By: Andries Wiese, National Business Development Manager at Hollard
Despite challenges such as crime, climate change, water scarcity, pests and diseases, low productivity and infrastructure constraints agriculture consistently delivers for Southern Africa and South Africa specifically. Agriculture is key to not only the social fabric but, according to the FAO contributes as much as 15% to the GDP of the region. Farmers are exposed to risk daily but also presents a great commercial opportunity for brokers and underwriters.
Insurers tend to focus on traditional commercial farming operations. Typically, what is offered are conventional insurance solutions for either assets or crops. The nature of the solutions requires clearly defined asset registers, financial literacy, risk appetite and access to relatively complex and expensive distribution and payment models. It follows that not all farmers have access to or benefit from insurance. Smallholder and medium sized farming operations are often unaware of the benefits of insurance, or cannot afford it, or do not find it suitable for their needs and preferences.
Farmers require, quite rightly, effective and efficient services at a palatable and fair price point. The mechanics of conventional insurance such as assessing risks, pricing premiums, verifying claims, and delivering payouts in this environment prove to be challenging for insurers. We can increase the take-up of agri-insurance by adopting a customer-centric approach that understands the needs and preferences of different segments of the market. We need to design tailored and affordable products that match these.
A relatively unknown solution in South Africa is index-based insurance that triggers payouts based on predefined thresholds of weather or yield indicators, rather than indemnity-based insurance that requires individual loss assessment. This is also an opportunity to combine efforts with input suppliers and simplify distribution models by aligning the purchase of a policy with the input purchase. This solution has been applied in various countries around the world and even in Southern Africa but has, until very recently, not been acceptable to the South African regulator. This has now changed and we can expect to see variations on this theme starting to become available.
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Insurers need to leverage technology such as AI, satellite imagery, drones, and mobile platforms to enhance convenience for farmers, reduce costs and improve accuracy. Especially mobile platforms can simplify the collection of premiums, delivering payouts and sharing important information and risk management advice.
Success in delivering sustainable solutions to this part of the agri sector is dependent on all stakeholders combining their efforts. The state and public sector must create an enabling environment and create awareness. The private sector has to step up by acting as intermediaries or distributors of agri-insurance, providing training and advisory services to farmers. Insurers need to invest in data, analysis, capacity building and product development. It does take a whole village to raise a child.
Insurance provides a coping mechanism for uncertainty and risk and enhances the resilience and sustainability of the sector. Lack of awareness, affordability, and availability of suitable products do us no favour.
The role of brokers increases exponentially the more complex a risk and its solution becomes. It is also important for brokers to create scale within their own businesses and by expanding into the agri sector they not only contribute to all of our wellbeing, but also create a solid base of small to medium sized enterprises within their portfolio which will enhance their own sustainability in a very cost-effective manner.
The agri sector can be seen as very intimidating by virtue of the complexities contained therein. Brokers and Insurers alike need to have the expertise needed to credibly solve for and offer solutions to this sector. Expertise is available to those who wish to expand their footprint into this area and need assistance. The key South African agriculture insurers offer what is viewed internationally as best of breed expertise. There is also opportunity for creative and innovative solutions to be put forward.