Aghoghovbia: Why There is Decline in Agric Insurance

Aghoghovbia: Why There is Decline in Agric Insurance

The Deputy Managing Director and Chief Operating Officer of African Reinsurance Corporation (Africa Re), Mr. Ken Aghoghovbia, in this exclusive interview with Gilbert Ekugbe talked about the decline in agric insurance premium since 2021 dry season, projecting that the downward trend is expected to continue through 2023. Excerpts

What are the potentials and prospects of agricultural insurance in Nigeria?

With about 70 million hectares of agricultural land and the need to diversify the economy, investment is needed to modernise and improve productivity in the agricultural sector. Financing such initiatives will require the involvement of many stakeholders, including mainstream financial institutions. However, financing the agriculture sector requires the comfort of insurance to de-risk the value chains and minimise default on credit. It is estimated that based on potential agricultural production in Nigeria, the country’s agriculture insurance market could generate over $600 million in insurance premiums.

How vital is the role of insurance in agric and scaling up process to Nigeria agriculture development?                                                                                                                             Agriculture insurance is an important element in the development of the agriculture sector in Nigeria as it transfers the risks in agriculture to the financial markets and provides relief to insured farmers. When a catastrophe leading to displacement occurs, uninsured farmers usually fall back on their poor family members thus worsening poverty. If they were insured, they would be compensated. So, in this sense, insurance guards against worsening poverty levels. Development in the agricultural sector requires investments from financial institutions and farmers themselves. Farmers whose financial positions are threatened because of the effects of adverse weather conditions on their enterprises can invest more resources due to the security provided by agriculture insurance policies. Also, by bundling credit with insurance, lenders are assured of loan recovery while farmers have increased access to the much-needed capital from mainstream commercial institutions to expand farming operations. Growth in local agriculture production will move Nigeria towards food security, increase export earnings, reduce spending on food imports, which according to the International Trade Administration (ITA) is estimated at $10 billion, and ease foreign exchange pressure thus spurring economic growth. Agriculture contributes about 21 per cent of the Gross Domestic Product (GDP) of Nigeria and the country has massive lands for farming and if our lands are effectively developed and all the challenges such as the farmers-herders crisis, climate change, flooding, desertification of land for crops and livestock farming are addressed and farmers are encouraged to take insurance, and one of the things we are doing with the International Finance Corporation (IFC), and I think we did a pilot programme on that, is how to address awareness and that is where we will need the media, also how to make it easier for farmers to pay for insurance because you know most of our farmers are subsistent farmers and their means of livelihood is from hand to mouth, so whenever there is any disaster or attacks from herders, many of them become very dependent moving to live with relations, so their farming activities are stopped because they are concerned with their lives and when you have all those crisis and you do not have access to finance, because the banks realise that whenever we have these crisis, the farmers will not be able to pay back, but yet they need finance to bring in modern technology to improve their farming activities, they need finance to expand and in every business, you are expected to grow, but financing is a problem and with insurance, where you give comfort to the bankers, they are more comfortable to give farmers money, so it is a ripple effect in the economy, because it gives guarantee that there is sustainability and they can continue to farm, they can grow and thrive in their farming activities. Many of these farmers do not even know there is insurance and once all these are done, we can see more people getting involved in agriculture and if we empower the whole value chain, because of the problems we have in agriculture is post-harvest losses, but if the value chain is developed and not just focusing on the raw materials alone, but processing and exporting finished products, we think the economy will be better for it.

What is your take on the agriculture insurance performance in 2022 and 2023 thus far?

The non-renewal of the Central Bank of Nigeria (CBN) Anchor Borrowers’ Programme (ABP) due to high default rates, following alleged misappropriation of agricultural loans, has led to a decline in insurance premium since 2021 dry season when the peak annual written premium was put at $15 million. This downward trend is expected to continue through 2023, and to start picking up again in 2024. Our optimism is informed by market investments made in the past 3 years. We have identified government schemes and large-scale farming as the key drivers to agriculture insurance premium growth in future. Also, what came out in the ABP is still being looked at, also investigation is still ongoing and I think when that is addressed and fortunately we have a new CBN Governor and I believe with their focus in agriculture, those issues would be quickly resolved and more funding would come into that space, because it is all about funding. If we enable farmers, they will grow. We have very good farmers with experience in Nigeria. The new CBN government must focus on giving loans to real farmers, monitoring and evaluation to ensure that these funds are used properly in their bid to increase farmers’ productivity.

