Los personajes ocultos en el teatro liberal

An analysis of the causes of loss on NAIC crop and livestock insurance programs is presented below. Figure 2.9 presents an analysis of NAIC’s paid claims on the agricultural crop and livestock insurance programs for the period 2007 to 2010 in terms of the percentage number of paid claims by cause of loss and the percentage value of paid claims by cause of loss (the full results are shown by year in Annex 1). It is not possible to report the claims separately by crop and livestock and in the case of diseases these may apply both to crops and livestock: theft and accident these apply exclusively to the livestock insurance scheme and in the case of crops, losses are likely to include all drought, fire, pests, windstorm losses as well as the bulk of flood and disease losses.

The major causes of loss on NAIC crop and livestock insurance programs are diseases followed by flood and then accidents in livestock. Between 2007 and 2010, the most important cause of loss on NAIC’s agricultural insurance portfolio has been diseases accounting for a very high 57% of all claims by number and 46% of all claims by value and which applies both to crops and livestock, followed by flood which accounts for 11% of claims and 16% of the total value of claims and then accident accounting for 10% of the number of claims 10% of the value of paid claims and which applies exclusively to the livestock insurance program. This is followed by fire accounting for 7% of all claims but 12% of claims values. Conversely, drought only accounts for 3% of all claims and 9% of the total value of claims. This pattern of losses is very unexpected for a crop MPCI program and where drought is more normally the major cause of loss21. The evidence tends to suggest there is a major problem in Nigeria of educating farmers to observe the normal recommended pest and disease prevention and control measures and furthermore that the NAIC may be facing severe moral hazard namely, the fact that the scheme insures pest and disease losses, farmers may be modifying their normal behaviour and rather than expend money on pest and disease control measures they wait for losses to occur and then claim on their policies.

The pattern of losses on the NAIC scheme has several important implications for the design of a possible weather index insurance product. The main cause of losses in crops is disease and this does not lend itself to indexation. Flood is also an extremely difficult peril to insure either under a conventional indemnity based policy or under an index policy: to date there are no

21 _{For example on the USA’s Federal Crop Insurance Program, FCIP, which is the World’s largest MPCI}

program over the period 1981 to 1999, drought and heat were the main cause of loss accounting for 47% of claims by value, followed by excess moisture (22%), freeze (13%), hail (9%) flood (2%), but pests and diseases only accounted for 1% and 3% respectively of claims.

commercial crop flood index schemes in implementation anywhere in the World although a pilot product for irrigated rice is awaiting launch in Vietnam. Finally fire which is the third main cause of losses on NAIC’s policies cannot be indexed. To date the main applications of weather index insurance (WII) has been to rainfall deficit (drought) programs, but based on NAIC’s claims experience, this peril is not a major cause of loss in Nigeria accounting for only 9% of the total value of claims over the past four years. WII is also being used to cover excess rainfall under some scheme and to cover extremes of temperature. (See Sections 3 and 4 for further discussion of the implications of these findings to the design of crop WII in Nigeria).

Figure 2.9. Distribution of NAIC Crop and Livestock Claims by Cause of Loss (2007-10) (a) Percentage Number of Claims (b) Percentage Value of Paid Claims

Source: NAIC 2011

NAIC’s Consolidated Agricultural Underwriting Results 2008 to 2010

Using the information contained in NAIC’s Annual Reports and audited accounts for the period 2008 to 2010, it is possible to analyse further the company’s agricultural insurance portfolio results (subsidized and non subsidized agriculture) in terms of the loss ratio (Claims to premium ratio) and then the company’s combined ratio (Claims plus acquisition and administration and operating expenses to premium ratio).

The analysis shows that over the three year period 2008 to 2010, the technical underwriting results on NAIC’s agricultural insurance portfolio have been very impressive with loss ratios22 of 10%, 21% and 14% respectively. (The reasons why the agricultural insurance premiums and claims and loss ratios taken from the Annual Reports and shown in Figure 2.10. are different to NAIS’s figures in Table 2.6. are not known). However, with the addition of business operating expenses (made up of acquisition costs, maintenance expenses and other underwriting expenses) which are very high varying from a minimum of 59% (2009) to a maximum of 78% (2008) of gross premium earned, the Combined Ratios for the same period 2008 to 2010 are much higher at 86%, 80% and 77% respectively (Figure 2.10. and Annex 1).

The issue of the very high operating expenses on NAIC is a subject which is discussed further below.

Figure 2.10. NAIC Agricultural Insurance Loss Ratio and Combined Ratio (2008 to 2010)

Source: Authors analysis of NAIC Annual Report and Accounts 2008 to 2010