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Index-Based Insurance to boost Agric sector access to credit, protection

by MODESTUS ANAESORONYE

January 31, 2018 | 12:15 am
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Nigeria’s agricultural sector is to witness improved access to credit, investment and growth, as five insurers have formed a consortium to underwrite an index-based agricultural insurance programme.
The consortium, including Leadway Assurance Company Limited, Royal Exchange Assurance Plc, Nigerian Agricultural Insurance Scheme (NAIC) and AXA Mansard are to grant group yield crop insurance cover for the 2017 farming season, and many more insurers are expected to follow suit going forward, BusinessDay investigations reveal.
Consequently, they have received product approval from the National Insurance Commission (NAICOM) for the pilot scheme in ten 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 (international) 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, inspectorate, National Insurance Commission said.
Thompson speaking during a seminar for insurance journalist said this consortium is as a result of ongoing efforts government to diversify the Nigerian economy and create opportunities to promote Agric business and employment.
He stated that NAICOM has keyed into this effort in line with its desire to deepen insurance penetration and contribution to the development of Agric business in Nigeria.
According to him, financial institutions in Nigeria will be more willing to provide credit to rural and smallholder farmer’s households that have index based agricultural insurance policy because these households will be able to utilize insurance pay-out at 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,” Thompson said.
The Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) had sought for the collaboration of NAICOM in delivering its mandate under the Insurance Facility pillar and utilizing 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.

 
MODESTUS ANAESORONYE

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by MODESTUS ANAESORONYE

January 31, 2018 | 12:15 am
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