Agric insurance administration as quagmire to a promising sector

Olatunde Odunowo is a poultry farmer based in Abeokuta, Ogun State, who had invested over N500m into the business. As the practice in that line of business, he didn’t want to take risk, so, he approached an insurance company to indemnify him against any unforeseen circumstances that might threaten his life investment.
 

Ocheri John, a pig farmer, based in Papalanto area of Ogun State, also had a similar experience. Unlike Odunowo, he was not lucky, as he did not receive any form of compensation despite his dedication to premium payment.

He had invested heavily in the pig farm project, which was booming at that period, until the invasion of the African Swine Fever (ASF), two years ago. ASF had affected 90 per cent of pig farms across the country. When he approached his insurer for his claim, he was shocked to discover that ASF was never part of the insurance policy.
 
The experience of both farmers encapsulates the agony of many Nigerians who had engaged the services of insurance companies for cover, but ended up getting below their premium compensation or none when disaster strikes.
 
The Guardian learnt that this and many more are some of the factors bedeviling the growth of agric insurance in the country, despite the promises the sector holds. In the last few years, agriculture has become increasingly critical to the economy, contributing a substantial 20 per cent of the Gross Domestic Product (GDP).

The Federal Government has introduced a lot of policies, as well as providing the needed enabling environment for a private sector led agro economy. Currently, agriculture is treated as a business concern in the country, and not as a developmental programme, as it hitherto was: The objective being to create wealth through agriculture, not to manage poverty.

However, the challenges of climate change and other associated risks pose a significant threat to the country’s pursuit of self-sufficiency, import substitution and the development of a competitive agricultural sector. To mitigate the risks faced by farmers, an insurance programme was set up by the Federal Government in 1987 through the introduction and operation of the Nigerian Agricultural Insurance Scheme (NAIS).

Its establishment was targeted at encouraging financial institutions to offer rural credit, lowering the need for government post-disaster assistance, encouraging investment in the agricultural sector, and providing financial relief to farmers after natural hazard.

To ensure NAIS proper implementation, the Nigerian Agricultural Insurance Corporation (NAIC), was created by a decree in 1993 as the executing agency of the scheme, to promote agricultural loans, assist NAIS through Public Sector Corporation, and increase production.

According to the World Bank, with the support of the Federal and state governments, NAIC was able to offer premium subsidies of up to 50 per cent for a range of agricultural insurance packages in crop, livestock, poultry, and aquaculture.

Since then, a good number of private agric insurance companies have sprung up to insure farmers, in order to reduce the shock of losing their investment at any stage of production and to become financially independent.

With approximately 70 million hectares of land and diversity of agriculture enterprises, Nigeria’s Agriculture Insurance market has the potential to generate a premium of over $600m, according to the Deputy Managing Director/Chief Operating Officer, African Reinsurance Corporation (Africa Re), Mr. Ken Aghoghovbia,

Aghoghovbia, who disclosed this at the third Africa Re Agriculture Insurance Workshop in Lagos, last year, said in the last five years, agriculture insurance received considerable attention from the insurance market players in the country, who have been attracted by the opportunities that stem from the need to commercialise and modernise agric production and the quest of successive governments to diversify the economy.

“We are committed to taking the leadership role in developing agriculture insurance in Nigeria. However, we also acknowledge that on our own, we may not be able to sustain this noble objective. It is in the spirit that we once again have seen it necessary to engage valued and like-minded partners seated here.”

According to experts, agriculture insurance plays a crucial role in bolstering food security by enhancing the resilience of agricultural Small & Medium Enterprises (SMEs).

They note that integrating insurance into agriculture finance channel also facilitates farmers’ access to the necessary financing needed to expand their production, and enabling banks to manage the inherent risks in agricultural lending.

Despite the promises and potential the industry holds, especially at this time, when the agricultural sector has seen a variety of losses, including persistent flooding, fire outbreak, abduction of farmers and herders/farmers’ clashes, among others, inadequate execution of agriculture insurance policy has decimated whatever successes the sector aims to record.

Aside from contributing to the sector’s low investor influx, the failure of the insurance companies have thrown many farmers into debt, while others who couldn’t cope with the frustration and shock of accessing their premium have been sent to their early graves.

A farmer, Dokun Ibitola, expressing his frustration with NAIC to The Guardian, lamented that many times farmers forfeit their claims while trying to cover their losses.

“When things are government instituted, they don’t work out as intended. Unfortunately, based on experience of some of our colleagues, the private insurance companies are not different

“If people have issues with claims, getting a response from NAIC at times is difficult. They are not proactive. The operations are epileptic-like other government institutions. The fact is that the government should continue to pay compensation for natural disaster e.g. poultry. However, insurance (for agriculture) should be (fully) commercialised. Agriculture like any other private investment is a business.”

The Chief Executive Officer, Green Saharan Farms, Jos, Plateau State, Suleiman Dikwa, who doesn’t believe that agric insurance is existent in Nigeria, owing to unpalatable tales from victims, said most insured agro projects are undertaken under interventions such as NIRSAL.

