Globally, agriculture is a risky venture, one in which unexpected diseases or pests could wipe out months (or even years) of hard work and investments. It gets worse in places like Nigeria where little advancements have been made in developing agricultural systems that are immune to adverse (natural and man-made) conditions. To top this, there is hardly insurance to cushion against agricultural losses in Nigeria.
Efforts to transform agriculture from a traditional (subsistent) activity to a full fledge commercial activity which will help to boost Nigeria’s revenue as well as ensure food security have been considered limited owing to inability to secure insurance in a competitive manner as some investors remain sceptical to put their funds in a market where risk cannot be adequately mitigated.
“Other than the intervention of NIRSAL in terms of risk sharing, agric insurance has unfortunately not been very impactful in this environment and this is one of the things we must encourage,” said Tunji Owoeye, group managing director, Elephant Group Plc. “The moment you have insurance, it gives assurance to the lender and increases capacity or appetite to get into the transaction. It is something that must be encouraged.”
A flawed monopoly
In Nigeria, agricultural insurance is perceived to be vested more or less in the Nigerian Agricultural Insurance Corporation (NAIC), which by virtue of the law establishing it is empowered to provide insurance to the agric sector, particularly when funding is being sourced from government interventions or loans from financial institutions.
Some portions of the enabling law for the Nigerian Agricultural Insurance Corporation Decree No 37 of 1993 which are reproduced below may have contributed to the perception that it enjoys a monopoly.
Section 13 of NAIC’s act under the section “Participating Farms”, states that: A farmer whose crop or livestock is covered by section 7 of this Decree may take out an insurance cover under the Scheme but where the farmer is also a beneficiary of an agricultural loan or credit from the Government, a bank or other financial institution (in this Decree referred to as “lending institution”) he shall take out an Insurance cover under the Scheme.
Section 14, under the heading “Remittance of premiums by Lending Institutions etc.” stated in subsection (1) that: A lending Institution shall subject to the provisions of this Decree and other Directives that may be given by the Board deduct the Insurance premium due from the loan or credit at source and remit same to the Corporation not later than 30 days from the date of disbursement of part or the whole of the loan or credit
(2) A lending which fails to comply with the provisions of subsection (1) of this section shall pay the premium which is due from and payable by the farmer under that subsection and the amount of the premium so unpaid shall
(a) Notwithstanding any other enactment, be a first charge on the property of the lending institution; and
(b) Be a debt due to the Corporation and the Corporation may sue for and recover from the lending institution the amount in any court of competent jurisdiction.
While NAIC often refutes the claim of enjoying a monopoly, especially since some insurance companies have now been licensed to carry out agricultural insurance, another point is the subsidy NAIC enjoys from government (on premiums), this, the private insurance companies surely cannot compete against.
“Government established NAIC because private insurance companies refused to do agricultural insurance,” claimed Victor Ofovbe, a senior manager with NAIC, covering Agric Underwriting, and a member of the claims committee, in a phone interview.
He also said “one or two (private insurance companies) were given licenses to carry out agric insurance, but they are not making impact. Even when big farmers approach them for insurance cover, they reject those businesses when they see the risks involved, but NAIC accepts every risk, whether bad or good, because that is what we were set up for.”
His assertions were however refuted by Ajibola Samson, head, Agricultural & Micro Insurance, Leadway Assurance, who said; “In fixing the financial value chain (for agriculture), it was discovered that insurance was the weakest link and the excuse of the banks (against) to lending to agriculture was because only NAIC was underwriting agriculture risks,” said in an emailed response to BDSUNDAY enquiries.
“The banks were not comfortable with the monopoly, so the insurance industry was called to come and partake in the underwriting of agriculture risks. The criteria for underwriting were set by the insurance regulator NAICOM but only few companies showed interest. The few were given products approvals based on the number of products each presented before the regulator.
“Though there is dearth of capacity in this specialty area in the insurance industry, but the major reason why many private underwriters never showed interest was because of the unlevelled playground created by the Act that established NAIC,” said Samson.
Lack of confidence limits appetite for insurance
“NAIC has poor capacity. They aren’t well organized and don’t pay claims promptly. My friend was delayed for his rice farm, (and) they (later) claimed the accident happened too soon after he signed up,” said Yomi Fawehinmi, a member of the Agric and Agro-allied group platform of Lagos Chamber of Commerce and Industry (LCCI).
For Taju Onitiju, CEO, Tajukola farming enterprises, a farmer since 1983 (four years before NAIC’s establishment), “I don’t think many people believe in NAIC, and I don’t believe its existence is justified.”
Expressing similar sentiments, Joshua Zira, Unit Head, Export Trade at Sterling Bank Plc said, “Many times, customers forfeit their claims,” while explaining the frustrations many people go through to have NAIC cover their losses.
He added “When things are government instituted, they don’t work out as intended. If people have issues with claims, getting response from NAIC at times is difficult. They are not proactive.”
This view is corroborated by Adeola Elliot, immediate past chairman, Agric Group, LCCI who said “The (NAIC) insurance issue is epileptic like other government institutions. The fact is that 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.”
Ofovbe of NAIC, while admitting the corporation’s imperfections, still believes it is doing the best. “I’m not saying we are perfect, or that we don’t have our shortcomings, but for anybody to say there is no confidence in NAIC or that we don’t pay claims, such a person is not being fair,” he said. “I tell you on good authority that there is no insurance company in this country that pays claims like NAIC.”
Private sector yearns for total liberalisation
The general consensus from agric stakeholders, insurance, and finance experts who spoke with BDSUNDAY, points to the need for more insurance companies to participate in de-risking agriculture in order to encourage more investments.
Emmnauel Ijewere, vice president, Nigeria Agribusiness Group (NABG) remarked that “NAIC’s monopoly has been removed technically and we have had a few insurance companies coming in. They have to face something, and it is the fact that insurance has not become a habit in the agricultural industry.
“NAIC being a government agency was somehow subsidized but the commercial companies now coming in don’t have that privilege and have to charge commercial rates,” said Ijewere.
As noted by Samson, “Non-governmental underwriters are not permitted to partake in almost all bank financed project except those under NIRSAL. This needs to be addressed by the parliament. Because NAIC has been using (its enabling) law to prevent other underwriters from taking part in many national agricultural projects and also make the financial institutions to be too cautious of lending to the sector because they are afraid NAIC alone cannot carry the risk.”
There was positive appraisal for NAIC however, as Eleojo Peters, MD/CEO, Eleojo Foods NIG Ltd said that “NAIC over the years and even now still provides insurance services to Agric sector and this they do professionally. They provide soft landing for farmers and also serve as backup to the sector as a whole and this has helped increase in activities in the value chain.”
According to Ijewere, “NAIC has become a lot more proactive (since other insurance companies started showing interest) and it has started behaving with some private sector mentality which is good. There is now competition but it is an unfair one because NAIC is still subsidised by government.”
In the end, what Nigeria needs is a truly fair and competitive insurance industry which can mitigate risks in the agric sector, as the country yearns for more investments in the quest for food security.