The month of February saw two major scheduled events, the State of the Nation Address (SONA) by President Cyril Ramaphosa on 7 February and the Budget Speech delivered by the Minister of Finance, Mr Tito Mboweni on Wednesday 20 February 2019.
The non-life insurance industry, like all other industries, operate in the broader social, political and economic environment and is therefore dependent on a sustainable broader environment. Therefore, much of what SAIA does relate to the sustainability of the industry, as well as the broader environment.
In his SONA, President Ramaphosa emphasised the strategic value of agriculture as key to the growth of our economy and that this sector was receiving specific attention from his government. The potential for agriculture to create jobs and drive economic growth in South Africa remains underdeveloped. These pronouncements by the President were also affirmed by the Minister of Finance, Mr Tito Mboweni in his Budget Speech 2019, with support for emerging farmers which was particularly featured.
The proposed SAIA Agricultural Insurance Public Private Partnership is an initiative that can make a difference, both to the agriculture sector as well as the non-life insurance industry, and I would like to focus on this initiative in this month’s Bulletin.
More than ten years ago, SAIA approached the National Treasury (NT) and Department of Agriculture, Forestry and Fisheries (DAFF) for premium subsidy for the Multiperil Crop Insurance (MPCI), currently offered to commercial farmers in South Africa, specifically for drought insurance.
The primary reason for the premium subsidy is to make MPCI more affordable for commercial farmers and allow for more commercial farmers to take up the necessary insurance therefore ensuring their future sustainability, as well as to address the sustainability of this important product line.
Government agreed to look at the requested premium subsidy or financial contribution towards reinsuring MPCI (drought only) for commercial farmers but also wished to include a crop and livestock product offering for emerging farmers (drought and hail only), for which a premium subsidy would also be considered. To drive this two-pronged initiative, the SAIA Agricultural Insurance Project was created in collaboration with NT and DAFF to further both product offerings for premium subsidies.
This project is gaining momentum. A proposal was developed with the assistance of the World Bank some time ago and submitted to government, including a collaborative approach on both MPCI for commercial farmers and index insurance for emerging farmers. MPCI is a well-established insurance product offering. As an appropriate product offering for emerging farmers does not yet exist, a lot of work is currently underway on this leg of the proposed solution.
Research regarding the profile of emerging farmers was done to better understand this market segment. A study is underway regarding informing a regulatory framework for index insurance (not only restricted to agricultural insurance), the design of the product is underway, attorneys have been appointed to look at the business legalities in creating a new insurance structure with government which will incubate the new product type, an insurance underwriting system tool has been identified to pilot the new product type, and a distribution methodology has been initiated to allow for effective distribution of the new product type.
We are in the process of updating our previous submission to government. It is envisioned that the submission could be made by June 2019. SAIA will also be focusing on creating more awareness about the need for the proposed public private partnership at all levels of government, and with other relevant stakeholders.
It is therefore exciting that, should we be able to make the required progress, we will be able to contribute not only to the sustainability of agricultural insurance and financial inclusion but also initiate a new product line for the industry. This will contribute to a sustainable agricultural sector resulting is a sustainable economy in the foreseeable future.