By Chibuzo Ihegboro
Recently the risks and hazards faced by farmers and other practitioners in the agricultural value chain were deliberated on. Most importantly was the need for them to embrace insurance coverage. Currently, farmers are counting their losses following the recent floods ravaging many states. Reacting to the flood disaster, the National Insurance Commission (NAICOM) expressed the commission’s sympathy and assured victims of the commission’s commitment to ensuring prompt settlement of claims by insured companies. In this interview with a risk management and insurance expert, Sunday Ajemunigbohun (PhD), he enumerated the essence of agricultural insurance as an instrument for economic growth, development, and sustenance, among others.
The Place Of Agriculture For Human Survival
The Agricultural sector is the most pertinent facet in many countries. Everything we eat comes either from dry land or water (sea, ocean, rivers, etc). So it’s the highest display of God’s Love for mankind to manage (cultivate) to meet the first biogenic need – food and water. However, climate change, in many regions of the world, has been ascribed to an essential driver of agricultural system instability and is anticipated to increase the probability and severity of risks. Therefore, among numerous agricultural risk management instruments available, one major plan of action to manage these risks is agricultural insurance.
Where Do We Go From Here?
Agriculture is still being impacted by natural phenomena like floods, pestilence, climate shock, and other human activities like environmental degradation. Apart from threatening global food security and stability, these shocks can cripple livelihoods, disrupt agricultural value chains, and even subvert macroeconomic stability. So to guard against these, we need agricultural insurance which de-risks lending to the agricultural sector, enabling loan repayments, curtails budget volatility of agriculture-related financial expenditures by ceding climate risk to the private sector, increases financial space during shock years, and estimates growth of the agricultural sector, which can unlock job creation opportunities.
What is the essence of agricultural insurance?
Agricultural insurance can help stabilise farm income by reducing poverty (Sustainable Development Goals. SDG 1), ensuring a climate safety cover for food producers (SDG 13), and creating more welfare packages to address hunger (SDG 2). Thus, agricultural insurance is a financial instrument that provides coverage for agricultural production assets of all biological systems including crop, forestry, livestock, fishing, and farm properties. Agricultural insurance is one of the alternative risk management methods available for risk management against climatic variations. It serves as the only medium through which production risks in agriculture are ceded from individual producers, agro-enterprises, and government organisations to reinsurers or other financial markets.
What has been the level of awareness?
The level of awareness of agricultural insurance in sub-Saharan Africa is just three percent, while the remaining 97% are either unaware or do not wish to subscribe to it.
What are the implications of these?
The implications are what we’re seeing today. Food crisis, food insecurity as a result of either human or natural disruptions which shatter and batter farmers and their produce. Natural incidents which cause disasters will not cease on earth. Remember, human activities aid in aggravating the plights of mankind. Ordinarily, the impact of these natural shocks ought not to be as severe as they are today, but due to our negligence and careless attitude, we are being hit out of proportion. Just like when NiMet issues a warning about climate change, people disregard it, and a few prepare against the expected and unexpected incidents and accidents.
What is the essence of the Nigerian agricultural insurance scheme?
The drive for agricultural insurance in Nigeria was said to have started with the establishment of the Nigerian Agricultural Insurance Scheme (NAIS). The essence of its emergence was to provide financial remediation to farmers having suffered natural hazards; stimulate financial institutions, provide rural credit; promote agricultural production by motivating investment; and reduce the need for government to offer support after disastrous events.
To attain these objectives, the Federal Government of Nigeria (FGN) considered it necessary to establish the Nigerian Agricultural Insurance Corporation (NAIC), which has been saddled with the responsibility of safeguarding Nigerian farmers against possible effects of natural hazards by injecting measures that ensure quick payment of suitable indemnity adequate to keep the farmers in business after experiencing losses. Government’s continuous participation ensures subsidies’ provisions for food crops, cereals, livestocks, poultry, and fisheries without commercialisation. NAIC, being the only corporation that represents the government’s interest in agricultural insurance, is empowered to perform such responsibilities.
