The nation’s insurance industry is now better positioned to protect investments in the agricultural sector and also help in employment creation for the economy, the National Insurance Commission (NAICOM) has said.
This is coming on the heels of approval of five underwriting companies to undertake agric index-based insurance, which is expected will boost food production by providing cover for farmers against the vagaries of weather.
Adewale Motajo, deputy director/head of research, statistics and strategy at NAICOM, made the observation during a seminar for insurance journalists held in Kano, Kano State.
Motajo said that NAICOM is in collaboration with Nigeria Incentive Risk Based Sharing for Agricultural Lending (NIRSAL) to reduce the level of risk exposure of agricultural entrepreneurs.
“This will boost food production by providing cover for farmers against the vagaries of weather, and also generate employment in the agricultural sector,” he said.
According to him, a working group on Agric Index Insurance has been inaugurated by NAICOM, while necessary trainings have been conducted to ensure effective take-off of the scheme in Nigeria.
In 2017, a consortium of five insurers had underwritten index-based agricultural insurance programme to grant group yield cover for that farming season.
Consequently, they received product approval from NAICOM for the pilot scheme in 10 states including Adamawa, Bauchi, Benue, Kaduna, Kano, Katsina, Kebbi, Nasarawa, Taraba and Zamfara for rice, maize soya and sorghum.
Index-Based Agricultural Insurance (IBAI) is a relatively new financial instrument for transferring agriculture risks from individuals or groups of farmers to risk carriers (insurers).
In an index-based system, when a claim is triggered for a specific area, all insured units (farmers) within a given geographical area and having similar characteristics are compensated at the same payout rate, usually a percentage of the sum insured, on events specifically covered by the policy.
IBAI pays out benefits on the basis of a predetermined index (e.g., rainfall level, crop yield) for loss of assets and investments, primarily working capital, resulting from weather and catastrophic events, without requiring the traditional insurance services.
The purpose is to compensate farmers in the event of a loss resulting from shared risks (rather than individual risk) associated with weather fluctuations, disease outbreaks or poor yield, Barineka Thompson, director, NAICOM, said.
Thompson also said this consortium is as a result of ongoing efforts of government to diversify the Nigerian economy and create opportunities to promote agribusiness and employment.
He stated that NAICOM has keyed into this effort in line with its desire to deepen insurance penetration and contribute to the development of agribusiness in Nigeria.
According to him, financial institutions in Nigeria would be more willing to provide credit to rural and smallholder farmers and households that have index-based agricultural insurance policy because these households would be able to utilise insurance pay-out in the event of loss to repay their loans.
“Weather insurance products could also be used by the financial institutions themselves to protect their portfolios against excessive loss due to defaults associated with extreme weather events,” he said.
NIRSAL had sought for the collaboration of NAICOM in delivering its mandate under the insurance facility pillar and utilising the Anchor Borrowers’ Programme of the CBN.
NIRSAL is looking to expand insurance products for agricultural lending from the current coverage of 0.5 million to 3.8 million agricultural primary producers.
The insurance facility pillar is designed to expand insurance products for agricultural lending to agricultural primary producers and help reduce credit risks and increase lending across the entire value chain.
NIRSAL is a public-private sector initiative that has the objective to transform the country’s agricultural sector through enabling the flow of affordable financing to all players along entire agricultural value chains.
Meanwhile, NAICOM is partnering the World Bank Group (WBG) under the Global Index Insurance Facility (GIIF) and IFC Nigeria to help insurance companies build internal technical capacity in this area of the business.
