in collaboration with sovereign risk pools and multilateral development institutions. These policies aim to protect both governments and rural populations from the economic shocks of prolonged dry spells, which have become more frequent due to shifting weather patterns.
“Increasing frequency of extreme weather events across Africa suggests that the importance of parametric insurance in protecting vulnerable communities and the agricultural sector will remain a prominent theme in 2025,” RPC concludes.
For Nigeria, these examples are more than case studies, they are signals of what could be possible with coordinated strategy and investment.
The 2025 rainy season has already left its mark on the country. Starting in April, torrential rainfall swept across multiple states, triggering widespread flooding. Among the worst-hit areas was Mokwa in Niger State, where a devastating flood in May displaced hundreds of families, damaged infrastructure, and destroyed over 10,000 hectares of agricultural land.
The disaster, attributed to unusually heavy rainfall and the collapse of a nearby dam, crippled the region’s farming economy. Mokwa serves as a key trade corridor linking northern produce markets, especially beans and onions—with southern cities. The disruption has had a domino effect, impacting food prices, supply chains, and rural incomes.
This mirrors previous years’ flood cycles, which have routinely inflicted billions in economic damage, displacing communities and decimating agricultural output. Yet despite the frequency and severity of these events, insurance coverage especially among smallholder farmers remains alarmingly low.
The urgency of climate adaptation through financial tools like insurance comes at a pivotal moment for Nigeria’s insurance ecosystem. The Nigerian Agricultural Insurance Corporation (NAIC), which plays a key role in crop insurance for farmers, recently underwent a leadership transition, with Yazid Shehu Umar Danfulani stepping in as managing director. At the regulatory level, the National Insurance Commission (NAICOM) under the stewardship of Olusegun Ayo Omosehin is tasked with driving reform and expanding insurance access.
Together, these developments present an opportunity to reevaluate Nigeria’s risk management strategy in light of rising climate threats. While traditional insurance models have been the industry standard, experts say parametric approaches could offer faster and more reliable coverage particularly in regions where infrastructure for detailed damage assessments is limited or nonexistent.
Despite its promise, the adoption of parametric insurance in Nigeria is not without challenges. Low insurance penetration, especially in rural areas, continues to hinder access. According to industry estimates, less than 3 percent of Nigeria’s population has any form of insurance, and even fewer are covered for agricultural or climate-related risks.
Moreover, awareness about the existence and functionality of parametric insurance is still limited among smallholder farmers, many of whom rely on informal safety nets or government aid when disaster strikes.
However, these challenges also represent an opportunity. With the right policy frameworks, public-private partnerships, and investment in data infrastructure such as satellite weather monitoring and local risk modelling Nigeria can tailor parametric products to its unique environmental and socio-economic conditions.
The RPC report acknowledges this, noting that while direct transplantation of insurance models across borders is rarely feasible, “the underlying principle remains consistent: the need for responsive, inclusive, and climate-smart insurance products.”
The urgency of this shift is underscored by a recent analysis in The Economic Times, which explores the limitations of traditional insurance frameworks. “Traditional insurance has long been the backbone of risk management,” the article states, “but in an era of unprecedented change, traditional policies sometimes struggle to meet the demands of rapidly evolving risks.”
Parametric insurance, the piece argues, introduces a model “built for speed, transparency, and operational efficiency,” making it well-suited for today’s fast-moving risk environment.
As Nigeria and other African nations confront increasingly unpredictable climate patterns, the conversation is evolving—from whether to act, to how quickly, creatively, and collaboratively action can be taken.
Nigeria’s road to climate resilience will require more than insurance alone. It demands a comprehensive approach that links risk financing tools like parametric insurance with broader policy goals agricultural modernisation, rural development, and financial inclusion.
For the insurance industry, the imperative is to innovate. For regulators, to enable. For the government, to lead by aligning national disaster preparedness with scalable financial solutions. And for development partners, to support these efforts with technical and financial resources.
The models from Ghana, Zimbabwe, and other African countries offer valuable lessons not as templates, but as blueprints for what is possible.
Climate events may be inevitable, but their most devastating consequences are not. With foresight, investment, and the right insurance tools, Nigeria can shift from reactive relief to proactive resilience one parametric policy at a time.
