Farmers’ climate-based insurance scheme underway

An implementation framework for a national climate-based insurance scheme will emerge in a few weeks, 18 months after a multi-stakeholder initiative to reform the agricultural insurance sector commenced. The agenda, which will be fashioned out by a nine-member group, will eventually metamorphose into a bill that will be presented to government for assent into law.

Driven by the International Centre for Energy, Environment & Development (ICEED), National Insurance Commission (NIACOM), Nigeria Meteorological Agency (NIMET) and the Nigeria Climate Action Network (NigeriaCan), the scheme entails the exploration of opportunities and challenges aimed at devising a climate-based agricultural insurance scheme for the country.

At a daylong forum last week in Abuja, participants constituted an implementation committee comprising the Federal Ministry of Agriculture (FMA), Federal Ministry of Environment (FME), Central Bank of Nigeria (CBN), Nigeria Agricultural Insurance Commission (NAIC), All Farmers Association (AFA), Nigerian Insurers Association (NIA), NIMET, NIACOM and ICEED to formulate and implement a work plan. The framework will detail necessary steps towards delivering the reforms.

Nigeria’s agriculture is presumably vulnerable to climate variability, with over 90 percent of crop production dependent on rain-fed systems; even as the sector contributes some 42 percent of the nation’s gross domestic product (GDP) and employs 70 percent of the total labour force.

According to the United Nations, Nigeria will in the next two decades experience shorter rainfall seasons with high intensity of precipitation. A higher average temperature is likewise predicted, especially for the dry North. Indeed, ongoing UN talks are negotiating a climate-based insurance mechanism to address the threat to agriculture and related sector.

The CBN recently launched an incentive-based risk sharing system for agricultural lending, which looks to scale up agricultural insurance and support the expansion of credit to the agricultural sector and help build farmers’ resilience against climate disasters.

At the Abuja session, Environment Minister, Hadiza Mailafiya, underlined the need to raise local farmers’ awareness on the need to access insurance services scheme to benefit from available lending facilities. She said, “Nigeria has significant experience in delivering traditional agricultural insurance schemes through cooperatives and government agencies. However, broadening the market for these risk management services are limited by factors like high transaction costs, regulation, product design and poor customer perception.”

Mailafiya, represented by Samuel Adejuwon, who heads the Special Climate Change Unit (SCCU) in the FME, disclosed that the ministry had constituted a national committee to undertake preparatory activities for Nigeria’s “effective and efficient participation” at the COP 17 scheduled to hold by year’s end in Durban, South Africa. “The climate change talks envisaged in Durban, I believe, will result in concrete financial transfers to developing countries including Nigeria, I therefore encourage us to embark on domestic reforms to leverage these anticipated support from the international community,” the minister emphasised.

The AFA President, Abdullahi Adamu, explained, “There is an urgent need for a risk management mechanism to mitigate climate change challenges and protect Nigerian farmers from huge losses in crops and resources. We encourage the government at all levels to explore the design and performance of particular policy instruments, informed policy developmental activities, and the design of policy systems to cope with complex challenges.”

Clerk, House of Representatives Committee on Agriculture at the National Assembly, Oscar Okoro, attempted to distinguish between protection insurance and promotion or development insurance. He stressed, “Protection insurance which is designed to help poor people protect their livelihood and assets has to be subsidised and rquires special delivery channels that should be aligned with relief rather than developmental interventions. “Promotion insurance which is designed to help households with viable farm businesses manage their risks can be channelled through private intermediaries, but is unlikely to sell unless it is subsidised or promotes farmers’ access to new productivity enhancing technologies or high value markets that can raise their incomes significantly.”

The CBN’s Director, Development Finance Department, Paul Eluhaiwe, lamented that the NAIC, though the sole insurer of primary agricultural production nationwide, is ill-equipped to meet the demands as only about 500,000 farmers have insurance cover in the country. “There is therefore an urgent need to review the act that established NAIC with a view to deregulating the sub-sector. More private sector players should also be allowed in insurance market in order to deepen the product offering, improve efficiency and spur healthy competition,” he declared.

NAICOM official, Babajide Oniwinde, stated that the firm’s objective is to deepen the market through financial inclusion, rural insurance including agriculture and micro insurance. “We give approval to insurance policy covering crops, livestock and including any climate-based product that will come into the market to make sure that the language of the policy is clear, fair and not misleading to the innocent farmers taking the policy,” he said.

The NIMET Director-General and Chief Executive Officer, Anthony Anuforom, warned that if no adequate climate change adaptation was employed by 2020, between two to 11 percent of Nigeria’s GDP could be lost. His words: “Statistic shows that average annual losses from weather related events were in the orders of $1 billion in 1990s, $35 billion in 2004 and almost doubled in 2005. In addition, it was recorded that, between 1980 and 2005, nearly 7,500 natural disasters worldwide took lives of over two million people and produced economic losses estimated at over $1.2 trillion. “About 90 percent of these are due to weather and climate hazards and translates to about $80 billion per year with only a quarter of the amount insured. Managing such risks poses serious challenges to developing countries like Nigeria with low coping capacity.”

Ewah Eleri of ICEED said, “The drought and floods we experienced in recent times are out of the ordinary compared with what we used to have, and it will only get worse. The farmers will bear the brunt of this disaster because their entire life savings depend on their crops. One way to address this is to be able to provide the farmers with some measure that allows them to balance their risks, which means that when crops fail or when heavy rains or dry spells occur, they have something to fall back on.

“In Nigeria, less than one percent of the farming population have access to insurance cover and, if this continues, the Federal Government will not be fulfilling its obligations over the agric sector. It is a mismatch that less than two percent of all bank lending goes to farming, even though 42 percent of the GDP is represented by agriculture. The government response is inadequate because only the NAIC is allowed to under right agric insurance. This does not point to the future. So we have brought all the critical actors to develop a national platform to launch a comprehensive reform in agric insurance.”

By Michael Simire, Deputy Sunday Editor.