swiss re agric presentation

7/31/2019 Swiss Re Agric Presentation

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BY

SINA ELUSAKIN(INDUSTRIAL AND GENERAL INSURANCE PLC NIGERIA)

AT

SWISS RE AGRICULTURAL INSURANCE WORKSHOP,SAFARI PARK HOTEL & CASINO.

NAIROBI, KENYA

JUNE 7 - 9, 2012


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TABLE OF CONTENT Introduction

- Importance of Agriculture to Nigerian Economy.

Agricultural Finance Policies in Nigeria.

Institutions established towards providing credit support to Agriculture.

Bank of Agriculture (B.O.A)

Agricultural Insurance in Nigeria

NAIC

Premium Subsidy

Challenges of Agricultural Insurance in Nigeria.

Deregulation Necessity

Governments Response.

Agric Insurance Potentials.

NIRSAL

Conclusion and Recommendations 2


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INTRODUCTION

IMPORTANCE OF AGRICULTURE TO NIGERIAN ECONOMY

Agriculture is very important to the socio-economic development ofNigeria.

- Responsible for 42% of GDP

-Major source of employment

-Engages 70% of rural poor

-Employs 30% of urban poor

-Though Oil and Gas is responsible for 80% of national revenue,only 23% of GDP emanates from the sector.

-Supply of raw materials to industrial sector

- Generation of FX earnings

- Provision of markets for the products of the industrial sector


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Agricultural Finance Policies In Nigeria

Government policies and support for agriculture necessary to:

Smoothen out imperfections in Agricultural finance

Ensure food security

Achieve favorable balance of payment

Promote foreign exchange earnings

Reduce poverty

Generate employment

Stem rural-urban migration

Stabilize food price

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Some of Government finance Policies in Nigeria include:

(i)Agricultural Credit Guarantee Scheme Fund introduced in 1978

and still in place till date.

75% of loan guaranteed by CBN

40% rebate on interest

Deals with small scale farmers. As at 2005, 70% of loan smaller

than $3,500.00 and only 11% of loan more than $7,000.00

Shortcoming: Administrative bottleneck

Agricultural Finance Policies in Nigeriacontd

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(ii) Small and Medium Enterprises Equity Investment

Scheme (SMEEIS) : introduced by Bankers Committee to

stimulate economic

growth, develop local technology and generate employment.

(iii) Rediscounting and Refinancing Facility : 2002 - date.

Banks that lend to Agriculture on long term basis have

access to an amount which is a certain percentage of theoutstanding asset portfolio to long-term agriculture by the

CBN at reduced rate at the discount window.

Agricultural Finance Policies in Nigeria..contd

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iv. Agricultural Credit Support Scheme (ACSS) : 2006 -date

(for large Agric projects)

- Borrowing rate was at 14%

- Borrower pays back 8%- CBN absorbs 6%

Purpose: Facilitation of the development of the agricultural sector by

advancing credit to farmers at low interest rates to exert downward

pressure on prices of agricultural produce.


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v. Large Scale Agricultural Credit Scheme: 2009 (N200

billion)

- To finance large integrated commercial farm projects

with an asset base of not less than N350m excluding land. -

- Terms of borrowing favourable.

vi. Supervised Agricultural Loans Boards: mostly set up

by State Governments and Agricultural DevelopmentProgrammes working with National Programme for Food

Security to provide credit to farmers


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Aside from the above major schemes, are various Government

programmes aimed at boosting agricultural production in Nigeria.

These include: National Accelerated Food Production Programme

(NAFPP), - 1972, Agricultural Development Programme (ADP)

1975, OFN 1976, Green Revolution 1980; Rural Banking

Programme 1991, Community Banking Programme 1991 1997,

Root and Tuber Expansion Programme, National FADAMA

Development Programme 1993; Family Economic Advancement

Programme (FEAP) 1997 2001; National Poverty Eradication

Programme.

Agricultural Finance Policies in Nigeria..continued

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Institutions established towards providing credit support to

Agriculture includes:Nigeria Agricultural Co-operative and Rural Development Bank

(NACRDB) 1972 to date Established by FGN & CBN to dispense

credit to cooperative agribusinesses and small holder farmers atsubsidized interest rate. The bank is now known as BOA.

