Agricultural insurance as a climate risk adaptation strategy in developing countries: a case of Nigeria

ABSTRACT

Despite the potential benefits of agricultural insurance in helping farmers adapt to climate risks, its uptake among smallholder farmers remains limited. This study analyses the drivers of awareness and adoption of agricultural insurance in Nigeria to better understand the adoption process. 1,080 farming households were surveyed across six agro-ecological zones in Nigeria, covering areas with different socio-economic characteristics of farmers and levels of climate risk. Data were collected through face-to-face interviews between October 2020 and February 2021. The results show that more than half of the farmers were unaware of agricultural insurance. Logit regression results show that education, herd size, access to a bank, weather information, and flood experience positively influence awareness and adoption of agricultural insurance. In addition to low awareness, the main barriers to adoption are lack of knowledge about the effectiveness of insurance, difficulty in affording insurance, and farmers’ low level of trust in insurance providers. Late payment of claims and inadequate compensation were the main challenges faced by adopters of agricultural insurance. Raising awareness and helping farmers to assess the effectiveness of agricultural insurance, as well as developing a supportive institutional environment, would help to build a well-functioning insurance market.

Key policy insights

• To increase the uptake of agricultural insurance, it is first necessary to raise awareness among farmers.

• Government agencies should consider monitoring and sanctioning insurance agencies and companies that fail to comply with contractual agreements to promote and ensure prompt payment of due compensation; to increase transparency of insurance providers’ performance; and to increase confidence in insurance providers.

• We recommend using different premium payment methods, adjusting land policies, improving access to weather information, and increasing access to bank credit for smallholder farmers to increase farmers’ motivation to use insurance.

KEYWORDS:

• Agricultural insurance
• awareness
• adoption impediment
• weather information
• statutory land ownership
• climate change extremes

Acknowledgements

The study acknowledges the Faculty of Tropical AgriSciences, Czech University of Life Sciences, Prague for funding the research (IGA20223113). The Abubakar Tafawa Balewa University Bauchi, Nigeria, for its oversight role in data collection, in particular the Department of Agricultural Economics and Extension headed by Professor M. H. Sani.

The research has been approved by the Board of the Faculty of Tropical Agriculture to comply with the ICJME Guidelines for the Protection of Research Participants, the Belmont Report or the Declaration of Helsinki, as appropriate.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by Česká Zemědělská Univerzita v Praze: [Grant Number IGA20223113].