Adapting to Climate Risk with Mutual Weather-Index Crop Insurance in Nigeria
Peter P. Njiforti, Ahmadu Bello University
International Food Policy Research Institute (IFPRI), Nigeria Agricultural Insurance Corporation (NAIC),
Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), Nigerian Meteorological Agency (NiMet)
Sharia-compliant mutual (takaful) weather-index crop insurance with photo confirmation
Millet and Sorghum
Sudano-Sahelian zone of Nigeria
While northern Nigeria is a critical agricultural region, rural families there face high risks related to climate change. Agricultural index insurance products tailored for the region’s predominantly Muslim farmers could help families become more resilient to weather shocks like drought or flood. An ALL-IN research team is developing and testing a Sharia-compliant takaful mutual insurance contract that triggers payments in the event that there is a weather anomaly. The results of this project could unlock the financing needed to drive the development of inclusive agricultural value chains in the region.
Nigeria’s northern region contributes significantly to the nation’s food and nutrition security with its agrarian economy of rain-fed crops, livestock farming and fishing. While the critical staples millet and sorghum are two of the most widely grown crops in the region, yields in the Sudano-Sahelian zone have begun to stagnate due extreme weather caused by climate change.1
Agricultural index insurance is designed to manage just this kind of risk. Agricultural index insurance bases payouts on an easy-to-measure index of factors, such as rainfall or average yields, that predict individual losses. The result is low-cost protection for farmers who face a predictable, recurring risk like drought or flood.
One limitation for index insurance in the Sudano-Sahelian zone of Nigeria where Muslims are majority and the Islamic socio-cultural beliefs predominate is that conventional insurance is not in compliance with Islamic law2. A market survey undertaken by the NAIC3 revealed a significant objection to conventional insurance, which according to Sharia law, involves uncertainty, gambling and interest.
Another challenge for agricultural index insurance is that policies might not pay accurately for losses. In 2011, the Nigerian Agricultural Insurance Commission (NAIC) and the World Bank developed two pilot index insurance contracts for rice and maize in northern Nigeria based on measures of rainfall. An analysis showed that these contracts would not pay reliably for farmers’ losses in part because of the nature of rainfall conditions in the region.
An ALL-IN research team led from Ahmadu Bello University is testing whether a takaful weather index insurance and a picture-based insurance audit can increase rural families’ resilience to extreme weather events in the Sudano-Sahelian zones of Nigeria. Weather stations in the region create a ready source for rainfall and temperature data to build and test randomized variations of the team’s new weather index insurance contracts.
The project is being implemented as a randomized controlled trial (RCT) in 50 rural communities that are divided into three groups:
- Weather index-based insurance: Farmers receive standard weather index insurance that triggers payments for losses in the case of abnormal temperature or unseasonal rains during flowering and harvest time in the area.
- Mutual (Takaful) insurance plus financial literacy training: The Sharia-compliant takaful index-based insurance product is complemented with training on the benefits of insurance as well as the concept of takaful insurance. Farmers also must regularly upload smartphone pictures that keep track of visible crop damage. Extension experts inspect these pictures for crop damage due to risks beyond farmers’ control before payouts are issued.
- Control: Farmers receive no insurance or training
The project includes farmers who own smartphones and plan to grow at least two hectares of maize during the upcoming rainy season in eight states across northern Nigeria. Farmers are selected according to a variety of stratifications to ensure different types of typical farmers are included. Farmers who receive either conventional or takaful insurance are provided coverage for up to one hectare of sorghum or millet. The cost of the insurance is paid entirely by the NAIC and NIRSAL research partners.
The study is measuring outcomes in a number of areas. One is an estimate of how a mutual weather index insurance scheme that is compliant with the Islamic principle of Takaful affects the demand and use of weather index-base insurance product. The study is also evaluating the impact of uptake and use of mutual (takaful) weather index insurance on farmers’ investments in enhancing productivity and yields as well as whether this type of scheme paired with information on weather risk reduces the likelihood the insurance product fails to pay accurately for losses.
One of the key USAID initiatives in Nigeria is in the area of agriculture and food security. The findings from this research project will certainly complement and further the objective of USAID’s agriculture and food security program which, since 2012, has helped to increase agricultural productivity, expand market participation, increase resilience of vulnerable households, improve business enabling environment and increase access to finance.
Results from this project will also enable Nigeria’s National Insurance Commission (NAIC) and Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) meet the commitment to expand insurance to Nigeria’s roughly 15 million smallholder farmers. These efforts could ultimately unlock the needed financing to drive the development of inclusive agricultural value chains in the region.
While climate change is undeniably real, an individual’s perception of their own climate risk is informed by their social interactions and their fundamental beliefs about society and nature.4 These perceptions have an impact on community and even country wide climate adaptation planning, policymaking and implementation. These ideas, based on a synthesis of community-based climate adaptation research.5 and the Cultural Theory of Risk Conceptual Framework,6 can play a role in promoting climate adaptation and rural resilience.
This project uses the Cultural Theory of Risk for Climate Change Adaptation as a framework for its analysis. The project’s household survey collects demographic, socio-economic conditions and agricultural data as well information on as beliefs and perceptions related natural hazard risks, self-reported adaptation measures and sociocultural/religious beliefs. Each of these factors play a role in a family’s decisions related to climate adaptation.
 Rhodes, E. R., et al. 2019. “Climate change impact chain factors in ECOWAS.” Journal of Agriculture and Environment for International Development.
 Swartz, P., et al. 2010. “Takaful: An Islamic insurance instrument.” Journal of Development and Agricultural Economics.
 NAIC, 2013.
 McNeeley, S. M., et al. 2014. “The cultural theory of risk for climate change adaptation.” Weather, Climate, and Society.
 McNamara, K. E., et al. 2017. “Community-based climate change adaptation: a review of academic literature.” Local Environment.
 Douglas, M., et al. 1982. Risk and Culture: An Essay on the Selection of Technological and Environmental Dangers. UC Press.