A poultry farmer in Ilorin, the Kwara State capital, Mr Joseph Babalola, was feeding his 4,000 ISA-brown laying birds with gusto, assisted by two male attendants, when The Guardian got to his medium-scale backyard poultry farm, called ACS Farm. The house and the farm sit on about seven plots of land.
A probe into how secure the investment was revealed a surprise. The farm was not insured, and reasons the farmer adduced were equally rational, revealing the imperatives of driving financial and insurance inclusion in the agro-allied sector.
A 4,000-laying-bird farm, by any standard, is a huge investment. At the rate of N50,000 per cage, the 44 units of cages housing the birds are worth N2.2 million. At the rate of N1500, the value of the birds is about N6 million. Conservatively, the poultry pens and the perimeter fencing would cost N4 million, excluding the value of the land. None of this is insured!
When asked whether he was aware that there are agricultural insurance policies that cover the mortality of birds, Mr Babalola said: "No. I am not aware. I only know that there are insurance policies that cover general agriculture, but I don't know of any that covers mortality. I know that there are policies for theft, fire and for transit."
His is a story similar to those of thousands of small to medium-size farmers, processors and agro-produce dealers in Nigeria. His reasons ranged from lack of awareness to warped reputation on claim payments associated with the insurance industry.
"Those that are ahead of us, the ones that we look up to in the poultry industry, told us that, "look if you face any crisis, the insurance companies won't pay and there is no point using your money to do it," Babalola explained.
Shedding light on peer influence of farmers against insurance inclusion based on the perceived reputation of the industry players, he added, "They say it is better to keep a percentage of our income to fight any crisis, or if we have an asset, it can be converted quickly into cash when we're in crises. They added that those are more reliable ways than giving our money to a firm that will still fail."
However, Babalola is willing and ready if policies are tailor-made to take care of the peculiarities of the poultry sector, and if insurers would build a good reputation by responding positively and quickly to claims for compensation in cases of losses.
"It is just a matter of education. If we know what is involved, the premium and the whole policy as it entails, I will insure the farm. But in a situation when the education is vague and you are expected to take the policy, this will make me look back at the years the poultry farm has been operating and see that yes, there can be a possibility of risk, but we've been managing them by ourselves, so there is no need for the policy," he told The Guardian.
He concluded that since premiums are paid in installments, "I think everyone will be very much interested with the assurance that the company will act up accordingly in case of any mortality. I think I will take it."
A fish farmer's perspective
A fish farmer, Mr Rotimi Oloye, who is also the National President of the Catfish and Allied Fish Farmers Association of Nigeria (CAFFAN), while responding to why most fish farmers do not take insurance policies, said with the exception of the Nigerian Agricultural Insurance Corporation (NAIC) and Leadway Assurance, "insurance companies are not fully knowledgeable about details of our fish business.
"By the time you go through their policies, you will discover that they are just transporting policies from fire and theft policies into aquaculture. So, the right people who studied aquaculture in universities should be saddled with such sectors.
"If issues arise, they use those technical terms either to escape or fulfill their obligations. So, they are trying their best, but they need to be well developed and structured to take care of exigencies that may arise."
Oloye argued that farmers need something attractive to convince them to pay premiums, and if insurance companies come up with adequate policies acceptable to farmers, they would buy into insurance policies.
"If the insurance companies are serious, they should employ aquaculture experts who would understand the business and challenges of farmers and tailor policies to cover such risks. Every farmer would want to insure his stocks against mortality, morbidity and poor harvest, but when the insurer does not know how the fish grows, it will not work.
"The insurers should know that fish, at so and so ages, should weigh a particular gram and other details," he added.
Another poultry farmer in Ilorin, Segun Oluwayinka, said his birds and other factors of production were not insure because "good management practices reduce mortality" of his birds, and paying insurance premiums would imply a waste of scarce resources if no incident occurs.
He added that if insurance companies would pay some rebates, say after three to five years of paying premiums without any incident, he would take insurance policies.
His farm in Ilorin also sits on about two acres of land, with an on-the-farm feed mill attached, but none is insured.
President of the All Farmers Association of Nigeria (AFAN), Mr Ibrahim Kabir, told The Guardian that most of the farmers in the association were not insured.
