The Impact of Climate Change on Agricultural Loss Patterns and Insurance Pricing in Nigeria

This study examines the impact of climate change on observed agricultural loss patterns and its implications for the actuarial pricing of agricultural insurance products in Nigeria. Climate change is altering rainfall patterns, temperature distributions, and extreme weather event frequencies across Nigeria's agricultural zones, creating non-stationarity in historical loss data that complicates actuarial pricing. If pricing models rely on historical loss distributions that no longer represent the current risk environment, significant premium inadequacy or over-pricing may result. This study uses climate data from the Nigerian Meteorological Agency and agricultural loss data from the Nigeria Agricultural Insurance Corporation for the period 2005 to 2023. Trend analysis of rainfall, temperature, and crop yield data is conducted across the six geopolitical zones. The impact of climate trend shifts on NAIC loss ratios is assessed using change-point analysis and forward simulation. Findings reveal statistically significant warming trends across all zones and increased rainfall variability in the Middle Belt and Northwest, associated with rising crop loss frequencies. NAIC loss ratios in the maize and sorghum lines have increased by an average of 23 percent over the decade, consistent with climate change attribution. The study concludes that historical loss data alone is insufficient for future agricultural insurance pricing in Nigeria. It recommends that NAIC adopt climate-adjusted pricing models incorporating IPCC scenario projections and review product terms annually to reflect updated climate risk parameters.

Keywords: climate change, agricultural insurance, loss modelling, NAIC, pricing adequacy.