In the last seven years, the country is trying to expand its revenue sources to include agriculture that is expected to be the mainstay of Nigerian economy in the long run.
With the world moving away from fossil oil, Nigeria knew its only a matter of time to suffocate, if it rely solely of crude oil as major foreign exchange earner,hence, the diversification to agriculture which culminated the entrance of the current administration led by President Muhammadu Buhari in 2015.
From then till now, a lot of credit and policy interventions had occurred mainly spearheaded by the Central Bank of Nigeria(CBN), thereby, enlarging the sector and creating several value chains that are and still instrumental to job creation.
The biggest of these interventions is CBN Anchor Borrowers scheme, an initiative that has sunk in more than a trillion naira into revitalizeng the agric sector in line with the new government mandate.
Aside the fact that agriculture is capital intensive for those who wants to do it on a large, it is exposed to several risks, some of which could be artificial or natural.
The recent flooding of some parts of the country that swept away farm produce and destroyed several farmlands is a testimony to how risky agriculture, especially, farming, can be.
Aside insecurity that is prevalent these days, flooding, drought, among others are risks that agric sector players must mitigate to sleep with two eyes closed.
To this end, Agric insurance has come in to secure those investments, especially, those backed by the CBN and banks credit facilities.
Although, the National Agric Insurance Corporation(NAIC) was the sole insurer of the agric sector, in the last decade, about 16 private insurers have made inroad into the sector, having all received regulatory approval to carry out agric insurance in a bid to complement NAIC.
However, within the value chain of agric insurance, there seems to be unethical practices, mainly between the farmers and the banks as well as CBN, that is affecting appropriate pricing of risks and prompt payment of premium. Lack of professionalism and lack of proper disclosure on the part of the farmers were also fingered to be responsible for some of the hitches that are beclouding Agric insurance in the country.
While banks claimed the Anchor Borrowers scheme comes with a list of beneficiaries, they said, some of these beneficiaries are dubious with information as they exaggerate the size of their farms to access more facility.
Farmers, according to banks, over-declare the size of their farmland to get more facility from the CBN-backed Anchor Borrowers Scheme, thereby, creating problems for bank assessors who farmers would be playing or deceiving, in a bid to avoid the assessment.
In the process of this dilly-dally, catastrophe may occur on the farmland and will want insurers to compensate, for example, ‘for five hectares of lands when indeed the farmer had only one.’
In some cases, the law of ‘No premium, No cover’ never applies as some farmers are fond of allowing risks to crystalise before they complete the necessary documentation with their banks,,hence, premiums are now paid after risks had occurred, a development that is not professional.
To address all these challenges, Africa Reinsurance Corporation(Africa Re) recently organised a three-day conference by bringing together stakeholders in these value chain, to iron out the pain-points so that the industry can grow.
Agric Contribution To Economy
Earlier, in his opening remarks at the conference, the deputy managing director (DMD) of Africa Re, Mr. Ken Aghoghovbia, had said, agriculture remains a key contributor to Nigeria’s GDP (Gross domestic product), and like in many emerging economies, accounts for 30% of the country’s total economic output; providing employment to at least 35% of its over 200 million population.
With sustained pressure on food security, arising from the increasing population and the government’s push to diversify the economy, , he said, agriculture will continue to be a key area of focus in many years to come.
Since 2007, he said, approval to underwrite agric business has been granted, thus, complementing the efforts of the Nigeria Agriculture Insurance Company (NAIC).
“Owing to the richness of farming in Nigeria, it is projected that the market has a potential to generate at least USD 600 million worth of agriculture insurance premium in a year, against the USD 10 million reported during the year 2021,” he pointed out.
These bright economic prospects, according to him, provides huge opportunities for insurance companies to innovate and provide risk transfer solutions to cover the inherent risks associated with farming activities.
Pointing out that, in the last five years, the market has seen exponential growth in insurance premiums from agriculture, he added that this growth has been overshadowed by the unfavourable loss experience, pointing out that, this poor performance reveals the need for the market to invest more in stakeholder engagement including training, aimed at improving underwriting skills as well as claims handling capabilities.
Similarly, the Agric manager, Africa Reinsurance Corporation (Africa Re), Mr. Isaac Magina, said, the total agriculture insurance market premium in Africa rose to $0.39 billion even as the total agric insurance market premium climbed to $45.5 billion globally.
Magina noted that, Nigeria is playing a big role while Mali is also coming up strong in the area of agric insurance on the continent.
Challenges & Opportunities of Agric Insurance
The deputy director, Claims & Reinsurance, Mrs. F.A Onwuanuokwu, believes agricultural production in Nigeria is faced with many challenges/risks and prominent among these are natural disasters and the effect of climate change.
Stating that it is necessary to protect farmers by providing them with insurance cover against risks to ensure continuous agricultural production and national food security, he added that, agricultural insurance is a special line of property insurance that involves the application of basic insurance principles and practices to agriculture.
She explained that agricultural insurance protects the insured farmer against loss of damage to crops, livestock, aquaculture and other agricultural investments as a result of natural hazards.
While stating the challenges facing agric insurance, she listed them to include; low public awareness about insurance products, uneducated farmers, the national cake syndrome for some of the government interventions, high administrative cost, inadequate knowledge of agricultural insurance operations by lending institutions, non adherence to improved and recommended good agronomic practices such as planting within window of planting, ridiculous rate on Area yield insurance products, and late reporting and documentation of claim.
