AGRICULTURAL INSURANCE IN NIGERIA: EXPERIANCES AND

AGRICULTURALINSURANCE

INNIGERIA:EXPERIANCES

AND CHALLENGES

AND



CHALLENGES

THENIGERIANAGRICULTURALLANDSCAPE

Nigeriahashugeagriculturalpotential.Withover84million

hectares of arable land of which 40% is cultivated; a population of

hectares



arable



land

,



which



40%



cultivated;



population



167millionpeople,makingherAfrica’slargestmarket;with230

billioncubicmeter sofwater;theCountryhassomeoftherichest

natural resources for agricultural production and growth in the

natural



resources



for



agricultural



production



and



growth



the



world.

Nigeriausedtobeamajorplayerintheglobalagriculturalmarket;

shewastheworld’smajorproducerofgroundnutandpalmoilin

the1960’sandthesecondlargestexporterofcocoa.Then,the

countrywasself‐sufficientinfoodproduction.

• Howevertheoverrelianceonoilasthemainsourceofforeign

exchan

ledtotheabandonmentofa

riculturalofa

riculturewhich

g, g g

ledtothecountrybecominganetimporteroffood,spendingUSD

$11billionperyearimportingbasicfoodlikewheat,rice,sugar,and

fish.

• Theglobaldropinthepriceofcrudeoilhasgreatlyreducedthe

foreignearningsoftheNigerianeconomy.Agricultureisnowthenew

paradigm to diversify the economy The goal is to add 30 million

paradigm



diversify



the



economy

.

The



goal



add



million



metrictonnesoffoodtothedomesticfoodsupply,andcreate3.5

millionjobs.Thefocusisondrivingimportsubstitutionby

acceleratingtheproductionoflocalstaples,toreducedependenceon

fditd t Ni i it t t f fd



mpor

san



urn

ger

a

oane

expor

ero



.

• PresentlyinNigeria,agricultureisnowtreatedasabusinessandno

longer as a developmental program The objective is to create wealth

longer



developmental



program

.

The



objective



create



wealth



throughagriculture,nottomanagepoverty.TheGovernmentis

providingtheneededenablingenvironment,policies,andincentives

foraprivatesectorledagriculturalinitiativetounlockthepotentialof

Nigeria’sagriculture.

BACKGROUNDOFTHENIGERIANAGRICULTURAL

INSURANCECORPORATION

Climatechangeisasignificantrisktoagriculturalproductionand

de elopment It th s impacts on food sec rit po ert red ction

elopment

.



impacts



food



sec

rit

y,

ert

y

red

ction



andpoliticalstability,particularlyinNigeriawhereagriculture

constitutesover40%GDPandover70%employment.Nigeria’s

ili itli t h ltdiki k iitf

res

ili

enceaga

c

ec

angere

r



sa

eypr

y

or

economicand socialdevelopment.

Inmitigatingclimatechangerelatedrisks,anAgriculturalInsurance

programwasmadeavailabletoNigerianfarmersbytheFederal

Government in 1987 through the introduction and operation of the

Government



1987



through



the



introduction



and



operation



the



NigerianAgriculturalInsurancescheme.

Theschemehasfourmainobjectiveswhichinclude:

i. Toprovidefinancialsupporttofarmersontheaftermathoftheoccurrence

ofnaturalhazardsattributabletoclimatechan

ii. Tostimulatetheprovisionofcreditbyfinancialinstitutionstoinvestmentsin

agriculture.

iii. Topromoteagriculturalproductionbyenhancinginvestmentinagriculture.

iv. Tominimizetheneedfortheprovisionofad‐hocassistancebytheFederal

Governmentintheeventoftheoccurrenceofanaturaldisastersthatmay

adverselyaffectin vestmentsinAgriculture.

Inordertoensureitsproperimplementation,theNigerianAgricultural

InsuranceCor

oration

a

ublicsectorCor

oration

wascreatedb

adecreein

p,p p, y

1993astheex ecutingagencyofthescheme.

FEATURESOFTHENIGERIANAGRICULTURALINSURANCESCHEMEAS

IMPLEMENTEDBYTHENIGERIANAGRICULTURALINSURANCE

CORPORATION

1) TheschemeestablishesAgriculturalInsuranceasbeingmandatoryforall

agriculturalloansoragriculturalprojectsandprogramsthatarefunded

from

ublicfundsincludin

alldirect

onlendin

anda

ricultural

p g , g g

investmentloansdisbursedbydevelopmentalbanks,depositmoney

banks(commercialbanks),microfinancebanksandotherfinancial

institutions.TheNigerianAgriculturalInsuranceCorporationhas

statutory powers to insure these credits

statutory



powers



insure



these



credits

2) ProvisionoffinancialsupportbytheGovernmentintheformof50%

premium subsidies for most classes of agricultural insurance

premium



subsidies



for



most



classes



agricultural



insurance

3) Subsidiesareprovidedforfoodcrops,cerealsandrootcrops,butnotfor

commercial plantation crops and cash crops

commercial



plantation



crops



and



cash



crops

4) Similarly,premiumsubsidiesareapplicabletomostclassesoflivestock,

poultry and fisheries, but not for commercial livestock or bloodstock

poultry



and



fisheries,



but



not



for



commercial



livestock



bloodstock



insurance.