“This requires that insurance is available only for low yields and not loss of crops in most cases, which infers that its performance relies on the project working all through. The problem is that by the time corruption and bank charges take away most of the funds the farmer does not bother about insurance policy, rather forgets about paying back, hence the back log of unpaid loans, which they consider as their share of the national cake,” he said.

Dikwa attributed failure of agric insurance in Nigeria to three issues – lack of education, culture and religion, noting that conventional insurance is not accepted by certain demographics for cultural and religious reasons.

He added that lack of information on conventional and alternative insurance is responsible for farmers’ apathy to embracing insurance policies for their farming endeavours.

“We have to always remember that the majority of farmers are peasant and find insurance and other such products as too sophisticated and also unaffordable. If we put into context that farmers are struggling to get inputs to plant, how much more the difficulty in keying into insuring their farms, which relies on fate as the major barrier to acceptance.”

In line with Dikwa’s position, experts say despite potential of agric insurance in the country, it has been bedeviled by series of challenges that had retarded its growth over the years.

An extension officer based in Argungu, Kebbi State, Umar Mohammed, identifies low awareness about insurance products; inadequate infrastructure and support services; lack of actuarial data; high start‐up costs; non‐remittance/delay of premium subsidy payments; claim issues; general perception of the public to insurance; and literacy factor as part of constraints hindering agric insurance to thrive in the country.

“Others are financial illiteracy; ownership, low market coverage and insurance penetration; budgetary constraints due to slow and non‐payment of premium subsidy; high overhead costs due to the wide nature of coverage; and financial institutions lack of interest in lending to agriculture,” he said.

Mohammed said from the point view of an extension officer, some farmers and agribusiness operators are generally unaware or have limited understanding of the benefits of Insurance in the management of agricultural risks. He added that cultural and religious beliefs also serve as encumbrances to farmers embracing insurance scheme.

According to him, “inadequate infrastructure and support services are big challenge. Infrastructure such as feeder roads and proper communication facilities are required to facilitate the assessment of the losses reported by farmers in order to ensure prompt claims payment. Inadequacy of basic data for actuary planning and the estimation of premiums and claims variables is an area that needs because it results in the inability to calculate the appropriate equitable premium for the various risks exposures.”

The President, Pig Farmers Association of Nigeria, Prof. Akinyele Adesehinwa, who took a swipe on insurance companies on their postures whenever they are approached for covers, said: We’ll only be deceiving ourselves if we say there is anything called Agric insurance, especially when it comes to the livestock sector in Nigeria, from NAIC to other insurance companies.

“Let me reduce this to pig farming. If as a pig farmer, you apply to insure your farm, already the insurance company will tell you that the African Swine Fever (ASF) is not part of the policies they cover, when ASF is the major disease affecting pig farming.

“Though it is called African Swine Fever, it has spread beyond the shore of the continent to China and other countries in the world and there is no vaccine for it, yet.

“What do you insure against? You insure against any occurrence that can bring about losses, but when there is an issue that’ll bring about total loss and you say you are not insuring that, what do you want to insure again?

“If you approach an insurance company to insure your car against accident, if their response is not encouraging or they make the issue difficult, then, what are you insuring?

“I don’t want to blame government because we lay all the blames on the door step of government; pig farmers in Nigeria are not enjoying any support in any way. Nigeria’s agriculture is against pig farming because of religious, cultural, as well as ethnic bias, and it should not be.

“When you talk about RUGA, talking generally about livestock, it is always about cattle, those are the people benefitting. You’ll see that there is bias,” he said.

The Country Director of Pula Advisors, Dr. Samson Ajibola, who was the Head of Agric Insurance at Leadway, who confirmed that Nigeria is lagging behind in the area of agric insurance, told The Guardian that it is the failure of agricultural system in the country that result in poor penetration of agriculture insurance.

“Nigeria is lagging behind in the area of Agric insurance. Actually it is not just Nigeria; it is a problem with sub-Saharan Africa. The perecation of insurance, not just agric insurance has been poor. Our attitude to insurance is not encouraging. There are many factors that have been attributed to this –traditional and historical institutional failure of insurance not living up to expectation, especially in Sub Saharan Africa.

“There are cultural and religious beliefs too that makes people not to think of accessing agric insurance in Africa. I think it is not just insurance, our agricultural system too has failed. Historically, agric used to be the mainstay of the country’s economy and even now, because of its contribution to the GDP, but it is not as strong as it used to be.

“If all the agricultural institutions like the Commodity Board, the farmers’ Cooperative, Agricultural Bank, Bank of Agriculture and the likes have not been weakened like they were before the oil boom, I think definitely it is going to spill over into agric insurance because there’s no way you’ll be channeling that huge investment into agriculture that you’ll not want to insure and protect your risk.

“You’ll want to protect your investment rather because you’ll agree with me that agriculture is very risky and because of that you’ll need something to edge your risk when the unforeseen or when the unexpected happen,” he said.

