Slow agric insurance uptake weighs on Nigerian economy
BY ONOME AMUGE
Nigeria’s agriculture sector has for several decades served as one of the country’s most prosperous income-generating sectors, accounting for the largest employment of labour, with an employment percentage of 34.66 percent in 2020, according to development indicators presented by the World Bank.
However, the sector is considered vulnerable to financial and economic losses owing to several factors, from insecurity to flooding, farming hazards, climate change, and other worrisome conditions that have hindered production, resulting in poor cultivation and losses.
According to a Climate Action Digest report, Nigeria is the 55th most vulnerable country to climate change and 22nd least ready, with climate change projected to cost 6 percent to 30 percent of the country’s GDP by 2050, translating to $100 billion-$460 billion in losses, and a big dent to the development of the agriculture sector.
It would also be recalled that in September 2020, farmers in northern Nigeria lost over 2 million tonnes of rice, a quarter of the country’s projected harvest, to flooding. Kebbi, the country’s biggest rice producing state that had hitherto projected 2.5 million tonnes in 2020, also suffered heavier-than-expected rainfall which washed away more than 1 million tonnes of rice from smallholder farms.
The aforementioned challenges, amongst others, have consequently spelt the need for the government, financial institutions and stakeholders in the agricultural value chain to intensify efforts to provide agricultural insurance policies as indemnification for financial losses incurred by farmers due to damages or unforeseen disasters such as disease outbreak, fire outbreak and permanent disability or death of the farmer.
Financial experts in the agric space have also underscored the role of insurance as a well-established and effective tool for increasing farmers’ resilience in the face of various production risks.
Baron Omiji, head of agriculture insurance at Anchor Insurance Limited, explained that agricultural insurance is an institutional response to mitigate financial risk faced by farmers in the course of operation.
Omiji described agricultural insurance as a more efficient instrument and an effective mechanism for dealing with losses in agro-business, saying there is an insurance cover for every stage of agriculture including crop and animal production, processing and marketing of commodities.
He added that farmers who buy insurance premiums for their agriculture businesses are more advantaged in the business as agric insurance also offers advisory roles to farmers and agribusinesses on the most effective methods to manage their businesses and avoid losses.
The Nigerian Agricultural Insurance Scheme (NAIS), since its establishment in 1987 by the Ibrahim Babangida military regime, has served as a wholly-owned federal government insurance company specifically designed to provide agricultural risks insurance cover to Nigerian farmers.
Some of the major objectives of the scheme include providing financial support to farmers in the aftermath of the occurrence of natural hazards attributable to climate change, stimulate the provision of credit by financial institutions to investments in agriculture, and minimize the need for the provision of ad‐hoc assistance by the federal government in the event of the occurrence of natural disasters that may adversely affect investments in agriculture.
In order to ensure better implementation of NAIS objectives, the Nigerian Agricultural Insurance Corporation (NAIC) was established in 1993 as the executing agency of the scheme. Information gathered from the organisation showed that between 2015 and 2020, a total of 1,276,917 farmers were captured under the insurance cover, while claims totalling N2,403,039,409.38 were settled in the period under review.
Bashir Tijjani Babajo, executive director of operations, NAIC, explained that the insurance premiums offered to farmers are subsidised in such a way that the farmers pay only 50 percent of any insurance premium, while the federal and state governments make payments on behalf of the farmers in the ratio of 37.5 percent and 12.5 percent, respectively.
Aside from NAIC, underwriting firms such as AIICO Insurance Plc, Anchor Insurance Limited, Leadway Assurance, Linkage Assurance, Prestige Assurance Plc, Royal Exchange Plc, among others, are currently offering agric insurance products to deliver the much-needed protection to the different players in the agricultural value chain.
Heifer International, a global nonprofit working to eradicate poverty and hunger through sustainable, values-based holistic community development, has also played a prominent role in fostering agriculture insurance in Nigeria by collaborating with PULA, an agricultural insurance and technology company, as well as OLAM and Leadway Assurance Limited, to cover the hazards shared by a large number of farmers across the country.
To foster its insurance plan, Heifer introduced Area Yield Index Insurance (AYII) to Nigerian farmers. The insurance scheme, according to the organisation, is expected to raise awareness for farmers on the benefits of insurance and also attract more financiers to the sector to improve financial resilience for millions of farmers.