The reasons, he said, include insurance companies' conditions after the incidents, under-compensation of farmers with high mortalities in the livestock and poultry production and poor education of farmers on dos and don'ts of the insurance policies.
Kabir disclosed that his personal experience with the national insurer in the sector did not encourage not only him but also members of the association, for he was grossly under-compensated when he applied for a claim.
He also bemoaned that while agricultural insurance works in other countries, it seems most insurers wait for farmers to make mistakes and use these against them to escape paying claims in cases of incidents.
Financial and insurance stakeholders' views
Ayoola Fatona, Head, Agric & Micro Insurance/National Coordinator, Leadway Assurance, said literacy level of the Nigerian farmers, with more than 90 per cent of them small-scale farmers, living in rural areas, makes it difficult for them to understand the importance of agricultural insurance to their operations.
He also listed religious beliefs as part of the reasons farmers are adverse to agricultural insurance in Nigeria, saying, "In most cases, they are meant to understand by their religious leaders that God is the ultimate protector and that if you work hard, righteous and pray hard, no evil will befall you and your investment and what will be will be."
Fatona also said most agricultural investors do not know where and how to access agricultural insurance products and services, because insurance companies are largely located in the towns and cities, thereby making the accessibility of agricultural insurance products and services extremely difficult.
Most Nigerians, and by extension, farmers, express strong reservation about the faithfulness of insurance firms to indemnify them when the chips are down.
Fatotna also agreed that "most users of insurance products and services in Nigeria do not trust insurance service providers. They are of the opinion that the service providers renegade on their promises when the issue of payment of insurance claims arises."
He said that "the same perception is also applicable to the consumers of agricultural insurance products and services."
He added that farmers would prefer to spend the money for insurance premiums to procure inputs like seeds, fertilizer and labour rather than on insurance. This premium cost is one of the major reasons why farmers have aversion for insurance.
Supporting the reason expressed by the CAFFAN boss, the Leadway Assurance agric insurance coordinator said "the insurance service providers must continue to work assiduously hard to design and implement innovative insurance solutions customised to meet the specific risk management needs of the agric investors."
Another reason farmers do not pay attention to insurance is availability of alternative or traditional risk management methods/mechanisms to Nigerian farmers. For instance, farmers can engage in the sale of their productive assets whenever a risk crystallises, as expressed by Babalola the poultry farmer.
Benefits of insurance to farmers
Fatona said farmers and agric investors who buy Agricultural Insurance for their various projects obviously are at an advantage over those who did not. This is because they are in a position to recoup the losses incurred on these projects that are attributable to events that is beyond their control. By paying the prerequisite premium for their covers they are able to recoup and recover their losses on these projects.
An agribusiness regional manager in one of the oldest banks in the country, who craved anonymity, explained that "farming and agribusiness are seen as high risk ventures by most banks because of the peculiarity of the sector to high level of uncertainty and low margin."
He added that over the years, the government had intervened by enacting insurance laws to reduce the impact of uncertainty and loss on the side of farmers. The Nigerian Agricultural Insurance Corporation (NAIC), he added, was set up primarily to insure the farmer's business.
Despite the efforts, farmer still have negative attitude towards insuring their farms and businesses, and some of the reasons include, general apathy towards insurance in which the majority of Nigerians do not believe in the ethics of insurance and only have recourse to insurance products only when they are forced to take a policy either statutorily like in case of drivers' licence and third party insurance.
To him, agricultural sector is part of "the entire clusters who do not believe in the indemnifying attributes of insurance."
Another reason, according to the regional manager, is high premium. Farming and agribusinesses are generally low-margin businesses that dwell on turnovers and the farmers and agribusiness owners always consider the premium very high, and will affect their margin. 2% on crops, 2.5% on livestock, and 1.5% on logistics appear to be too high for them, he explained.
Lack of proper information and late payment of compensation are other reasons farmers are averse to insurance. Most times, there is dispute on the particular area of coverage. The NAIC insurance does not cover all risks associated with farming and this confusion on what is covered is a discouragement.
