Role of insurance in business resilience in the extractive industry has been largely limited by low balance sheet size and capacity constraints, says report released recently in Nigeria by Albert van der Linden, senior research associate of the Centre for Financial Regulation & Inclusion (Cenfri).
Albert said this is despite the local content legislation that requires the bulk of oil-and-gas risks to be carried domestically and the resultant effect being that majority of premiums are reinsured and, eventually, most risks are carried abroad.
The study by Cenfri in collaboration with the World Bank, which seeks to understand how insurance market development can contribute to sustainable and inclusive growth in Nigeria, was launched at the Insurance Directors Conference organized by the Center for Insurance and Financial Management, held in Lagos
On the Small and Medium Scale Enterprises, the report says insurance has been able to serve as an enabler for SME industrialisation, but is still very limited because many small businesses face substantial challenges such as poor infrastructure, obsolete technology, weak access to markets, inconsistent government policies, regressive multiple taxation and limited access to credit.
It noted that insurance has an important role to play in principle in helping to cover risks and grant access to credit, but in practice very few, if any, MSMEs are covered.
“The current landscape is indicative of a market still struggling with the basics of corporate insurance, with limited ability or incentive to innovate to serve more difficult-to reach, less lucrative small business and trader clients.”
Insurable risks in agriculture:
Agriculture supports the livelihoods of many Nigerians, yet it is unable to meet domestic food security needs. Weather-related and biological risk events often have devastating effects on yields and disrupt the entire value chain from input suppliers to ultimate food processors. Risk mitigation through insurance provision in agriculture has been limited to date, largely provided by the state-owned Nigerian Agricultural Insurance Corporation (NAIC). The market has only recently been made more accessible to private-sector participation, through public-driven schemes such as Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the Anchor Borrowers’ Programme (ABP)
Opportunities for enterprise development:
The diagnostic report identifies the following opportunities for insurance to contribute to business resilience and enterprise development:
Access to credit for MSMEs
Insurance, as a risk management tool, can be an important enabler of access to credit by reducing the risk of lending to SMEs for credit providers. In particular, meso-level insurance distributed via credit providers presents an opportunity, but indicators are that the bancassurance guidelines pose challenges to bank-based distribution, especially in rural areas.
Public–private partnership in agro value chains:
The fragmented nature of smallholder farmers means that, for agricultural insurance to reach scale, distribution needs to be anchored to a central off-taker, lender or processor. Government-driven schemes such as the NIRSAL and ABP enable value chain development, credit expansion and guarantees through public–private partnerships, but indications are that much efficiency gains can be had in public-driven initiatives.
NIRSAL:
This mobilise’s financing for Nigerian agribusinesses by using credit guarantees to address the risk of default, while ABP creates economic linkage between smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilisation of processors.
Introduction and expansion of index-based products:
The development and launch of area yield insurance in Nigeria was spurred through the coordination of NAIC, NIRSAL, and private insurance and reinsurance companies, and weather index insurance is planned. However, the feasibility and scalability of index-based insurance in Nigeria is constrained by low access to capital, inadequate technical skills and limited good-quality data.
Modestus Anaesoronye