Ajibola noted that agric insurance had a positive shift recently during the period of Dr. Akinwumi Adesina as the Minister of Agriculture with the birth of the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) in collaboration with the CBN, to step up agricultural lending and to liberalise the sector, because age-long, it has only been NAIC that has been providing that service to all government lending.

“So, unless the farmers are in cooperative or in association and in large numbers or clusters, it is difficult to administer insurance to them. Another reason why agric insurance was not reaching smallholder farmers is because of accessibility, no smallholder farmer can travel from Jiri to Kaduna because he wants to buy insurance. Distribution system was not there.”

Continuing, Ajibola noted that another factor affecting penetration of agric insurance in Nigeria is poor administration of subsidy. “If you look at it, maybe 60 to 70 per cent of countries in the world actually subsidise agriculture insurance for farmers to make it affordable, but in Nigeria, historically, there was no proper administration of premium subsidy, even at a point in time we even stopped it.

“We no longer subsidise premium because the amount of premium that farmers need to pay. For example, crop farmers in the country were paying two per cent, it is believed that that’s 50 per cent premium rate. The remaining two per cent was supposed to be shared between the Federal and state government, where the farm is domiciled, but if you ask me, I don’t know whether NAIC who administer this particular scheme (NAIS) have access to that subsidy, they rarely get the subsidy.

“So, if you have not paid commensurate and adequate premium, eventually accessing adequate claim will also be difficult and because of our low premium rate, of course there are re-insurance companies who are not willing to take up the risk from insurance companies. So when the claims crystallise – when flood comes, or when diseases and pests come or draught and the claim is starring the insurance company in the face, they have excuses not to pay.

“The country director hinted that until recent, around 2018 to 2020 when Pula Advisor introduced what is called Area Yield Index, which is perfect fit for smallholder farmers, accessing agric insurance by farmers was a difficult task. “So, if you have smallholder farmers in cooperatives, groups, in clusters, it’s very easy for them to administer area yield index to them. What it means by aerial yield is that the insurance policy is insuring the expected yield of the farmer. They get data of historical yield of a particular crop in given agro-ecological zone or a given area and they benchmark that yield and the price.

“So, it was Pula that took the premium rate from two per cent to three per cent, in collaboration with NIRSAL to 4.5 per cent to five per cent and eventually to the ABP to three per cent to 3.5 per cent.”

To maximise the advantages of agric insurance in its entirety, Ajibola said, “the first thing farmers need to know about Agric insurance, in order to have a good smooth insurance administration and they can enjoy the benefit of is the need to be educated on which product is most suitable for them, not just forcing any product down their throats.

“There are products that are suitable for individuals and a given kind of programme or a given kind of farm enterprise set-up. Commercial farm that has very large scale farm can take what is called multi-tele-cropping insurance, but smallholder farmers in their group can only take what is called parametric or index insurance.

“So if a smallholder farmer go and take the multi-telecropping insurance, definitely claim administration is going to be difficult and of course eventually they will not be happy, they will be discounted at the end of the season.”

He advised farmers to take away their minds away from the cultural beliefs that everything is in the hands of God, “not undermining the fact that God has everything in his hands, but God has also given us wisdom and brain to think and he has given us ways and manner to manage our risk by ourselves.

“Farmers need to know that if they have taken up a policy and insurance organisation is not paying, there are ways to go about it. There’s what is called National Insurance Association (NIA) that you can report to. Most of the policies that are given to farmers contain the details of that association. If any NIA is not responding to you, you can go to National Insurance Commission (NICOM). NICOM can help you to investigate because they are the regulator of the insurance companies, so they regulate all other insurance company except NAIC Agric insurance.”

He stressed that as much as agric is the future and the way to go, to better the economy, the sector should be made productive, instead of being a consuming economy, to reduce the country’s import bill. “You can imagine how much we spend on the importation of wheat, sugar, soya beans, maize etc. so if there is a future for Agriculture in our economy, then there is future for Agric insurance as well. I can say without mincing words that there is future for Agriculture insurance.

“There are lots of insurance tech companies that are infiltrating Nigeria. Of course we have mentioned Pula Advisors and they have other ones that are coming into the country that are trying to help insurance company to understand the risk by helping financial institutions to understand the risk, helping farmers to also interpret the risk, then designing bests poke products for individual programme not just one jacket-fit hall. For me, I think the last count of 2023 or 2022, Nigeria Agric insurance is almost about maybe around N12b in terms of premium and I see it as an N100b or above industry. So there’s a big future for Agric insurance.

“As Federal, state government and other institutions are trying to organise farmers into cooperatives, organise loans and incentives for farmers to adopt good agronomic practices, I think those are the things that is going to make agriculture insurance to work in Nigeria. So there’s a big future for Agric insurance, there’s future for investment in agriculture insurance firms for any investor who is interested in doing that. There’s future for farmers to benefit more and more from claim.”

For Dikwa, to make agric insurance efficient in Nigeria, he suggested offering of alternative insurance and a holistic intervention that takes cognisance of social and economic realities, adding that the country needs to establish a strong extension services network to make not only insurance work but the entire agriculture sector.