South African insurers are cutting cover of some crops planted by farmers due to the high risk posed by the drought. Vegetable crops in northern regions are said to pose too much of a risk for some insurers, while premiums for farmers who can get cover are rising.
“As part of our constant negotiations with our re-insurance partners, there are some crops that will probably be excluded in certain areas as the risk is just too high,” said Andries Wiese, manager of the agricultural unit at Johannesburg-based Mutual & Federal Insurance Co., a unit of Old Mutual Plc.
“Insurers typically try to quantify their exposure in relation to the risk and then calculate an appropriate rate or premium,” Wiese said. “Where this calculation dictates caution, you will find insurers less willing to insure a particular event or item. Some examples would be citrus, tomatoes, dry land vegetables such as carrots, melons, pumpkins, squashes, peppers, spinach and cabbage.”
South Africa’s crop insurance industry is estimated to be worth about 1 billion rand ($60 million) in annual premiums, according to Wiese — about 2 percent of the total property and casualty insurance market. That means its contribution to short-term insurers’ earnings is dwarfed by other businesses, said Risto Ketola, head of financials coverage at SBG Securities in Johannesburg, a unit of the country’s biggest bank by assets.
Nonetheless, Mutual & Federal and larger rival Santam Ltd. is only insuring crops planted within the optimum dates in land with sufficient soil moisture, said Gerhard Diedericks, the company’s head of agriculture.