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November 2023
South Africa is a country in which 90% of the land area is classified as arid or semi-arid. It is thus imperative that each agricultural farmer takes into account the climatic and other risks to physical production.
The principle of insurance as a risk-sharing device is the acceptance of appropriate premiums from a large number of clients, which enables the insurance company to pool the risks. The insurance company will then use the information or data about the frequency and severity of claims to determine premiums for all farmers who ensure their crops. The premiums are set at levels that will enable the company to pay claims from the aggregate of the contributed premiums and still leave a margin for operating costs and profit.
CATEGORIES
These categories of hail and linked insurance cover and entail basic insurance, not multi-peril.
Hail
Crop losses suffered as the result of the visible and direct physical destruction of sections of the plant, or the plant as a whole: Losses covered include seeds/kernels that are knocked out, the growing points of plants that are destroyed, leaves that are destroyed by shredding or by being partially or totally cut off, and hail damage to stalks or stems that are bruised, snapped or cut off.
Damage to plants, caused after a hailstorm, which is not visible at assessment and therefore not quantifiable, such as the delayed growth caused by cold damage from hailstones collecting around a plant, or disease resulting from hail damage, is not covered.
Extended hail cover
Under normal circumstances hail cover ceases as soon as the crops are harvested including being pulled up, hewn down, cut off or removed from the field. In certain cases it is farming practice to leave certain crops after extraction from the ground, such as onions, for some time on the field. During this time, the crop is still exposed to hail damage and additional insurance is available.
Wind
Damage similar to hail damage, such as seeds/kernels that are blown out, and leaves and stems that are snapped off, is covered. As in hail damage assessment, the visible structural damage or destruction by the effects of wind on sections of the plant or the plant as a whole, are covered.
Transit
The damage to products while being transported after harvest from insured fields as a result of fire, a collision and the overturning of vehicles is covered. However, cover is limited to a 100 km radius from the farm where the products were produced.
Excessive rain
Only certain crops, such as wheat and grapes, are covered against yield grade loss as a result of too much rain during the physiological ripening stage of these crops.
Fire
Damage to certain crops due to uncontrollable fire is covered. The insured must have followed the national regulations regarding the establishment of firebreaks to qualify for this cover.
Frost
Losses suffered due to frost (cold damage), including poor pollination when the stamens, blades, stalks and leaves are killed by frost, are covered. The resulting impact on the crop yield is assessed by visible examination of the plant structures. Invisible damage, such as delayed growth due to cold, is not covered.
IMPORTANT CROP INSURANCE PARAMETERS
Crop insurance can be taken out at any accredited agent, for example agricultural companies, banks, selected brokers or your closest insurance company area manager.
Factors that determine the cost of insurance per hectare are yield/hectare, commodity price, no-claim bonus, insurance rate and part of damages carried by farmer.
Yield per hectare
Insure every land according to its potential yield and increase later if the potential of a field has increased. Farmers can decide for themselves against which yield to insure.
Commodity price (R/t)
The crop price is always insured including VAT. Farmers can decide for which price they want to insure. Most Farmers use the closest silo, market or Safex price including VAT as norm when they insure.
VAT on crop insurance
When considering tax, crop insurance is an agricultural input and therefore VAT must be charged. When taking out the policy, the producer can claim back the VAT from the South African Revenue Service (SARS), but when claims are settled, the claim amount will include VAT and VAT must then be paid over. In order to do this, the value per ton (commodity price) must include VAT.
Part of the damage carried by farmer
Wind damage
Wind damage cover can be included by adding it to the hail policy for an additional 10% of the premium calculated for the hail cover alone. If your cover costs 5% for hail alone, the inclusion of the wind cover would thus cost 5,5% of the value on the total crop. This is advisable, as most hailstorms are accompanied by strong winds. Wet conditions in any year make it easier for large sunflower heads to fall over.
No-claim bonus percentage rules (summarised)
Insurance rate
The premium to be paid for crop insurance is determined by the risk. The crop, location and claim premium-ratio of crops differ therefore the rate is calculated according to magisterial districts. The rate of a district directly reflects the risk for a group of crops in that district.
Cover per season
Premium is payable once-off
Financing of premiums is available at most of the institutions acting as agents for crop insurance companies.
Waiting period
A waiting period is applicable from the time the policy is taken out until the time cover commences. Therefore, farmers must insure timeously before damage can occur. The cost of insurance stays the same irrespective of the period for which cover is granted. It is therefore advantageous to insure as early as possible.
Crops can be insured before emerging
You can insure at any stage of the season. The general practice is to insure summer crops before emergence as the risk of these crops is very high during emergence and a hailstorm can severely damage small seedlings. Cover only commences after emergence of the crop or when the crop has reached a certain growth stage in the case of permanent crops. However, certain crops have to be insured before specific cut-off dates, for example, fruit.
Increased cover
Farmers aim to manage their inputs optimally. Therefore, the products are such that cover can be increased as the yield potential of price per ton had increased.
Assessment of damage or taxation
As the susceptibility to damage of crops varies during the various growth stages, agricultural risk specialists continually conducts research to determine the influence of the various damages, should these occur during various growth stages. Assessments are performed by trained risk specialist staff on the farms of the various insured.
Postponement
Assessments are sometimes postponed until damage can be seen more clearly.
Maps
GPS-measured maps of farms are ideal and not only significant for crop insurance. They can also be used as a resource for other inputs, such as seed, fertiliser, poison and to determine yields accurately. Maps are ideal instruments for farmers to use for their crop insurance planning, and it is immediately clear if a specific field is missed out for crop insurance planning.
CONCLUSION
All risk specialist agents receive training on an annual basis, so they can be contacted for expert advice at any time.
Source: PGP: Advanced Maize Production and Marketing Training Manual
Publication: November 2023
Section: Pula/Imvula
Author: EDITORIAL TEAM
