Opportunity to drive Public and Private partnerships in Agriculture Insurance

Daniel Stevens – Head Santam Agriculture Crop Insurance

The 2023 Agricultural Insurance Pulse Report indicates global hunger and food insecurity is on the rise with the number of undernourishedpeople estimated to have increased up to 828 million in 2021. Africa, unfortunately, makes up a large percentage with 57.9% of the population exposed to moderate or severe food insecurity.

There are many factors contributing to the problem including poverty, unemployment, climate change, conflict and so on. Agriculture insurance can also play a role in stemming some of the tide.

The total global agriculture insurance premiums are just over USD 46 billion and are expected to grow to USD 80 billion by 2030. Africa’s share of premium is less than 1%. The low contribution in Africa can be attributed to several factors.

Firstly, the low or uncoordinated investment in the sector that stems from having fewer countries with public private partnership (PPP) schemes on agricultural insurance. Such partnerships are crucial for extension services, insurance education, premium support, and access to credit. Some African countries have made good strides by partnering with Africa Risk Capacity, which has 35 African member countries including Lesotho, Mozambique and Zimbabwe.

Secondly, lack of infrastructure development such as roads and the construction of dams for water harvesting have a negative impact on agriculture. To ensure economic growth, there needs to be adequate infrastructure. Some rural areas have road infrastructure that are riddled with the lack of maintenance thus transporting produce is under pressure. Since 2015, South Africa has experienced water shortages mainly because of climate change, which causes rainfall delays that eventually decrease dam levels, leading to droughts within the country. Majority of agriculture relies on water availability to remain sustainable.

Thirdly, some countries in Africa, including South Africa, have no widespread parametric solutions for smallholder farmers and that renders growth and innovation unattainable for flexible product design.

Notably there are organisations playing an important role to bring parametric insurance to small holder farmers outside of South Africa. Kenya, Uganda and Mali are among the forward-thinking countries offering parametric solutions which South Africa has high on their agenda.

Also known as event-based insurance or index-based insurance, farmingfirst.org describes parametric insurance as “a form of insurance that covers the probability of a predefined event happening, instead of indemnifying the actual loss incurred (a pay-out amount in the case of the policy being triggered is determined in advance)”.

Lastly, South Africa may be the only nation in the world where Multi-Peril Crop Insurance (MPCI) is offered without any government subsidies. The demand for the product exists, however, the risk for local insurers to offer MPCI on an adhoc basis without a subsidy would make it not only too expensive but there would need to be certain conditions that would be required such as compulsory insurance in order for it to be viable.

Of the 600 million developing farmers in Africa, only 600 000 are insured. This phenomenon calls for aggressive partnerships to address the market failures in the sector. In the South African context, market failures on crop insurance exist because of adverse weather patterns which lead to a high frequency and severity of claims. Drought affecting farmers is becoming uninsurable and very expensive.

Awareness of insurance solutions by farmers, affordability of crop insurance products as well as limited understanding of insurance solutions are seen as some of the factors that challenge demand-side growth in crop insurance. The supply-side growth factors that challenge crop insurance are the high cost of crop insurance which lead to the need for premium support for farmers. Lack of technical expertise and insufficient or unreliable data are some of the overarching challenges in crop insurance. Also, the fact that it is a very high-risk line of business with reinsurance support required which may not be readily available.

It remains an important quest for Santam Agriculture to play a meaningful role in the South African agricultural sector. Santam does this in so many ways, including educating farmers through its consumer financial education (CFE) programme, as well as participating in industry and sector events and conferences to ensure capacity building and public awareness on different crop insurance solutions.

ENDS

About Santam, Insurance, Good and Proper

Santam is South Africa’s largest short-term insurer with a market share in excess of 22%. Listed on the Johannesburg Stock Exchange (JSE), the Santam group provides a diversified range of general insurance products and services in Southern Africa and internationally through a network of over 3 300 intermediaries and direct channels.

The group’s more than 1 million policyholders range from individuals to commercial and specialist business owners and institutions, including 80 of the Top 100 companies listed on the JSE. The group employs over 6 000 employees and was certified as a Top Employer by the Top Employer Institute for the sixth consecutive year in 2022.