5.) The subsidy is financed by the Federal and State governments in

5.)



The



subsidy



financed



the



Federal



and



State



governments



theratioof37.5%and12.5%respectively.

Th Ni i Ai l lI Cii h l

)



e

ger

an

tura



nsurance

orporat

on

st

eso

e

insurancecompanyentitledbyNAIStoreceiveagricultural

Insurancegovernmentsupportintheformofpremiumsubsidyfor

theprovisionofagriculturalinsurance.

7.) The Federal Government accepts the liability for ca tastrophic losses

7.)



The



Federal



Government



accepts



the



liability



for



catastrophic



losses



insuredbyNAICinexcessof200%ofthepremiumincome.

NAIC’SCROPANDLIVESTOCKINSURANCE

PRODUCTS AND PROGRAMS

PRODUCTS



AND



PROGRAMS

NAIC’sagriculturalinsuranceactivitiesaredividedintothreemain

categories:CropsInsurance,livestock(includingpoultryand

fisheries)andcommerciallines.InadditiontheCorporationhas the

licencetounderwritenonlifegeneralinsurance

CLASS OF BUSINESS INSURED PERILS BASIS OF COMPENSATION

PREMIUM RATES

CROPS Fire, lightening, windstorm, Input costs incurred on crop 4%

flood, drought, pests and

diseases.

farm up to the time of loss

less any salvage.

LIVESTOCK Death or injuries to the

livestock due to accident,

disease, fire, lightning, storm

Value of the farm animal at

inception plus the cost of

input invested up to the time

and flood. of loss.

FARM PRODUCE Fire and Special Perils, Value of the farm produce in 1.5%

Burglary and

Housebreaking, transit risks.

storage or in transit as at the

time of loss.

CROPSINSURANCE

1. Inthecaseofcropsinsurance,NAICoffersasingle salvaged‐based

lossofinputcostcropinsurancepolicythatprovidesmultipleperil

cropsinsurance(MPCI)protectionagainstawiderangeofnatural

andbiolo

ical

erilsincludin

fire

drou

flood

windstormand

g p g , g, ,

pestsanddiseases.

I th t f li th t f th itt

n

eeven

o

ac

m,

epayou

so



e

npu

cos

sare

determinedbythedifferencebetweentheinputcostsinvestedin

thefarmbytheinsuredfarmeruptothemomentoflossandthe

l f th tl

ibl

htbldti th

ueo



eac

rema

arves

epro

onor

e

salvageobtainedbytheinsuredonhisfarm

LIVESTOCK INSURANCE

LIVESTOCK



INSURANCE

Livestock insurance covers the death or injury

Livestock



insurance



covers



the



death



injury



duetoaccident,disease,fire,lightening,

storm and flood The sum Insured id defined

storm



and



flood

.

The



sum



Insured



defined



bythevalueoftheanimalatinceptionplus 

the input cost invested by the insured in the

the



input



cost



invested



the



insured



the



insuredanimalduringthepolicyperiod.

SUMMARYOFCOVERAGEFORTHE

PAST 5 YEARS

PAST



YEARS

• Areacoveredisabout338,000hectaresand11milliondiverse

li t k

ves

• Numberoffarmersis2.5million

• PremiumgeneratedisN2.7billion($13.5m)Directcollection

• PremiumgeneratedwithstatutoryGovernmentSubsidyisN5.2billion

($26m)

Cl i P i

801 45 illi ($4 ) 2059 f d 910

•

ms

ayouts

s

801

m

illi

on

($4

)



2059

crop

armersan



910



livestockfarmers

•

Government Support/Subsidy paid is

103billion ($5m)

•

Government



Support/Subsidy



paid



billion



($5m)

CURRENTCHALLENGES

Lowawarenessaboutinsuranceproducts

• Farmersandagribusinessaregenerallyunawareandhavelimited

dtdi f th bfitf I i th t f

ers

ngo



e

ene

fit

so



nsurance

n

emanagemen

o



agriculturalrisks.

