How to Insure Your Agricultural Projects in Nigeria

By Modupe Gbadeyanka

It is no doubt that agricultural production in Nigeria is faced with inherent and myriad of risks and prominent among them are input supply, price of inputs, agricultural yield, project prices and production risks due to effects of climate change or natural disasters.

It is important to note that the agricultural production risks always affect farmers and agribusiness in different ways, thereby affecting agricultural production and threatening food security in the country.

Agricultural insurance is the protection of farmers against the risks of natural disasters, pests and diseases in exchange for regular premium payments proportion to the likelihood and cost of risk involved.

Not many may know that in order to address agricultural production risks, the Federal Government of Nigeria established the Nigerian Agricultural Insurance Scheme, managed by Nigerian Agricultural Insurance Corporation (NAIC), to provide protection to farmers on the effect of natural hazards.

The scheme was launched on December 15, 1987, as part of its efforts to enhance and sustain food production in Nigeria in realization of the fact that most efforts to promote food production have not yielded much results, due largely to incidence of incremental weather conditions and the effects of natural hazards like floods, drought, pests, diseases, fire etc.

NAIC was established and incorporated by Act No. 37 of 1993 to operationalize the Nigerian Agricultural Insurance Scheme with the following key objectives:

* Provide financial support to farmers where losses to crops and livestock arise from natural hazards;

* Induce the provision of credit by financial institutions, as the insurance serves as an added collateral;

* Promote and enhance agricultural production by giving farmers confidence to accept new and modern innovations and inputs;

* Eliminate or minimize the need for Government to provide ad-hoc assistance to farmers during agricultural disasters.

Agricultural Items Covered by NAIC

The Scheme provide cover to all crops, livestock and tangible fixed assets like farm buildings, machinery, equipment, agricultural produce activities, warehousing and other Agro-processing activities.

Summary of items covered by NAIC include:

(a) Subsidized Crop – maize, rice, millet, yam, mixed crop, cassava, sorghum, vegetables, irish potato, sweet potato, soya beans, cowpea, pumpkin, melon, groundnut, sesame, wheat, peanut, coco yam, pepper, garlic etc.

(b) Subsidized Livestock – cattle, sheep, goat, poultry, fishery, pig, apiary, snailery, grass cutter, rabbitry etc.

(c) Commercial crop – cocoa, rubber, oil palm, horticulture, plantain, sugarcane, jatropha, ginger, cotton, tea, coffee, gum Arabic, pineapple, kolanut, tree crops etc.

(d) Commercial Livestock – dogs, horses, camel, donkeys, pets, zoo animals etc.

(e) Multi-Peril Cover (MPC) – combined trading, agroc-processing, storage rksks, ware-house activities etc.

(f) Tangible Fixed Assets – farm buildings, machinery, equipment, motor vehicles, fishing nets, outboard engines, fishing boats etc.

(g) Farmers, Farm Labour/Employees and their dependants.

(h) General Business – Motor vehicle, Fire and Special Perils, Burglary, Group Personal Accident, Money Insurance, Plant-All-Risks, Machinery Breakdown etc.

Perils Under Cover

The perils covered under the agricultural sub-sector are as follows:

(a) Subsidized Crops – The perils covered are comprehensive in nature and include fire, lightning, windstorm, flood, drought, pests and diseases.

(b) Commercial Crops = The perils covered include fire, lightning, windstorm, flood, drought.

(c)  Subsidized Livestock – The perils covered are death or injury due to accident, disease, fire, lightning, storm and flood.

(d) Commercial Livestock – The perils covered are the same as in subsidized livestock.

(e) Multi-Peril Cover – The policy covers risks of loss or damage to agricultural produce or goods while in storage or in transit from one destination to the other or due to and fire, allied risks, burglary, house breaking and transit goods.

(f) Tangible Fixed Assets – The perils covered include loss or damage to insured items by fire, lightning, collision, explosion, storm, violent theft and other allied perils.

(g)  Farmers’ Farm Labour, Employees and Dependants – The policy covers death or bodily injury which may result in temporary or permanent disability during the course of duty or work.

(h) General Business – Perils covered in General Insurance include theft, accident, burglary, loss or damage to plants, machinery etc, transit risks and other allied risks.

How to Insure Agricultural Projects with NAIC

NAIC was established to cater for all farmers in the country, either small, medium or large scale farmers either in groups or as individuals.

The scheme operates a mandatory cover which applies to all Agricultural and Agro-related projects or programmes assisted supported or fully funded from public funds, all direct and on-lending loans taken by Federal, State or Local Government for disbursement to farmers and all form of agricultural loan disbursed by all banks and non-bank lending agencies.

Insuring Agricultural Projects Through banks and other Lending Institutions

Insurance cover can be obtained through Banks and other lending agencies/institutions by following procedure outlined below:

* The farmer or client approaches the Bank or lending agency and applies for an agricultural loan;

* The bank or agency processes the loan and approval given;

* The Bank or agency decides on the applicable insurance needs of the loan applicant;

* NAIC and the bank/lending institution enlighten the client/loan applicant on all the insurable risks involved in the class of agric business or projects the farmer is proposing to embark upon and also the importance and benefits of taking the insurance cover;

* Proposal form is then issued to the client for completion from which NAIC obtains complete, accurate and adequate information about the applicant and the proposed project.  For large scale project Bank offer letter and feasibility report of the projects are required;

* On proper completion of the proposal form, premium is computed based on the prevailing and approved rate on the loan volume, sum insured or estimated production cost of the proposed project(s);

* The client is advised on the premium payable to provide insurance cover to the project;

* Premium deducted by the Bank or intermediary is sent to NAIC by cheque, or electronic transfer together with the Bank remittance list and cover commences immediately;

* The Certificate of Provisional Insurance Cover (CPIC) and other documents are issued to the client/bank.  This will confirm temporary cover;

* A comprehensive inspection is conducted on the farm to ascertain the suitability of the farm;

* Once the project has been found to be genuine and insurable based on the inspection report, cover will be fully granted on the project;

* Original policy is issued to the client through the lending bank.

Insurance of Agricultural Project by Individual/Self-Financed Farmers

Insurance cover can be obtained by self-financed or individual farmer through the following procedure:

* The Farmer collects proposal form from NAIC based on the interested project(s) to be insured;

* He is then enlightened/educated on how to complete the form and also the terms and conditions of the policies;

* NAIC examines the duly completed proposal form and compute the appropriate premium based on the estimated cost of production or sum insured of the project;

* On payment of appropriate premium a Certificate of Provisional Insurance Cover (CPIC) is issued as a temporary cover;

* A policy document is then issued to the insured as evidence of the contract;

* NAIC may undertake a monitoring visit to any of the insured projects as a way of verifying and assessing the projects.

The above provide a detailed procedure for insuring Agricultural projects with NAIC.  All prospective clients are encouraged to contact the nearest NAIC office nationwide for enquiry and their agricultural insurance needs.

All clients are advised to study the conditions of their policies noting all exceptions and exclusions.

The approved premium rates for subsidized crop are 4 percent of the sum insured and 5 percent for livestock.

It is important to mention that under the Nigerian Agricultural Insurance Scheme some crops and livestock items are subsidized to the tune of 50 percent by the Federal and State Government in the proportion of 37.5 percent and 12.5 percent of the premium payable.

In NAIC, claims are treated and paid with dispatch and insured are encouraged to report claim incidence promptly to enable verification and commencement of processing for payment.  The indemnity for crops is based on the approved input costs, less the value of crops harvested or salvaged if any.  For the livestock indemnity is the value of the animal at the commencement of the policy plus the approved input costs.