Agricultural Insurance is a valuable business risk management tool that provides farmers with financial protection against production losses caused by natural perils, such as drought, excessive moisture, hail, frost, wind and wildlife.
Crop insurance for major field crops comes in two types: yield-based coverage that pays an indemnity (covers losses) for low yields; and revenue plans that insure a level of crop income, based both on yields and the prices that determine a crop’s value.
Yield-based Insurance Coverage
Multiple Peril Crop Insurance (MPCI): MPCI insures against losses from natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. You choose the amount of your average yield you want to insure, from 50% to 75% (in some areas up to 85%). You also choose a percent of the predicted price for a crop, between 55% and 100%. RMA sets this price annually. At press time it hadn’t been set due to farm bill uncertainty.
Group Risk Plan (GRP): These policies use a county yield index to determine a loss, instead of a grower’s actual production history (APH). When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid. Yield levels are available for up to 90% of the expected county yield. It’s fairly simple to buy, but you’ll wait longer to be paid an indemnity on corn or soybean losses — up to six months after harvest — due to delays in calculating county yields.
Revenue Insurance Plans
Crop Revenue Coverage (CRC): CRC provides revenue protection based on expected prices and yields by paying for losses below a guarantee purchased by the grower. Losses are calculated using the higher of two prices, an early-season price or a harvest price. The early-season price in the Midwest is the February average of December corn and November soybean futures. CRC is used by growers who aggressively sell those crops on spring rallies. The harvest price for both crops is now determined by new crop futures in October.
Revenue Assurance (RA): RA provides dollar-denominated coverage by the producer selecting a dollar amount of target revenue from a range defined by 65% to 75% of expected revenue. If you buy the harvest price option (HPO) it becomes much like CRC. RA with HPO has no upside limit on harvest price protection. CRC does. If yields are average or above and prices don’t rise, standard RA is your best value. CRC or RA-HPO is a better value if yields are low and prices rise.
Group Revenue Insurance Policy (GRIP): GRIP makes indemnity payments only when the average county revenue of the insured crop falls below the revenue chosen by the farmer.
Income Protection (IP): IP protects against low gross income, from low yield, price or a combination.
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, which thereby affecting agricultural production and threatening food security in the country.
Agricultural insurance which is the protection of farmers against the risks of natural disasters, pests and diseases in addition exchange for regular premium payments proportion to the likelihood and cost of risk involved.
Not many may know that 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 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 Insurance is a policy which involves the insured (farmer) paying a little sum (premium), usually in percentage to an insurance company (insurer) to guarantee against loss due to any of the perils (death, flood, drought etc) covered for a particular period of time (usually not more than one year) with a promise to indemnify (pay back the value of loss) should such occur.”
In order to enhance food production level in Nigeria, the National Insurance Commission (NAICOM) licensed Industrial and General Insurance Plc is the foremost private insurance company in the country to underwrite agricultural investments. The idea is that should loss occur, regardless of the source of finance, the farmer will be reimbursed as soon as possible to the value of the loss to enable him/her return to business.
In the strategic disposition to meet the challenges in the agricultural industry and contribute their quota to national development, IGI has crafted five (5) innovative products to ensure sustainable growth. They are;
- Poultry Insurance Policy
- Fish Farming Insurance Policy
- Livestock/Bloodstock Insurance Policy
Each of these animal insurance policies indemnifies against death due to diseases and accident of any sort
- Multicrop Peril Insurance Policy
5. Plantation fire Insurance Policy
These plant insurance policies indemnify against loss due to fire, flood, drought, pests, diseases and theft.
Buying a policy begins with obtaining and completing the proposal form by the farmer. This is followed by an inspection of the farm by a team of experts from IGI or consultants appointed by IGI and after satisfactory risk assessment report, cover commences with the payment of premium by the farmer.
Some facts and figures that may interested you about IGI are follows:
Why is IGI in Agricultural Insurance?
There is a vast potential for agricultural insurance market in Nigeria and to make it private sector driven
What are the objectives of IGI Agricultural Insurance?
The main objective of IGI Agricultural insurance is to mitigate the financial loss of farmers in the event of crop/livestock failure due to natural disasters such as flood, drought, windstorm, pests and diseases. Also there is the need to provide sound technical advisory services for farmers in order to minimise the risk of loss.
What are the benefits of IGI Agricultural Insurance?
- Financial compensation in the event of loss
- Stabilization of farmer’s income
- Technical advisory services
- Collateral security for loans
What Agricultural Insurance products does IGI offer?
- Multi-peril Crop Insurance Policy
- Poultry Insurance Policy
- Livestock Insurance Policy
- Fish Farm/Fishery Insurance Policy
- Plantation Fire Insurance Policy
- Farm All Risk Insurance Policy
What are the risks covered?
- Loss of and damage to the crops due to fire, flood, drought, windstorm, lightening, pests and diseases.
- Death of Livestock/Birds/Fish due to accident or diseases
How can I get my farm investment covered by IGI Agricultural Insurance policies?
- Obtain the relevant proposal form by visiting any of the IGI offices nearest to you.
- Complete the proposal form and return same to us
- Inspection of the farm by our team of experts
- Premium computed and paid by the farmer
- Policy cover issued to the farmer promptly
- Visit our website at www.iginigeria.com for online transaction
How much would I pay for the insurance cover?
Poultry/Livestock/Fishery: 2.5% of the sum insured
Crops: 2.0% of the sum insured
Plantation: 1.5% of the sum insured
How will I calculate the sum insured?
Poultry: cost of day old, feeding, medications e.t.c.
Fishery: cost of fingerlings, feeding, and other inputs
Livestock: cost of purchase, feeding and other inputs
Crop: cost of seeds, land clearing, chemicals and other inputs
Does IGI grant loans to farmers?
No. IGI does not grant loans but provides insurance cover for loans from lending institutions.
We also link you up with agriculture friendly financial institutions.
Can my policy facilitate an easy access to agricultural loan?
Yes, the policy can serve as a collateral security for loans
What are the measures put in place in the event of catastrophic losses?
We have reinsurance arrangements in the form of treaties, coinsurance and facultative types that will ensure that claims are paid as at when due
What is the difference between IGI products and that of other agricultural insurance service providers?
IGI Agricultural insurance products can be customized to meet your specific needs for optimum protection of your investment