Agricultural Insurance: Risk and Uncertainty
Agricultural insurance is defined in the Nigerian Agricultural
Insurance scheme (NAIS) operation guideline (1989) as the stabilization of income, employment, prices and
supplies of agricultural products by means of regular and deliberate savings and accumulation of funds in small installment by many farmers in favorable time periods, to defend some or a few of the participants in bad time periods.
Mabawonku (1998) defines insurance as the elimination of the uncertain risk of loss for the individual thro
ugh the combination of a large number of similarly exposed individual who can contribute to a common fund, premium payment sufficient to make good the loss caused by any one individual. These definitions are consistent with Hansel (1998) which defines insurance as a social device providing financial compensation for the effects of misfortune, the payment being made from the accumulated
contributions of all parties particularly in the scheme. Thus, it may be seen as a kind of fund, into which all
those insured will pay an assessed contribution (called premium), in return, those insured will have right
to call on the fund for any appropriate payment should the insured event occur.
The needs for agricultural insurance arose because the sector is exposed to varieties of risk and uncertainties. Risk and uncertainties often used interchangeably, have different connotations. Mabawonku (1998) defines risk as variability’s in outcome which are measurable in an empirical or quantitative manner. Such outcome or situations are generally characterized by measurable probability. Mabawonku, however, viewed uncertainty as situation or outcomes with quantitative valuations measured with any degree of accuracy.