In her conclusion, she said, agricultural insurance is likely to continue to be demand driven and that the effort of the government to diversify agriculture will create the market and demand for agricultural insurance.
“Government efforts to continue to support and finance Agricultural insurance products as a meaningful risk management tool, will further enhance the potential and credibility of Agricultural insurance in Nigeria,” she pointed out.
On his part, the head, Agric Insurance department, Leadway Assurance Company Limited, Mr. Ayoola Fatona, said, as at the end of 2022 Q1, NAICOM had reported that the insurance sector recorded 6.2% growth and a market size expansion of 15%, which is inclusive of Agriculture insurance.
With continued negative impact of climate change due to global warming, he said, more large claims are being settled by underwriters on flood perils, stressing that, the current market premium is estimated N10 billion, even as more agribusiness investors continue to embrace Agric Insurance as a risk mitigant.
Disclosing that outbreak of infectious poultry diseases continue to gain prominence, he added that, farm fire is gaining prominence in dry seasons over the last three years.
Giving an insight into how Agric insurance works in Nigeria, he said, demand for Insurance is primarily driven not by farmers but by Institutional and Agricultural value chain stakeholders, especially, aggregators, government, NGOs, input providers, cooperative and financial service providers incorporating insurance as a part of climate change adaptation strategies and influencing the design of insurance . He listed the key stakeholders in agric insurance value-chain to include; reinsurer, insurers, intermediaries, aggregators and farmers.
While reinsurers actively enable highly engaged reinsurance, taking a long term view and variety of positions, he added that insurers are largely passive participants, retaining little risk and relying on intermediaries to support distribution even as intermediaries are highly engaged actors supporting the development and roll out of solutions with emerging business: some of them are; PULA, Acre Africa, OKO, among others.
The aggregators, according to him, grow demand for insurance options, particularly from Government, development agencies and value chain aggregators while farmers have high need with significant and growing concern about climate related risks including pests and diseases.
Stressing that Climate adaptation, holistic view of food systems and risks are creating a new interconnected context for Agric insurance for smallholder farmers, he added that, deepening finance landscape, changing government and private sector attention maturing products, more evident and persistent GAPS, disruptive leadership, data and Tech evolution, among others, are reshaping agric insurance in the country.
He recommended the adoption of actuarial viable premium rate by the market as well as the development and implementation of remote sensing tool to improve farm practices and loss monitoring, more capacity by reinsurers and more capacity building for the market in terms of the development of human resources skill set and innovative product development.
Advocating more awareness, sensitisation and or advocacy about the importance of Agric insurance in the agricultural value chains, he called for harmonisation, synergy, knowledge sharing and information dismessimation by all the Agric insurance underwriters in the market.
Roles of Govt
Isaac of Africa Re, while listing the roles of government in promoting agric insurance, noted that, government’s role goes beyond providing financial incentives, rather, it also also provide Policy and Legal framework necessary to sustain operations ecosystems, enhances Stakeholder engagement and Support homegrown solutions, capacity building and Training, such that, product information and financial literacy are viewed as a public investments.
He called on government to initiate stakeholder engagement & coordination, which demands central coordination and alignment of goals for all stakeholders, such as; farmers, insurers, service providers, NGO’s, financial institutions, development partners, government agencies.
Meanwhile, as part of its contributions to Agric insurance initiative in Nigeria, the World Bank has come up with the new Africa Inclusive Insurance Programme, which will be effective till June 2025.
Speaking on this development at the conference, financial sector specialist, Global Index Insurance Facility, World Bank, Sharon Adhiambo Onyango said, the initiative will engage insurance sector clients in 14 countries across African continent, including Nigeria, to strengthen the resilience of over 5 million smallholder farmers and micro, small and medium enterprises(MSMEs) to climate-related and other shock
While Duncan Mukonyi delivered papers on roles of reinsurers in agric insurance value-chain, reinsurance , Chiagozie Anozie presented a paper on crop insurance.
At the end of the meeting, participants some of who spoke at the event, identified risks in agriculture insurance to include; market/economy, which are associated with market demand and supply forces, determining how much farmers would eventually sell their products.
Others risks listed are: social, resulting from civil disturbance, malicious damage and change in social environment.
On what makes an agricultural risk insurable, the participants identified probability of a loss in the future as the main determinant of insurability , adding that, this is possible only if reliable loss data is available for a sufficiently long periods in the past.Participants agreed that the loss must be capable of being estimated in financial terms and that probability of occurrence should not be too high, so as not to make insurance
“Furthermore, occurrence of an event, or the damage it causes, should not be affected by the insured’s behaviour(Moral Hazard) and to the extent possible, the risk should be an independent and fortuitous,” the said.
Reacting on agriculture insurance value proposition, they stressed that there is a need for risk transfer mechanisms to cushion farmers against inherent risks in farming as elevated by effects of climate change.
On access to finance, it was agreed that bundling credit with insurance has the potential to minimise default risk, thus, limiting exposure of financial institutions willing to provide finance to agriculture sector.
Finance service deepening, they said, increases access to data and financial services available to farmers has potential to stimulate increased investment in agriculture and hence guarantee improved productivity.