Crop index insurance as a tool for climate resilience: lessons from smallholder farmers in Nigeria

This study contributes to filling the gaps on the uptake of index insurance and provide guidance to policymakers in their approach to mitigating the effects of climate change on crop production in Nigeria. Threat of catastrophic crop loss triggered by climate hazards not only jeopardizes the livelihoods of the farmers but may also lead to persistent poverty. Promoting sustainable development requires control over climate-related shocks, which negatively affect the most vulnerable population in the developing world. This study investigates the option of choosing crop area-yield index insurance to mitigate the adverse effects associated with climate stress. 

This study is one of the first to estimate the factors that drive the adoption of an index insurance scheme in Nigeria. Considering insurance and credit as complementary, rather than substitutes, is crucial for managing the risks posed by severe climate shocks and extremes. Therefore, it is essential to rethink the relationship between these two financial tools to manage risks effectively. The results suggest that index insurance policies can play a critical role in mitigating the impacts of extreme events and supporting climate resilience among agricultural communities. However, addressing the challenges of regional variation of extreme events, type of agricultural activity, insurance uptake, affordability, complementarity of insurance and credit, social capital, financial literacy, targeting vulnerable households, and premium costs is crucial to ensure the effectiveness and sustainability of these programs.