• Inaddition,culturalandreligiousbeliefsserveas encumbrances

tofarmersinparticipatinginthescheme

d if d i

Ina

equate

rastructurean

supportserv

ces.

• Infrastructuresuch asfeederroadsandpropercommunication

facilitiesarere

uiredtofacilitatetheassessmentofthelosses

reportedbyfarmersinordertoensurepromptclaimspayment.

Lackofactuarialdata.

•

Inadequacy of basic data for actuary planning and the estimation of

Inadequacy



basic



data



for



actuary



planning



and



the



estimation



premiumsandclaimsvariables.

• Thisresultsintheinabilitytocalculatetheappropriateequitable

remiumforthevariousrisksex

osures.

p p

Highstart‐upcosts

• Thefinancialre

uirementsfortheadministrationofa

ricultural

q g

insuranceprogramsareusuallyhighandcapitalintensive.

• Thisisattributabletotheacquisitionofhighlyskilledmanpowerin

boththefieldofagricultureandInsurance,acquisitionof

if t t lf iliti f it i iti/l

ras

ruc

ura



iliti

es

armmon

ng,

nspec



osssurveys.

Non‐ remittance/delayofpremiumsubsidypayments.

Th j dl i h i f i bidi f h

•

erearema

or

ays

nt

erece

pto

prem

umssu

idi

es

romt

e

FederalandStateGovernments.

• Thearrearsofpremiumsubsidyhaveseverelyrestrictedthe

Corporation from expanding its underwriting operations

Corporation



from



expanding



its



underwriting



operations

LAIM

I

SSU

CSSSU S

• dissatisfiedcustomers

• moralHazard

• Exaggeratedclaims

Generalperceptiono

thepublictoinsurance

• TheoperationsofAgriculturalinsur ancewerechallengedby

scepticism and the wrong image that the public has built over time

scepticism



and



the



wrong



image



that



the



public



has



built



over



time



abouttheInsuranceIndustryinNigeria.

• Insurersareseenasalwaysunwillingtopaygenuineclaimsby

inserting hidden and ineligible clauses to frustrate the payment of

inserting



hidden



and



ineligible



clauses



frustrate



the



payment



claim

Literacyfactor

• Mosttargetfarmersfortheagriculturalinsuranceprogramarenotliterate

enough to accept and understand the message and concept of insurance..

enough



and



understand



the



message



and



concept





insurance..

• Thisfactormadeitdifficultforthetargetedfarmerstounderstandthe

guidingprinciplesorthebasicideaofsuchaspecialproductasagricultural

insurance.

Wh l it l diffi lt t k ti

•

en

ossesoccur,

wasa

ways

diffi



oma

eanycompensa

onor

claimsacceptabletothefarmersnomattertheequityandfairnessinvolved

inthecomputationoftheindemnity.

• Theirbeliefandex

ectationwouldbetohavetotalcom

ensationforthe

p p

loss,attimeswithevenananticipationforamarginofprofit.

Otherchallengesinclude:

• Lowmarketcoverageandinsurancepenetration.

f diti th kt

•

ewun

erwr

ers

n

emar

• Budgetaryconstraintsduetoslowandattimenon‐paymentofpremium

subsidy.

•

High overhead costs due to the wide nature of cover age.

High



overhead



costs



due



the



wide



nature



coverage.

• Theschemeparticipationislowduetofinancialinstitutionslackofinterest

inlendingtoagriculture.

• Agriculturalcoveristypicallylimitedtotheloanamountratherthantotal

dti

pro

on.

BUILDINGAGLOBAL ,FAIR,AFFORDABLEAND

EFFECTIVEAGRICULTURALINSURANCEMECHANISMTO

BUILDRESISLIENCEOFFARMERSTOEXTREME

WEATHEREVENTS‐ SETTINGUPOFAGLOBALRISK

POOLFORCATASTROPHICWEATHEREVENTS

Tobuildafair,global,affordable,andeffectiveagriculturalinsurance

mechanismthatwillbuildtheresilienceoffarmersa

ainstextreme

weatherevents,policymakersmusttakethefollowinginto

consideration.



GOVERNMENT SUPPORT



GOVERNMENT



SUPPORT



• Governmentshouldadoptthepublic‐privatepartnershipapproachin

theimplementationofagriculturalinsuranceintheircountries.The

rivatesectorunderwritin

firmsmustbeencoura

edtounderwrite

p g g

agriculturalrisksastheirparticipationwillbringinnovationand

competitiontheagriculturalinsurancelandscape.

• Governmentshouldintegrateagriculturalinsuranceaspartofa

comprehensiveapproachtoagriculturalriskmanagementinallits

agriculturalprograms.ThereforeallparticipantsinGovernment

agricultural interventions must compulsorily have agricultural insur ance

agricultural



interventions



must



compulsorily



have



agricultural



insurance



fortheirvariousagriculturalprojects.