River Basing Development Authorities (RBDA): 1997 date

National Grains Production Company 1979 . To expand grainproduction through provision of improved seedling to farmers

National Directorate of Food Roads and Rural Infrastructure (DFFRI)

Nigerian Agricultural Insurance Corporation (NAIC) 1987 date 10


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Bank of Agriculture (BOA)Federal Government owned development bank

providing:

1. low cost credit to small holder and commercial farmers, and small

and medium rural enterprises.

2. micro financing to small and medium scale non agricultural

enterprises.

and ensuring:

1. effective delivery of agricultural and rural finance services on asustainable basis to support the national economic development

agenda, including food security, poverty reduction, employment

generation, reduction in rural to urban migration, less dependency

on imported food items, and increase in foreign exchange earnings.11


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AGRICULTURAL INSURANCE IN NIGERIA

Despite efforts at increasing production, the agricultural sector wasexposed to losses through:

inclement weather conditions

effect of natural hazards such as: f loods, drought, pests, diseases,

lightning and windstorm.

loss by fire and thefts

accidents, invasion of farm by wild animals

Non of the over 100 insurance companies operating in the 80s was

involved in Agricultural insurance.

Government established the Nigerian Agricultural insurance

Company in 1987.


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THE NIGERIAN AGRICULTURAL INSURANCECORPORATION (NAIC).

ESTABLISHMENT:- 1987 as Nigerian Agricultural Insurance Company.

- Became a Corporation in 1993

- Nigerian Agricultural insurance Corporation Act 1993.

OBJECTIVES:- Financial support to farmers for insured losses.

- Facilitation of credit to farmers insurance cover is an added

collateral.

- Rest of mind and confidence to farmers

- Minimize or eliminate provision of Government assistance to

farmers during agricultural disasters.

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At inception NAIC covered:

- 2 crops namely maize and rice and;

- 2 livestock items namely cattle and poultry

- agricultural assets such as farm buildings, machinery and equipment

Presently the company covers 21 crop items, 9 items of livestock and

twelve types of commercial businesses. Policies include:

multi-peril crop insurance

Plantation fire insurance

Livestock insurance

Poultry insurance and

Fishery insurance

Under the NAIC Scheme, the State subsidises premium by 50%

- NAIC Contd -

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NAIC operates a compulsory insurance Scheme for:

- All agricultural loans form banks- All agricultural and agro-allied projects assisted/supported or fully funded from public

funds.

- All direct and on-lending loans taken by Federal, State and Local Governments for

reimbursement to farmers- All forms of loans for agricultural purposes by all banks and non-banks lending

agencies

- All direct on-lending and investment loans disbursed by the Nigerian Agricultural

Cooperative and Rural Development Bank (NACRDB)

NAIC has transcended the Agricultural Insurance specialist company: Now

underwrites all classes of non-life insurance including Oil and Gas, Aviation and General

Accident in all sectors of the Nigerian Economy. 15


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PREMIUM GENERATION:

Year Premium Income (N) Premium Income ($) Y on Y Growth

2005 419m 3.3m

2006 496m 4.0m 18.3%

2007 732m 6.3m 48%2008 148m 1.1m - 80%

2009 813m 5.5m 449%

NAIC - Contd -

The premium stated include other classes such as aviation, oil and gas as well as

other general insurance businesses that are not agriculture related.

Obvious that the penetration expected in Agricultural Insurance is not yet achieved

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PREMIUM SUBSIDY

Every premium charged on food crop and livestock is subsidized

by the Federal and State Governments in the proportion of 37.5%

and 12.5% respectively.

Normal commercial rates are applied to other commercial items.

To have a level playing ground and ensure uniform penetration

of Agricultural insurance, the premium subsidy should be

extended to private insurers as is the practice in India.

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- Monopoly which has not allowed for innovation and competition

- Premium not being affordable to farmers

- Low awareness among farmers due to poor or no education

- Poor penetration of the rural community

- Poor rural infrastructure

- In most cases only those who obtain loans take insurance

- High exit from agricultural insurance contracts due to poor service- Apathy of banks to lend to farmers (collateral problem,

misapplication of loan facility, high risk nature etc.)

- Poor record keeping18

CHALLENGES OF AGRICULTURALINSURANCE IN NIGERIA


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- High level of intrinsic risk in Agric makes revenue to fluctuate

( income instability)

- Lack of funds for premium payment

- Smallness of farms beyond insurable threshold- Low level of monitoring visits to policy holders (preference in given to

large scale farmers to the neglect of small scale)

- Lack of detailed understanding of policies

- Insurance offices are too far away from the farmers.

