Nigeria’s agriculture sector which is perceived to be quite risky may be getting yet another de-risking initiative in making it more attractive, with the announcement of an index based insurance by IFC and Africa RE. The partnership aims to assist Nigerian insurers develop appropriate insurance products for smallholder farmers across Nigeria, many of whom are left exposed with huge losses when incidents occur.
According to the Global Index insurance facility factsheet, insurance providers in Africa and other developing regions rarely offer the hazard insurance familiar to industrialised countries. Earthquake, flood, and hurricane victims often lose their homes in an instant, recovering none of their investment unless they are fortunate enough to be part of a donor-funded disaster relief program. Likewise, droughts can wipe out the crops that farmers rely on for income.
To address this in Nigeria, IFC, a member of the World Bank Group, says that it signed an agreement with Africa RE, a pan-African reinsurance company headquartered in Nigeria, to help thousands of smallholder farmers in Nigeria to more easily access insurance to protect their crops and livelihoods.
Under the agreement, Africa RE and IFC’s Global Index Insurance Facility is expected to help Nigerian insurance companies licensed by Nigeria’s insurance regulator, NAICOM, develop agricultural insurance products, and deepen their index insurance business lines. These index insurance products will help protect farmers against environmental risks such as drought, floods, erratic rainfall, and other natural hazards, noted a statement following the announcement.
The perception of risk, coupled with the seemingly lacking reliable insurance has according to experts views in previous BusinessDay articles on the subject, limited efforts to transform agriculture from a traditional (subsistent) activity to a full fledge commercial activity which will help to boost Nigeria’s revenue as well as ensure food security. Then inability to secure insurance in a competitive manner has also made some investors remain sceptical to put their funds in a market where risk cannot be adequately mitigated.
“Other than the intervention of NIRSAL in terms of risk sharing, agric insurance has unfortunately not been very impactful in this environment and this is one of the things we must encourage,” Tunji Owoeye, group-managing director, Elephant Group Plc, told BusinessDay. “The moment you have insurance, it gives assurance to the lender and increases capacity or appetite to get into the transaction. It is something that must be encouraged.”
In Nigeria, agricultural insurance was until recently perceived to be vested more or less in the Nigerian Agricultural Insurance Corporation (NAIC), which by virtue of the law establishing it is empowered to provide insurance to the agric sector, particularly when funding is being sourced from government interventions or loans from financial institutions.
“Government established NAIC because private insurance companies refused to do agricultural insurance,” claimed Victor Ofovbe, a senior manager with NAIC, covering Agric Underwriting, and a member of the claims committee, in a phone interview.
He also said that while some private insurance companies were given licenses to carry out agric insurance, they are not making impact. “Even when big farmers approach them for insurance cover, they reject those businesses when they see the risks involved, but NAIC accepts every risk, whether bad or good, because that is what we were set up for,” he said.
This may however get to change with this anticipated Index-based agricultural insurance, which pays out based on transparent parameters like rainfall and does not require costly field visits to verify losses. It has been described as an innovative and efficient way for farmers to protect themselves against losses.
Ken Aghoghovbia, Africa RE’s deputy managing director/chief operating officer, said “This initiative will certainly help move Nigeria towards its goal of food security and it is in line with Africa RE’s mission to support African economic development.”
In the same vein, Eme Essien, IFC country manager for Nigeria, said, “IFC’s support for affordable and accessible agricultural insurance will help Nigeria’s farmers mitigate the effects of climate-related shocks, protecting them against catastrophic losses and unlocking access to finance. Developing a sustainable agricultural insurance industry also requires a strong commitment from regulators, such as NAICOM, who embrace innovation to help farmers manage their risks.”
Farmers with crop insurance are also more likely to access other financial products, including credit, and to invest in higher quality production inputs. However, the traditional insurance market has largely failed to meet smallholder Nigerian farmers’ demand for affordable insurance with its high premiums and transaction costs, read a statement on behalf of both organisations.
IFC’s and Africa RE’s specific support to insurance companies will include helping them design specialised insurance products and develop digital platforms so farmers can easily view and compare index insurance offerings from various providers. IFC and Africa RE say they aim to provide thousands of farmers with access to insurance by the end of 2020.
CALEB OJEWALE
