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Agricultural Insurance
Sunday, January 1, 1989
Sowing seeds

Agricultural insurer, Sentraboer, has announced some highly encouraging results in its 1988 year-end report. The company achieved a surplus of over R12m for the year ended June 30 1988 as compared with R6m for 1987. This meant that the solvency margin increased to 25,8%, compared with 10,3% previously.
The surplus of all categories of underwriting increased from R81 000 to almost R5m, with the technical reserve ratio amounting to 67%. This figure compared favourably with that of other short-term insurers in South Africa.
Pierre Maritz, executive GM of Sentraboer, says, “We are aiming for a solvency margin of 27% for 1989 with technical reserves above the market average.”
Last year short-term insurance companies generally experienced better results than in the previous financial year. There was also a softening of premium levels in the market.
Taking heed of the Melamet report’s proposals. Sentraboer has provided for additional reserves.
The past financial year started off with several problems to be addressed. Firstly, it had a capital base that did not permit substantial growth in turnover. Secondly there was an ‘undesirable amount’ of risk in the portfolio. And lastly, the administration’s efficiency fell short of management expectations.
A two-pronged approach was adopted to deal with these problems. Consolidation was the first strategy designed to maintain a solid portfolio, to retain good business without seeking new business and also to increase internal performance.
Sentraboer granted a much bigger benefit to its clients in the form of a discount of 10% on the total portfolio after one year without claims and 17,5% after a second year without claims. This has led to R4,4m being refunded to insureds.
The second prong was decentralisation. This phase included designating decision-making powers to the three provincial offices. Branches were established in Bethal and Bethlehem to streamline operations in the Northern Region, and two specialised branches were established in Braamfontein.
Another element of decentralisation was the increased use of computer terminals by co-operatives. Access to the computer for general enquiries and processing of policies is now available to agents.
Regarding information services, communication with co-operatives by means of terminals has had important benefits. These include better control in services to the insured, quality of documentation, reduction in reconciliation procedures and more control over insurance portfolios.
In due course another ten co-operatives will be linked to the network. The application of personal computer’s and terminals developed at such a rate that certain departments are fully dependent on the system for their daily functioning.
Agreements with the reinsurers were renewed at improved terms as a result of positive underwriting results during the first six months of the last financial year.
As regards business underwritten outside Sentraboer, progress was made in many areas:
• the new retirement scheme for employees in agriculture was finalised and marketed. It has been successful to date;
• the Penkoop promotion resulted in the number of policies being sold by cooperatives increasing by more than 500%;
• good progress was made with SASRIA;
• compulsory third party insurance was still successfully handled.
These initiatives contributed to a most positive result. The decrease in turnover was achieved, declining from Rl28m to R123m.
There were some negative implications of the consolidation efforts. Certain cooperatives decided no longer to sell Sentraboer’s products exclusively.
In fact they now act as brokers. Because of this, they could maintain a growth in commission levels during a negative growth phase for the Central Co-operative. This could hamper future efforts to control growth because double agencies are accompanied by the problems of divided loyalties.
Another element was the intrusion into agriculture by other insurers. This triggered a price war. Although good for the insured, in the long run such insurers will have to make a decision either to charge profitable tariffs or withdraw.
In its annual report Sentraboer says it will continue to strive towards competitive pricing and products without undermining the soundness of the central co-operative by uneconomic price cutting.
Another area which received special attention was manpower. Emphasis was placed on:
• establishing an integrated management performance system;
• decentralising some manpower functions to personnel officers and functional managers in regions;
• computerisation of all personnel information; and,
• training of personnel at the Bethlehem branch and also the introduction of management programmes.

Copyright © Insurance Times and Investments® Vol:2.1 1st January, 1989
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