A roadmap for evidence-based insurance development for Nigeria’s farmers
In 2014, Nigeria’s Federal Ministry of Agriculture and Rural Development (FMARD)
proposed a major expansion of agricultural insurance in the context of other reforms to the
agricultural sector, and as part of the implementation of its National Agricultural Resilience
Framework (NARF). This report is designed to inform development of inclusive insurance for
Nigeria’s agriculture sector, and is offered as a contribution to the NARF. It is an outcome of
a consultative process that began in September 2014 between FMARD and the CGIAR
research program on Climate Change, Agriculture and Food Security (CCAFS).
By overcoming the problems of moral hazard, adverse selection, and resulting high
transaction costs and processing delays that have plagued indemnity-based agricultural
insurance, index-based insurance makes it feasible to insure millions of smallholder farmers.
Well-designed index insurance can achieve specific risk objectives such as protecting
farmers’ livelihoods in the face of major climate shocks, and promoting farmers’ livelihoods
by overcoming barriers to adoption of improved agricultural technologies and practices, and
access to market opportunities.
Reviews of index-based agricultural insurance initiatives have identified several success
factors that are relevant to the situation in Nigeria. First, successful initiatives have been
designed to unlock particular opportunities for farmers that were previously constrained by
particular risks. Second, initiatives are most successful when they are driven by demand and
responsive to farmer input. Third, successful initiatives have invested in the capacity of a
range of local stakeholders. Fourth, investments in data systems, and in science-based index
development, have helped address the challenges of data poverty and basis risk. Fifth,
successful index insurance requires an enabling regulatory environment. Finally, successful
initiatives involve multi-stakeholder partnerships, and often public-private partnerships.
A strategy for expanding insurance for Nigeria’s smallholder farmers must address challenges
that include: limited and asymmetric information; crowding out by post-disaster relief efforts;
limited access to reinsurance markets; lack of insurance culture; and inadequate regulatory
environments. The development of effective market-based agricultural insurance, requires
government support in five key areas: data systems; awareness and capacity building;
facilitating international risk pooling; “smart” subsidies; and an enabling policy environment.
Three immediate priorities are identified: (a) creating a regulatory environment that makes it
attractive for insurance companies to enter the market; (b) developing a public-private
partnership that incentivizes and supports companies to develop innovative products and
services for the agriculture sector; and (c) progressively expand implementation through welldesigned pilots, evaluation and learning processes. The organizations that have been involved
or consulted in the process leading to this report offer relevant expertise.
Agricultural insurance; Climate services; Nigeria; Resilience; Public-private partnership;
James W. Hansen Débísí Àràbà Jonathan Hellin Rose Goslinga