Who provides agriculture insurance?
It’s government-owned agriculture insurance and private-owned agriculture insurance. On the government side, it is saddled with the responsibility to implement, manage, and administer the agricultural insurance scheme, established by Section 6 of the NAIC Act: To provide subsidies on premiums chargeable on selected crops and livestock policies; To encourage institutional lenders to lend more for agricultural production; and to carry on insurance business on a normal commercial basis and without subsidies on premiums. On the private side, they ought to provide financial compensation in case of loss and stabilize farmers’ income. They are meant to provide technical advising assistance and encourage credit by financial institutions to invest in agriculture to ensure sustainable growth.
How much of agriculture insurers do we have from your research?
Currently, the agricultural insurance market comprised of one government fully funded corporation (NAIC) and 18 private agricultural underwriters. The products presently being offered in the market include poultry insurance, fish farming insurance, livestock insurance, multi-crop peril insurance, crop insurance, farm properties, and produce insurance.
What has been the barriers to agricultural insurance?
There are the demand and supply side factors barriers. On the demand-side factors, there is a lack of awareness of insurance services, mainly due to the low penetration of financial services in a rural environment, as a core limitation to its uptake. Accordingly, even when farmers are conscious of insurance, inadequate knowledge and understanding of such a financial instrument may cause lack of trust in the service providers or their capabilities to pay out claims as guaranteed. More so, for farmers that are aware of insurance services, using agricultural insurance techniques becomes possible if they understand its workings and the value it provides. However, the uptake of agricultural insurance among farmers is being constrained by two likely costs, namely:
The cost of an insurance premium and claim costs. Government subsidy, as a demand factor, has been employed to reduce premiums for farmers on government-mandated schemes or specific agricultural insurance services.
On the supply-side factors, an agricultural insurance provider encounters a high incidence of disastrous events such as drought, flood, etc, with core requirements of huge and more persistent pay-outs. In addition, providing coverage for such agricultural risks can be expensive for providers who would scuffle to design agricultural insurance policies that are both low-priced and offer ample coverage.
Distribution is a key challenge, hence reaching and serving farmers can be logistically laborious and high-priced. Given the sensitivity of the price, insurance underwriters most times perceived this policy as a low-profit customer aspect, preventing themselves from offering the policy.
However, with no access to formal insurance schemes (especially government support/subsidies), farmers usually resort to traditional risk management, such as self-insurance and community funds. While self-insurance can be expensive and profitless against major weather shocks, community funding schemes, in which farmers contribute their savings into a pool to support those who require pecuniary assistance, may not usually provide sufficient safety cover.
The main problem is that traditional risk management schemes are not able to cater for covariate risks, which refer to disastrous situations that affect many farmers in the same region at the same period.
What are the factors influencing farmers’ participation in agric insurance?
Awareness of agricultural insurance, gender, age of farmers, access to insurance experts, farmers’ income, access to a credit facility, family size of a farmer, farming experience and education of farmers, and size of farm among others.
Which way forward?
Agricultural insurance remains an instrument for food supply systems in Nigeria. Without a doubt, agricultural risks (such as pests, diseases, droughts, fire, climate change, etc.) present serious challenges to the survival of individual farmers, income, and economies of scale in developing countries. Therefore, I would recommend that: Government should reawaken and redirect its desire for the establishment of the Nigerian Agricultural Insurance Corporation (NAIC), which was borne out of the need for the enhancement of agricultural insurance in Nigeria; The National Insurance Commission is expected to focus on developing a sustainable regulatory framework that can compel the agrarians in the country to patronise agricultural insurance, being a cardinal area of economic advancement.
More so, private agricultural underwriters should do more on its enlightenment to the farmers and thus, design agricultural insurance products tailored towards an agrarian need at a given time. The NAIC as a government-owned agricultural insurance organisation should provide more subsidies for farmers to encourage their patronage and also help the country’s desire to actualise the SDG 1 and 2.