"Agribusiness ventures have their seasonality, and the process of insurance claims usually takes a lot of time and this affects planning for planting and stocking of farm needs, be it livestock or crops. And most times when compensations are paid, they don't usually cover their losses," he said.
Supporting the point raised by Fotona on proximity of insurance products to farmers, the banker said most, if not all the insurance companies, are based in state capitals and cities, making farmers to regard insurance coverage as a form of inconvenience.
Mr Jide Aladesanmi, former branch manager in an insurance company, listed religious beliefs; captive arrangements (setting some money aside for self-insurance) and lack of government policies, such as tax rebate, as some of the reasons.
He added that associations of farmers usually come up with some contributions that serve as aids to unfortunate few farmers that suffer mishaps, making formal insurance companies redundant in their activities.
"The government also gives compensations to farmers and it has become a habit for farmers to wait on the government for helps during crises.
Akeem Adediran, Regional Manager, Axa Mansard Insurance Plc, while explaining to The Guardian why most farmers are averse to insurance, said "negative attitude and perception are the major causes of farmers being indifferent to agricultural insurance in Nigeria."
Similarly, Adediran said small-holding farmers have never been considered as targets for penetration and this ultimately has reduced the desired reach of insurance in totality.
Another issue of importance is that diverse insurance products are not available to cater for the needs of small-scale farmers, hence they are excluded from coverage, he added.
"Currently, only a few insurance firms are underwriting agricultural insurance in the country and they will not be able to increase the much needed awareness to the 30 per cent of our population in the sector," he explained.
Even the few ones that understand insurance, he said, get their hands burnt when claims emerge, as the ambiguity in policy wordings come to play and this eventually removes the trust they have in insurance.
Adeniran attributed farmers' indifference to agricultural insurance to a several other issues, ranging from low level of awareness to availability of bouquet of products that suit their needs, reach of insurance underwriters, and ambiguity in policy wordings understanding of the risks peculiar to the agricultural sector.
Insurance firms too, he explained further, are not keen covering farmers due to challenges in providing insurance cover for farmers.
He acknowledged, as Fatona and Oloye did, that provision of insurance coverage requires adequate knowledge and expertise of the sector to design and make available appropriate products tailored to the needs of most farmers.
"We have dearth of experts in this area, as we still basically import what has been done in South and East African countries," he said.
The understanding agricultural value chain, the insurance experts and the banker agreed, would help underwriting firms to focus critical areas. This would help to thread in the thresholds of the small-holding farmers, as this is critical in designing products suitable to various segments of the sector.
As a way of correcting the farmer's apathy towards insurance, the president of AFAN, Kabir, suggested that insurers should endearvour to guide farmers, make the policies attractive and compensate them adequately and timely if and when the need arises.
Fatona, the national coordinator at Leadway Assurance, said insurance services providers should organise training and insurance awareness sessions among the rural populace and also develop educational materials on agricultural insurance, possibly in the local dialects of these rural farmers, to educate them on the importance of using agricultural insurance to mitigate the risk in their operations.
The solution to wrong beliefs is to re-orientate the mindset of the farmers on the need to run their farms as a business ventures with mechanisms to hedge against risks that could reduce their profitability and erode their capitals.
Fatona suggested that "For agricultural insurance, in order to build trust among farmers and agro-allied investors to use their products, service providers must continue to innovate and develop products and services that will be very simple and easy for users to understand and will leave little room for misinterpretation.
"In addition, claims payment processes must be based on equitable, simple, verifiable criteria and payouts must be timely to meet the expectations of the farmers."
He advocated that the government should continue to provide smart premium subsidies for farmers to enable them have access to agricultural insurance which is intended to protect their entire investments and ensure food security in the long run.
Other insurance underwriters also suggested that the exploration of partnerships with stakeholders in the financial sector of the agricultural value chain like micro finance institutions and commercial banks that lend to agricultural clusters would be a veritable platform to distribute these products and services.
Claims payment has also become a competitive tool for the service providers to market their product and services and grow the market share of their companies. This, together with the regulator, the Nigeria Insurance Commission's (NAICOM's) efficiency in regulating service providers to meet up with their claim payment obligations, would help in deepening agricultural insurance, and hence prevent capital losses and make more farm businesses to become sustainable.