Safire Insurance Company Limited was started in April 1987 by a group of timber growers who decided to manage their insurance themselves through the establishment of a timber insurance cooperative.
Now, 30 years later, Safire is a success story that has far exceeded the expectations of its original founding members. SA Forestry chats to current CEO, Pierre Bekker, whose father, Bailey Bekker, spearheaded the drive to form the company with its innovative insurance model.
SAF: Tell us some more about how the company was started. What set the wheels in motion?
PB: The global timber insurance pool suffered major, catastrophic losses in the 1986-1987 period, with about 90 000 hectares lost in Chile and other catastrophic events worldwide. These losses saw local timber growers faced with the prospect that their premiums were likely to be more than doubled – our private timber growers would effectively be bearing the brunt of losses by massive corporate growers elsewhere. My father, Bailey Bekker, saw the unfairness of this and knew that local private growers were more risk averse and consequently less of an insurance risk. He and the other founding members of the original insurance cooperative made it their mission to have these private timber growers treated differently to corporate growers when it came to their insurance cover.
SAF: How did their vision of an insurance pool get off the ground?
PB: Initially it was a slow process and very stressful for the founder members. They were unsure if they would be able to meet the insurance pool commitments in terms of finding reinsurance. They went from one year to the next, having to source reinsurance capacity. But in time the reinsurers saw the truth of the situation – the private growers were indeed lower risk. In some instances, reinsurers pulled out of forestry insurance completely apart from covering Safire members, which was their only exposure to forestry insurance.
SAF: What made (and makes) Safire clients different?
PB: Our clients – then and today – manage their plantations differently to the large corporate growers. The corporates focus on producing vast, contiguous areas of timber. There is limited species diversity and they generally plant for a single product. The smaller, individual growers have plantations with more normalised age-class distributions and they harvest sections annually as it’s more sustainable financially for them. The corporates also generally harvest much larger areas at a time and then replant these areas, which might then pose a higher fire risk over a much larger contiguous expanse until the new plantings reach canopy closure and suppress the inter compartment weed growth.
Private plantations also tend to have natural buffer zones between the timber, either pastures and fallow areas, sugar cane or natural fire retardant wattle. Private growers generally produce for the saw timber market, and trees that have been pruned for this product type fetch a much higher salvage value after a fire. With the corporate growers, depending on the intensity of the fire, burned timber tends to be contaminated for the pulp and paper market so there is a much higher percentage loss. This has been proven over our 30 year history. The disastrous El Nino fires of 2007 – 2008 and 2008 – 2009 saw Safire clients suffering far less loss than was the average for the rest of the industry.
SAF: Tell us about Safire Insurance today…
PB: Today Safire is in a far stronger position than when the cooperative started. The company is not seen as part of the global timber pool but as a stand-alone entity with its own distinct type of clients with unique risk profiles. We are fortunate to have three years of reinsurance capacity from our lead reinsurers, something almost unheard of in the industry. This certainly takes huge stress off the reinsurance renewal process especially when there have been severe losses globally and during a hard market cycle. This is based on our excellent relationship with our reinsurers through the success of the Safire model, which works on the all for one, one for all principle. The bigger the pool of insured individuals, the more beneficial it is from a cost perspective, but we continue to limit its size through being highly selective about who we include in the pool. We cannot have low risk growers subsidising high risk clients.
Yet higher risk growers also need cover, so we have developed independent pools within our Crop cooperative division that groups like-with-like in terms of risk levels. Every individual grower is assessed – we aim to provide sustainable cover at sustainable rates to our insured, while also protecting our reinsurers and obviously ourselves. We are proud to have achieved a successful balance for the benefit of all. We also provide structured risk financing deals for the larger corporate risks which get housed outside of the more generic cooperative pools so that the pool members and corporate results don’t impact each other. This is something the original cooperative could not do. So in the old days, we only had one pool with one risk profile. We can now find solutions for everyone, provided the commitment to good risk management is there.
SAF: And today it is not only timber insurance?
PB: Until 1997, forestry insurance was our sole line of business. We then started underwriting general short-term insurance and today plantation is only about 10% of our business. The diversification has made Safire a far more meaningful player for our reinsurers – we can offer them much more business. The decision to expand beyond forestry insurance was a strategic move and mainly done to sustain our forestry insurance – we did it for the benefit of our timber clients. We had no idea that the short-term side of our business would grow to the levels of today.
We became a public company in 2000, to enable us to diversify beyond the limitations of a cooperative structure (which meant we could only offer agricultural-related cover) both for ourselves and for our reinsurers. This was a very important step especially when viewed in hindsight and in respect of the low-yielding global environment we find ourselves in, where most businesses have been forced to expand as margins have fallen. It also enabled us to gain the confidence of our brokers and we have a very strong relationship with them now – Safire is a broker-based business in terms of marketing our short-term products.
SAF: What are the challenges?
PB: Over the past 30 years there has been a shift from many smaller farming concerns to larger, fewer farms. This puts us under increased pressure. On the forestry side of the business, there is a limited amount of growth. A number of our founder members have sold or are considering selling their timber farms. To expand in this environment we have to look elsewhere and we have an eye on widening our operations into Africa. We need to grow but not at any cost, so we are being careful.
However, we are fortunate – the profitability of the Safire Group exceeds the total plantation premium income because of our diversification. So, for founder members that have retained their Safire shares, their benefits today exceed the cost of their plantation premiums – effectively providing them with top class insurance cover at no cost to them. In addition, our plantation rates have reduced since the early days as we have applied discounts to our plantation clients. It is quite a turnaround from those days in 1987 when they faced a doubling of their premiums!
SAF: Are there other changes?
PB: We have less timber growers on our board through the increasing regulatory oversight – there are now very strict operating regulations to protect the consumer – including a requirement to appoint independent directors. No longer do policyholders and timber growers make up 100% of our board as in the early days. We have to include a diversity of business skills – people with legal, accounting and similar strengths. The ever-changing regulations pertaining to the financial services sector have significantly increased our overheads in terms of the required processes, increased number of personnel and paperwork that needs to be done. In addition, it’s far more onerous to be a company director these days, with more work to do and more meetings to attend. There is a significant increase in pressure and stress on a managerial and at board level.
SAF: Is there a positive side of the industry for consumers?
PB: Consumers are benefitting from the softer market cycle since 2008. Their rates are low compared to a hard market (this tends to follow the movement of interest rates). Insurance margins are low and premiums are lower than they have been for a long time – which puts insurers under a lot of pressure. We have to be highly competitive in this soft market. We are very proud to be in such a strong position, having achieved strength through change and diversity.
SAF: How do you see the future?
PB: I believe that insurance is going to change over the next few decades – it’s already altering and becoming far less personalised. At Safire, we are fighting this move towards what is called “disruptive technology”, the global industry trend to use call centres and switch to artificial intelligence (AI) which is replacing brokers and humans, especially in the East. Using AI is fine for processing paperwork but when there’s a problem, people want to speak to a real person, and not wait in a telephonic queue. Our five fingers logo represents a handshake, promises, “no call centres”, “access to decision makers” and “expert advice”. This human side of insurance is a major plus of working with Safire, and our brokers compliment us on our personalised approach. Our levels of service exceed the expectation of consumers, and we sincerely believe that this difference is part of our market advantage. We look forward to another 30 years as an innovative insurer, meeting the needs of local consumers.
Safire Insurance Company Limited
Contact: Pierre Bekker
Telephone: (033) 264 8500