According to reports, Nigeria can generate $600 million Premium for Nigeria what is your take on this?   

Yes, this is a potential which was drawn by the resources available in the country compared to other countries internationally, but we are very far away from that figure, which only tells that a lot still needs to be done in the country and that is where we are trying to champion that direction working with IFC. We are trying to bring in more players into the agric insurance space by guaranteeing that loss ratios above 70 per cent will be taken care of and paid by IFC and no company will suffer above that and that has attracted about 18 companies into the space of insurance.

What are some of the challenges hindering the agriculture industry in the country?  

The biggest challenge confronting the industry from our perspective include climate change that is manifesting in frequent droughts and flooding, farmers-herders clashes and inadequate government support especially in providing subsidies. Countries like China and India, for instance, have boosted their production by giving special attention to agriculture through subsidies and tax incentives. Other limitations include poor quality of agriculture production and weather data that is a crucial element in contract design and claim adjustment. Resolving these challenges requires a multi stakeholder approach with government having the biggest role to play. Also, agriculture insurance should be viewed as public good that warrants special attention from the authorities in line with their key objective of promoting food security and creating employment opportunitie

Is the government doing enough to support agricultural insurance in the country?   

Successive governments have shown commitment to develop the agriculture sector in Nigeria. Indeed, government initiatives like the ABP have provided insurers with the opportunity to grow their agriculture portfolios. However, more needs to be done. In countries like the United States, Canada, China and India, where agriculture insurance business has succeeded, the governments are heavily involved by providing subsidies and tax incentives. According to the Asian Development Bank (2022), agriculture insurance premium subsidies accounted for 74 per cent of the total agriculture insurance premium in the People’s Republic of China (PRC) in 2020. The government’s support in PRC is mainly driven by the need to achieve food security and create job opportunities for rural households. However, government support goes beyond subsidies and the creation of market opportunities. There is need to provide leadership through stakeholders’ engagement in the implementation, monitoring and evaluation of agriculture insurance programs in order to mitigate moral hazards. Various government agencies like NAICOM and NAIC have played a critical role in offering guidelines for agriculture insurance products. This is very important considering that this class of business is still in its formative stages here in Nigeria.

How can Nigeria address the rising food inflation currently at 30.64 per cent as at September 2023?

Producing enough food locally is the answer to addressing the food inflation challenges. However, to achieve this objective, there is a need to channel more funding to the agriculture sector. Funding is needed for farmers to modernise farming activities through acquisition of new machinery, improved seeds, and technologies that improve overall agriculture productivity. Climate change is definitely one of the greatest challenges to the agriculture sector.

What role can agric insurance play in addressing dangers posed by climate change?

Climate change events like droughts and flooding have become more frequent and severe, with devastating consequences to the farming communities. It should be recalled that in 2012, both the Benue and Niger River over flooded causing the death of 600 people and the destruction of farmlands. Furthermore, in 2020, it was reported that an estimated 79 per cent of Nigerian farmers were affected by drought and flooding causing destruction to farmlands across the country. In 2022, floods adversely affected investments worth N700 billion in the agriculture sector when many farms were destroyed and households displaced. Agriculture insurance payouts provide a safety net to protect farmers from financial shocks caused by such extreme weather events. These payouts help farmers to recover quickly and resume their normal farming activities without the danger of sliding into poverty or the consequences of defaulting on credit.

There is a new Minister of Agriculture and Food Security, what will be your advice to him on the way forward as far as Agriculture insurance is concerned?

Agriculture insurance is an important element in promoting agriculture and ensuring food security. Well implemented agriculture insurance programs can attract investments in the agriculture sector and stimulate economic growth. Indeed, Nigeria has institutions that have the technical capability and resources to make this class of insurance work for the country. However, there is the need to bring together all key stakeholders to align goals for the development of agriculture insurance in Nigeria. In this regard, an emergency response plan to effectively mitigate the impact of possible catastrophes, such as severe floods, has to be put in place.

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