Every business involves risks, and farming is no exception. In Nigeria, farmers face numerous risks, including unpredictable weather, pest invasions, market price fluctuations, and disease outbreaks. These risks can quickly turn a promising revenue into a financial loss. However, farmers can manage these challenges through the use of agricultural insurance.

Agricultural Insurance in Nigeria enables farmers to recover from losses and stay in business, even after a poor harvest, by offering financial safety, which strengthens their resilience and promotes long-term growth in the agricultural sector.

Understanding Agricultural Insurance

Agricultural insurance is a risk management tool that protects farmers from losses caused by unforeseen events, such as droughts, floods, as well as biological threats like pest infestations and plant diseases. Additionally, market fluctuations, which can affect the prices farmers receive for their produce, also pose a significant risk.

The primary purpose of agricultural insurance is to provide financial compensation when crops fail or are lost due to adverse conditions. This compensation can help farmers cover costs such as replanting, purchasing new seeds, and managing ongoing operational expenses, ultimately enabling them to recover more quickly from setbacks.

Moreover, by mitigating risks associated with agricultural production, insurance plays a crucial role in fostering agricultural sustainability. It encourages farmers to invest in their operations and adopt innovative practices, knowing that they have a safety net in place. This, in turn, contributes to the overall stability and resilience of the agricultural sector, supporting food security and economic growth within rural communities.

Agricultural Insurance in Nigeria

The concept of agricultural insurance in Nigeria has gained momentum in recent years despite ongoing challenges. Historically, limited awareness and a lack of understanding among farmers have hindered the adoption of agricultural insurance, resulting in a largely underdeveloped sector that struggles to protect farmers from unpredictable risks 

According to Aliyu Abdulhameed, NIRSAL’s Managing Director/CEO, the agricultural insurance space was once stagnant, with limited private sector participation. However, recent efforts by both public and private stakeholders have actively promoted agricultural insurance.  Initiatives such as training programs, awareness campaigns, and collaboration with local agricultural associations have contributed to increased accessibility and comprehension of insurance options, leading to notable progress in the industry. 

Benefits of Agricultural Insurance

• Timely compensation helps farmers recover from losses and maintain livelihoods, thereby promoting income stability.
• Insured farmers are more likely to secure loans from banks, as insurance reduces lender risk and encourages expansion.
• Increases farmers’ confidence in continued investment in quality inputs and technologies.
• Stabilises production and supply by reducing the impact of shocks, which inherently generates food security.
• The Nigerian government subsidises premiums under schemes like the Nigerian Agricultural Insurance Scheme (NAIS), making insurance affordable and available to smallholder farmers.

Why is Agricultural Insurance in Nigeria Underutilised?

Agricultural insurance in Nigeria remains significantly underutilised despite its potential to safeguard farmers against various risks. Several factors contribute to this situation. Some of them include: 

1. Low Awareness: Many farmers, especially in rural areas, are often unaware of available agricultural insurance options. This knowledge gap is largely due to inadequate outreach and education by insurance companies regarding the benefits of agricultural insurance for farming communities.
2. Affordability: Many small-scale farmers find insurance premiums prohibitively high. Operating on tight margins, they often prioritise immediate agricultural needs over what seems like an unnecessary expense, leading to a reluctance to consider insurance as a viable option for protecting their livelihoods.
3. Trust Issues: Historical incidents of denied claim payouts have led to scepticism among farmers about insurance providers. Many fear that in a disaster, their claims may not be honoured or that the requirements will be too complex. This distrust can deter farmers from seeking necessary coverage.
4. Limited Reach: Agricultural insurance is often limited to specific areas, leaving many rural farmers without essential safety nets. Insurance providers tend to focus on urban regions, viewing them as more profitable, which results in a lack of products tailored to the unique challenges faced by remote farmers. This limited access increases their vulnerability to agricultural risks.