- Infrastructure problems do not encourage extension services

Challenges.contd

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Increased opportunities for agricultural insurance

recapitalization of insurance companies in 2007 need for involvement of

private companies

Opportunities for Agricultural insurance beyond what NAIC could cope with.

Pressure on the NAICOM to expand agricultural insurance beyond NAIC by

creating competitive and innovative agricultural insurance market.

Request for total deregulation of Agricultural insurance market through the

amendment of the NAIC Insurance Act especially section 13.

Efforts by CBN/NIRSAL in this regard.

The world banks interest in weather based insurance products.

DEREGULATION NECESSITY


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GOVERNMENTS RESPONSE

In the first quarter 2012, IGI was approved by NAICOM to underwrite

agricultural Insurance;

Private insurance companies restricted from writing State or Federal

Government funded agricultural insurance projects and where

Government Funded farmers generally.

NAICOM could not go beyond this level because the NAIC Act has

neither been amended nor repealed. The Minister of Agriculture in February, 2012 put in place a committee

to review the NAIC Act.

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AGRIC INSURANCE POTENTIALS

Nigerian society mainly agrarian about 60% involved in agriculture

and are mostly uninsured

Mostly small scale

Large scale farming on the increase

Population over 160 million

Integration of agro-sector with Petroleum industry through the

NNPCs bio-fuel development programme (production of ethanol

and biodiesel from agricultural crops)

Production estimated to grow from N15trillion in 2010 to 38trillion in

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NIRSAL Introduction of NIRSAL (Nigerian Incentive -Based Risk-Sharing

System for Agricultural Lending)

For Transformation of Agriculture in Nigeria

Incentivising agricultural lending through:

Risk sharing with banks NIRSAL will bear 50% of losses

incurred on Agricultural Bank Loans (N45billion earmarked)

Expansion of insurance products for agricultural lending fromcurrent coverage of 500,000 to 3,800,000 agricultural producers

(N4.5billion budgeted)

Consideration of introduction of weather index insurance 23


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Conclusion and recommendations

To scale up Agricultural Insurance and boost agriculturalproduction in Nigeria:

a) Government needs to:

amend the NAIC Act to allow for competition, innovation and

market enterprise in the agricultural insurance industry

expand the scope of provision of premium subsidy to include the

policies issued by private companies. This will allow for level

playing ground as practiced in India in order to make insurance

premium afforded to all small scale farmers.

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Conclusion and recommendations.Contd

continue to maintain agricultural insurance as part of the national

agricultural insurance policy

could still allow NAIC to provide reinsurance services to other

insurers catastrophic losses encourage the development of weather index insurance by

developing the required infrastructure such as the meteorological

stations, encouraging research and development and support theinput of international organizations such as World bank FAO etc

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identify and address the various qualities of risks threatening the

farmers such as insufficient financial capacity to pay premium,

small fragmented and disorganized agricultural land, low level of

social, cultural and educational standards in agricultural sector the realistically encourage banks to grant loans to the farmers

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b) The Insurance industry should:

Develop marketing network able to penetrate the rural areas throughthe agency system, the farmers association, microfinance bank etc.

Develop products that are not complex for the understanding of thefarmers since most of the farmers are not educated

Develop a co-insurance system that allows for further risk transferamong insurers

Invest in product research and development, training andinformation gathering for both crop and livestock insurance

Engage in extension services to help in the education of the farmers

on insurance and how they can improve their production Develop appropriate insurance schemes for all aspects of agriculture Co-operate with banks and other lending institutions to develop

contracts that actually address the problems of the farmers The banks also need to consider the ability of the farmers to repay

the loans 27



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Banks as marketing channels

Role of Banks critical for agric insurance distribution

(a) Commercial Banks

outreach of banks in the rural areas is growing rapidly and cannot be

matched by any alternative channel for delivery of subsidy-driven

agricultural insurance.

agricultural insurance goes well with the offering of the banks and can be

seamlessly bundled for providing an integrated sinks of financial services

offered by the banks and insurance companies to the Nigerian agriculturalcommunity

24 commercial banks in Nigeria with thousands of branches.

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(b) Micro Finance Banks:

another channel for agricultural insurance marketingover 900 now in Nigeria but they have mostly focused on trading, not

agriculture

bank of agriculture now to establish agric micro-finance banks tofocus mainly on agriculture one each in 776 LGAs

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