Whether small and independent or a major commercial operation, as a farmer you are exposed to risk. Your needs will be as unique as you and the challenges you face every day are.
Our Agri policy takes care of your individual needs and includes covering risks associated with cooperative and estate wine cellars, fresh produce packaging and cooling plants, liability, exports, products guarantee, plastic tunnels, poultry, warehouse liability and many more. It also covers personal insurance requirements for you, the farmer – one of the most important assets of any farming business.
Topic 1: How can farmers build their own fund mechanism that would offer a buffer against those risks that they cannot be directly insured against?
How viable is it for a farmer to build up his or her own fund to cover risk and losses that may arise in the business?
More than 50% of the total risk exposures typically faced by farmers cannot be adequately addressed through traditional insurance. Thus, farmers are increasingly resorting to alternative risk financing approaches to supplement and complement their conventional insurance arrangements.
A key aspect of such approach is for the farmer to embark on an individually tailored long-term retention programme that is based on sound risk management principles, practices and strategies in farming activity. This is then coupled with efficient funding solutions, to facilitate the gradual build-up of reserves. This is to allow for the funding of such risks in a sustainable and cost-effective manner, over the long-term.
Hollard Insurance facilitates such programmes by housing dedicated reserves individually, as derived from specific premiums it earns out of the policies of insurance it issues to each farmer. The facilities are managed by Hollard Risk Finance, a specialist unit within Hollard.
An individual assessment is needed to determine a farmer’s risk profile and risk appetite. This is key to establishing the feasibility and sustainability of their retention programme. In addition, minimum entry level criteria of R1 million in premium retention contribution also applies.
Where individual farmers are not large enough to meet the minimum criteria, they can consider pursuing such a funding approach, on a collective, mutual basis with other farmers in their area who share similar activities, values, objectives and standards with their peers. The larger the build-up of the reserve retention, the more effective the programme becomes in reducing the farmer’s risk profile and cost of risk.
Are there structured products provided by financial institutions, other than a savings account, that provide specifically for this?
Yes, there are. Hollard provides structured solutions, mostly at the back of dedicated risk financing insurance policies with performance participation features, rather than just through bank type savings accounts. The policy approach enables the farmer to adopt an effective, more formalised way to fund risks with a longer frequency of recurrence, which will require the build-up of retention reserves over the longer term.
What are the benefits and risks associated with opting for this type of self-financing for risk?
Risk financing policies allow for the funding of risks not feasibly covered by traditional policies. They provide a focal point for continuous risk improvement and risk mitigation with the aim of improving sustainably and reducing the overall risk profile of the farming operation. The more effective the farmer becomes in mitigating risk, the greater is the chance for building up risk reserves. This outcome adds better certainty and flexibility to a farmer’s insurance programme and improves the cost effectiveness of the risk spend.
Is this a popular option for farmers in South Africa?
With farmers facing greater risks and uncertainty, coupled with the scope of cover limitations provided in some traditional insurance, we are receiving more enquiries on our risk financing facilities and related solutions from this sector.
For which types of risks is it viable to follow this path?
Our risk financing policies are individually tailored to cover the specific needs of each farmer. All risk classes in short-term insurance can be covered. A farmer can choose to include into a retention programme the following types of risk:
High frequently recurring risks of relatively low severity (cost) giving rise to many claims. These are inefficiently funded through traditional insurance culminating in Rand swapping exercises with a high transactional cost factor. Motor Own Damage risks with very low excesses can fall into this category.
Risks where traditional cover provided is of limited scope or availability or may be too expensive. For example, Crop cover and Dreaded Disease cover in poultry, livestock and game.
Any insurable risk where the traditional policy requires a high level of excess or deductible that the farmer wishes to make provision in his facility. These gaps in such cover can be accommodated within the risk financing policy.
If a farmer wants to create this type of fund how must he/she go about determining the minimum amount that the fund must consist of?
If the farmer has accumulated reliable data, funding for premium retention can be determined through statistical analysis of all the relevant losses.
Where little or no loss data is available, risk exposure analysis based upon risk profiling exercises, estimates of maximum probable loss, and significant accumulation risk estimates in a single location.
Assess the farmer’s risk appetite by determining how much funding can be assigned to the retention programme without detracting from or competing with the operational cash flows of the farming operation. The is done by conducting a financial risk retention analysis to test the farmer’s risk appetite.
Vir meer inligting, besoek www.hollard.co.za of kontak Andries Wiese by 011 351 5877 of This email address is being protected from spambots. You need JavaScript enabled to view it., of gesels met jou makelaar.