Heifer, citing research carried out by PULA, said AYII had helped smallholder farmers in countries facing climate change risks to increase their resilience to shocks, increase investment by 16 percent, improve yields by 56 percent and increase household savings by up to 170 percent.
It also said that 4,358 smallholder rice farmers in Benue and Nasarawa States who suffered losses due to poor weather conditions, pests and diseases during the 2021 wet farming had benefitted from pre-financed pay-at-harvest Area Yield Index Insurance, while plans were underway to support up to 10,000 farmers the following farming season and scale up to 100,000 smallholder farmers by 2030.
In June 2022, Heifer announced insurance payouts of over N100 million to 3,110 smallholder farmers in both states to mitigate losses incurred from harvest due to poor weather conditions, pests and diseases during the 2021 wet farming.
Rufus Idris, Heifer Nigeria country director, who made this known during the payout ceremony in Makurdi, Benue State, further disclosed that a total of 4,358 hectares of farmland belonging to 4,354 smallholder rice farmers in Benue and Nasarawa States were insured during the 2021 wet farming season, out of which 3,110 smallholder rice farmers suffered losses due to soil moisture stress. He said the affected smallholder rice farmers have started receiving a total sum of N111,398,895, starting from June 9, 2022 as insurance compensation claims to enable them recover their investments and refinance their insurance premium for another farming season.
Bottlenecks slow down agric insurance
Despite the significant progress witnessed in agriculture insurance, analysts opine that it is yet to attain the required penetration to boost agriculture productivity and improve farmers’ sustainability.
Idris of Heifer observed that most smallholder farmers in Nigeria consider paying insurance premiums as a financial burden that ties down money they don’t have readily in abundance. He added that some farmers wrongly conceive insurance organisations as exploitation channels. He also identified low awareness about insurance products as a challenge to insurance penetration in the agricultural sector, noting that many farmers and agribusiness operators have no awareness and portray limited understanding regarding the guiding principles and benefits of insurance in the management of agricultural risks.
Another challenge identified by experts in the agric insurance scheme is the lack of efficient data to develop viable insurance indexes and determine the premium price of index insurance products that are relevant to small-scale farmers, especially those based in rural areas. As a result of limited information and information asymmetries, many insurers have been discouraged from developing innovative insurance products for farmers.
Chizoba Ehiogu, a senior lecturer in the Department of Insurance and Actuarial Science, Imo State University, also highlighted lack of infrastructure, such as feeder roads and proper communication facilities to facilitate the assessment of the losses reported by farmers in order to ensure prompt claims payment, as well as inadequacy of basic data for actuary planning and the estimation of premiums and claims variables. This, she explained, results in the inability to calculate the appropriate equitable premium for the various risks exposures.
Ehiogu said farmers find it difficult to pay up the high start‐up costs some insurers set as financial requirements for the administration of agricultural insurance programmes.
Toward deeper agric insurance penetration
To ensure better performance of the agriculture insurance sector, Ehiogu called for the mainstreaming of agriculture insurance awareness and education policies nationwide with a focus on small-scale farmers and women.
In addition, she enjoined the government and insurers to implement pilot processes that would gradually grow farmers into participation in agriculture insurance.
The insurance and risk management expert also called for consistent inter-stakeholder collaboration to facilitate the exchange of ideas on the development and expansion of agricultural insurance for the benefit of farmers. This, she said, would scale up farmers’ understanding of and trust in agriculture insurance.
“Agriculture insurance service providers should assess the current needs and risks that are relevant to the farmers’ perspective. In addition, they should also build mechanisms to continuously monitor and respond to farmers’ evolving needs,” she said.
Omiji of Anchor Insurance Limited called for the adoption of a public‐private partnership approach in the implementation of agricultural insurance. He advised intermediaries that market and package insurance to innovate and package agricultural insurance products with relevant agricultural inputs, agronomic practices and weather information that will make the insurance product more attractive to the farmers.
He also recommended that the government facilitate an agricultural insurance landscape populated by credible, cost-effective and commercially viable insurers that offer insurance products that are affordable and relevant to the farmers’ demands and expectations.
Agricultural insurance risk underwriters and stakeholders were also encouraged to advocate and support the deployment of ICT platforms such as the use of mobile technology, remote sensing data and automated weather stations for parametric insurance products in the distribution and sales of agricultural insurance products and services to enable all categories of farmers to have access to agricultural insurance wherever they are located in any part of the country.