•

Government should develop a strong legal, regulatory system for

Government



should



develop



strong



legal,



regulatory



system



for



agriculturalinsurancefortheircountries.

• Theapplicationofsmartpremiumsubsidiesforagricultural

insuranceproductsshouldbeimplanted,escalated,sustainedand

supported by governments This is to leverage on the positive

supported



governments

.

This



leverage



the



positive



impactofenablingfarmerstopurchaseagriculturalinsurance

policies.

Gtt th t ilt li i

•

overnmen

mus

ensure

agr

ura



nsuranceserv

ce

providersofferinsuranceproducts thatareaffordableandrelevant

inthemitigationofimportantweatherrisksandmeetingthe

farmer’sdemandsandex

ectations.

• Anagriculturalinsurancereservefundmaybecreatedbycountries,

to serve as an intervening measure during a major catastrophe or



serve



intervening



measure



during



major



catastrophe



whenevercumulativepremiumincomesbecomesinadequateto

meetthecostofclaims.

•

Government should ensure that the agricultural insurance landscape is

•

Government



should



ensure



that



the



agricultural



insurance



landscape



populatedbycredible,costeffectiveandcommerciallyviableinsurers

whoseclaimspaymentsarefastandequitable.The intermediariesthat

marketandpackageinsurancemustinnovateandbeabletopackage

agricultural insurance products with relevant agricultural inputs

agricultural



insurance



products



with



relevant



agricultural



inputs

,

agronomicpracticesandweatherinformationthatwillmaketheinsurance

productmoreattractivetothefarmers

 ADOPTIONOFTECHNOLOGYFOREASYACCESSAND

DISTRIBUTION

AgriculturalInsuranceriskunderwritersandstak eholdersshould

advocateandsu

ortthede

mentofICT

latformsinthe

pp py p

distributionandsalesofagriculturalinsuranceproductsand

services.Thisistoenableallcategoriesoffarmershaveaccessto

agriculturalinsurancewherevertheyarelocatedinanypartofthe

country.

 AGRICULTURALLENDING

Ai lt li hldb d l f ll

ura



nsurances



ema

ecompu

sory

ora



agriculturalloanbeneficiariesasitispresentlydoneinNigeria.In

eff ect,Agriculturalinsuranceproductsandservicesshouldcontinue

to be linked to loans and other forms of credit provided by banks



linked



loans



and



other



forms



credit



provided



banks



andotherfinancialinstitutions.Thiswillenablefarmershavemore

accesstoagriculturalinsuranceproductsandservices.

 COSTEFFECTIVENESS.

Agricultural insurers should aim for efficient distribution networks

Agricultural



insurers



should



aim



for



efficient



distribution



networks



andincreaseduseofte chnologytominimizeadministrativeand

claimssettlementcosts.Recentlyinsuranceprogramshavemade

useofmobiletechnology,remotesensingdataandautomated

th tti f ti i dt(i d bd

wea

ers

ons

orparame

c

nsurancepro

s

ex

ase



insuranceproducts)foremergingmarkets.



CLAIMS PAYMENTS



CLAIMS



PAYMENTS

Theclaimspayoutproceduresbytheagriculturalinsuranceservice

providersmustbebasedonobjective,transparent,verifiableand

understandable criteria and which should reach the farmers as soon

understandable



criteria



and



which



should



reach



the



farmers



soon



astheoccurrenceoftheinsuredevent.

 ADEQUATEREINSURANCEARRANGEMENT

Agriculturalinsuranceserviceprovidersmustensurethatadequate

reinsurancearrangementsaremadesoastopreventthemfrom

defaultingduringthepaymentofclaimsinyearswhenlarge

payouts are made

payouts



are



made

CONCLUSION

• Extremeweathereventssuchasdroughtandflood,drivenby

climatechangeresultinincreasedriskofhungerandmalnutrition

in Africa

’

s most vulnerable populations; Nigeria inclusive.



Africa s



most



vulnerable



populations;



Nigeria



inclusive.

• Thesystemsforrespondingtothesenaturaldisastersmustbe

il d ibl d id d fdi if li

yan

equ

e,an

mustprov

ea

equate

ng



ves

andlivelihoodsarenottobelost,assetsdepletedanddevelopment

gainsinagriculturaldevelopmentreversed;

• Thereforethefeasibilityofthecreationofaglobalinsurance

mechanism to address loss and damage attributable to climate

mechanism



address



loss



and



damage



attributable



climate



changetoserveasariskdisasterpoolandafunddisastermustbe

explored.