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The agriculture sector is driven by the development of new tech-enabled machinery and data-driven management systems such as precision farming. Picture: 123RF
The agriculture sector is driven by the development of new tech-enabled machinery and data-driven management systems such as precision farming. Picture: 123RF

Technological development, though rapidly accelerated by the Covid-19 pandemic, has been changing the insurance landscape for some time already.

The agriculture sector is a prime example of an industry that has undergone significant transformation, driven by the development of new tech-enabled machinery and data-driven management systems, such as precision farming.

These tech trends, combined with the impact of inflationary forces, are changing the face of the SA insurance industry and the prevailing risk landscape, both locally and abroad. 

Nowhere have the effects of digitalisation been felt more acutely than in the agricultural sector, where technological innovation has propelled a large degree of change over the past decade.

Artificial intelligence (AI) and automation are behind the emergence of precision farming — a method that employs several strategies and tools to optimise soil quality, crop yields, and increase overall productivity. These paradigm-shifting technologies have given rise to countless opportunities but, in doing so, have introduced new risks.

Jan-Hendrik Botha, head of underwriting at Western National Insurance, says that process automation and new farming techniques that harness the power of data are effective means to increase efficiency

“But smart equipment and systems require sizeable capital outlay and introduce new risks and exposures that must be mitigated by insurance products that are tailored to this evolving landscape.”

Along with the en masse adoption of electric utility vehicles and the associated cost and risk implications, today’s agricultural implements rely on a complex network of electrical components. 

For example, a diesel-fuelled harvester operates with an intricate electronic system that includes GPS navigation, computer systems and cameras. According to research, in one series of combine harvesters, the number of electronic controllers involved in the operation of the implement has increased fivefold within 15 years. 

The cost of electronic and computer systems that power today’s harvesters has increased dramatically over the past few years, with the sum total of these components reaching over R1m.

In SA, where lack of capital has been a barrier to entry, adoption of these kinds of innovations has been relatively slow, but is steadily increasing. 

These developments have led to the risk landscape in agriculture becoming more nuanced, to allow for specialist areas and types of risk.

Botha says that previously, insurance for an agricultural vehicle required a straightforward motor policy. But with the advent of electronically powered machinery, policies have been adapted to require cover for a mix of motor and electronic equipment to cover new risk exposures. This additional cover has resulted in higher insurance premiums.” 

He says rating structures have remained fairly consistent, or even decreased, due to the competitive nature of the industry. While the advanced technology being introduced into essential implements has boosted capabilities, these components are more susceptible to risks such as lightning strikes and fires. 

Tech trends are playing a key role in revolutionising the insurance sector 

Exposures have shifted from traditional driving accidents to the potential for electrical damage caused by harsh climate forces, power surges and equipment failures. Furthermore, in the case of AI, the loss of data poses a significant threat to the farmers’ bottom line. 

“These tech-driven trends have led insurers to structure policies to account for new, emerging risks under separate sections that apply exclusively to cover for electronic equipment and specific eventualities that might occur,” says Botha.

Drones are another prime example of how technology is being harnessed by the agriculture sector to improve efficiency, reduce the cost of labour and introduce more sustainable farming methods.

Drones can be flown without insurance, but must be operated in accordance with the SA Civil Aviation Authority’s legislation. High-performance drones can cost more than R350,000 and introduce a new level of risk that requires specialist cover. 

Botha says standard insurance products provide static coverage for drones (doesn’t apply when in operation) and doesn’t include liability coverage. Specialist products provide more extensive cover, which includes third-party liability and is subject to specific terms and conditions. Tech trends are playing a key role in revolutionising the insurance sector through the development of new insurance solutions.

Another emerging trend that is influenced by several macroeconomic factors, coupled with high inflation and its impact on supply and demand, is the increasing value of second-hand vehicles. The value of many of these vehicles exceed their true retail value due to a shortage of cars as well as parts and components.

It has become commonplace for consumers to purchase used vehicles at a cost that exceeds their retail value. But this has a knock-on effect on what consumers expect from insurers and the potential implications for higher levels of underinsurance among South Africans is concerning. 

Botha says insurers are accommodating client requests to insure above retail value, up to agreed percentages — subject to the increased market value being confirmed at claim stage. 

“Companies such as TransUnion, for example, have already established tools such as their vehicle price index. The VPI evaluates the link between new and used vehicle pricing increases from a basket of passenger vehicles that includes 15 of the most popular manufacturers,” he says.

“The index is created using vehicle sales data from throughout the industry, and if market pricing anomalies persist, this might become a worthwhile price index for insurers to consider. 

Adaptability is one of the cornerstones of future-proof insurance companies, not only because of the indelible change the risk landscape is undergoing, but because of SA’s unique economic standing post pandemic.” 

This article was paid for by Western National Insurance