Agricultural Insurance Available in Nigeria

Nigerian farmers can access different types of agricultural insurance, including:

Crop Insurance: Crop insurance protects farmers from losses resulting from crop failures caused by adverse weather, pests, diseases, or other risks. In Nigeria, key crop insurance options include:

• Yield-Based Insurance: Covers losses when actual crop yields fall below expected levels due to drought, flood, pests, or diseases.
• Area-Based  Insurance: When payouts are triggered by weather indices like rainfall levels, eliminating the need for farm-level loss assessments.
• Multi-Peril Crop Insurance: Offers broad coverage against multiple risks, including weather, pests, diseases, and fire, providing comprehensive protection.

Livestock Insurance: This covers the death of animals from disease, accidents, or theft, veterinary expenses for treating livestock diseases, and losses from feed shortages or poor-quality feed.

Agricultural Asset Insurance: This covers damage or loss to farm buildings, machinery, and equipment caused by fire, theft, natural disasters, or accidents; includes transit insurance protecting produce during transportation.

Value Chain Insurance: This covers risks throughout the agricultural value chain, including storage (warehouse receipt insurance), market price fluctuations, and processing risks.

Agricultural Insurance Providers and Programs in Nigeria

National Agricultural Insurance Corporation(NAIC): NAIC is a government-backed institution created to provide agricultural insurance to Nigerian farmers. It offers both subsidised and commercialised insurance schemes. Under the subsidised scheme, smallholder farmers can receive up to a 50% discount on their premiums for coverage against natural disasters, including drought, flood, windstorms, pests, and fire. The commercial scheme is available to larger-scale farmers who may not qualify for subsidies or need broader protection. NAIC also covers livestock, farm equipment, and general agricultural assets. The corporation works to ensure prompt payment of claims, provide technical support, and promote insurance awareness among farmers. Farmers can access NAIC’s services through their website, where policy information and claim procedures are available.

Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL): NIRSAL is a Central Bank of Nigeria initiative launched to de-risk agricultural lending and increase access to finance for all actors along the agricultural value chain. NIRSAL supports the development and dissemination of agricultural insurance products by partnering with financial institutions and insurance companies. One of its major innovations is the Area Yield Index Insurance (AYII), introduced in 2017, which protects farmers against yield shortfalls caused by adverse weather or pests. In 2020, NIRSAL launched a more advanced product, the Hybrid Multi-Peril Crop Indemnity-Index Insurance (HM-II), which combines traditional insurance with satellite and agronomic data to improve accuracy and claim validation. NIRSAL collaborates with insurance companies and farmer cooperatives, helping over a million farmers access affordable and reliable coverage. More information is available on their website.

Private Insurers: In addition to NAIC and NIRSAL, private insurers in Nigeria also provide agricultural insurance, often in partnership with NIRSAL. One of them is Royal Exchange General Insurance, which collaborates with NIRSAL to offer the HM-II insurance product. They provide coverage against weather risks, pests, and diseases, using both satellite imagery and on-ground assessments. 

Another private insurer is AXA Mansard, which was one of the first insurers to partner with NIRSAL to provide index-based insurance to smallholder farmers. Their offerings include protection against crop failure due to environmental hazards. 

Leadway Assurance also offers customised crop and livestock insurance solutions and was among the initial partners with NIRSAL. 

Each of these private insurers typically has a dedicated agricultural insurance desk and works in tandem with NIRSAL to distribute and administer policies.

Why Nigerian Farmers Need Agricultural Insurance

High-Risk Exposure: Most Nigerian farmers operate in high-risk environments, which are characterised by limited access to irrigation, storage, security, and disease control.

Climate Change: Increasing cases of drought and flooding make farming unpredictable.

Low Financial Capacity: A bad season can ruin a farmer’s livelihood without insurance.

The role of Agricultural Insurance in Nigeria is too critical to be ignored, as it protects farmers from financial losses and encourages agricultural productivity. With the right policies, awareness, and support, insurance can become a game-changer for farmers and significantly transform the farming landscape.