Canadian Division Serves Alberta, Manitoba, Saskatchewan & British Columbia

Global Expansion - The Case for Canada
by Rob Goeres
Vice President and Manager, Canadian Division
Rain and Hail Insurance Service, Inc.

Background

The first two lines of our Corporate Mission Statement read, "An Employee Owned Organization That is Focusing On The Future" and "Our challenge is to be the best insurance organization in the world." Our Mexico office is now operational and with the full support of the Board of Directors of RHIS International we have been actively lobbying in Canada for a government and private partnership to deliver MPCI type crop insurance. These initiatives are reflective of our mission statement because the future of modern business is globalization, the process of expanding markets and trading links outside ones own borders.

Anytime RHIS looks outside the United States to expand, numerous details must be extensively researched to identify potential problems and then solutions must be developed to resolve them. The following list, while not exhaustive, touches on some major areas of consideration in such an initiative: language, customs, governmental process and the laws, economic and political stability, banking, taxation, farm structure, major crops, crop marketing, current programs, the market size and potential, the major perils, proximity to our existing core business, licensing, human resource requirements, and profitability over the long term.

With all these issues to consider one is left to ponder, why do it?

Rain and Hail has always been an industry leader at looking forward to plan and prepare for the future. As other nations come to grips with solving their own risk management problems our crop insurance expertise can be marketed internationally to grow RHIS and improve our profitability. The Domestic Market is essentially sold and therefore to increase volumes we have to gain market share from our existing competitors and/or expand to new markets at home or elsewhere. International markets may result in an expansion of our current book of business, be a source of fees for service on a consulting basis, or result in nothing more than an exchange of ideas that may influence us to rethink the way we currently operate.

The Case For Canada

Canada offers us the best opportunity to grow in an environment that will be the least "foreign" to our Corporation. We have been writing crop-hail business through a Canadian Division Office since 1920 so many of the logistical issues related to banking, taxes, laws, human resources, governmental process, and farm structure have already been addressed. Our west coast has vineyards and cash crops similar to California, tree fruits are grown in the Okanagan Valley which crosses the border coming out of Washington State, the prairie provinces are an extension of the Great Plains, Ontario produces seed corn and soy beans, and the Atlantic provinces grow potatoes. Further, the perils are similar to what we are accustomed to insuring in US border states, the total book of business currently written is at about $ 400,000,000 USD. and there is no language or customs barrier. The facts that we are the number one US trading partner and maintain the friendliest and longest undefended border in the world speak for themselves.

The concept of risk management is not new to Canadian Agriculture but it is getting more attention now because of global economic pressures and government deficits. Each year farmers in some part of the country are looking for disaster relief complaining the current crop insurance program costs too much, the coverages levels are too low, and other countries are providing subsidies. Our Governments are under severe budget pressures to get their own financial houses in order so they refuse to allocate any more money to flawed programs and are frustrated by the farm lobby being continually dissatisfied with whatever solutions they provide. We are at the cross roads the US met in the late 1970's when the agricultural community determined there was a more efficient and effective way to deliver a crop insurance program.

The Current Program

Our governments endorse crop insurance as a preferred risk management tool, desire high grower participation, want coverage to be universal, endorse the idea that producers should have choices, want a high degree of program integrity, and agree they must make a financial commitment to agriculture. Under the terms of a bilateral agreement, each Province is responsible to design and deliver their own program which the Federal Government will fund if they deem it to be actuarially sound. The two levels of government will then each pay 25% of the producers risk premium, and equally share the administrative costs, while the producer pays the 50% balance of risk premium. In essence there are ten separately run crop insurance programs in the country. The coverages are similar to MPCI, a yield guarantee is elected based upon an individual or area actual production history, but the Federal agreement decrees all programs must maintain the full offset production principle, hence, there are no optional units. Farmers sign up for coverage through their local government service offices.

Status of Privatization

For the past few years, we have actively pursued contacts at both levels of government, with the farm associations and within the insurance community. The three major hurdles that have hindered our success at securing a private program are:

1. Good crops - it has been a long time since we have had a major crop failure.
2. The bilateral nature of the current agreements - The Federal Government will support change but it has to be agreed to by the individual provinces who do not want to give up funding that ultimately provides local government jobs.
3. Entry of Private Reinsurance into the Government Program(s) - The various Provinces have recently been able to purchase reinsurance from the private markets giving them a false sense of security that their problems are not critical at this time.

We have opened up many lines of communication, motivated supporters, and were instrumental in setting up a privatization Coalition which will be integral in our efforts to eventually secure a private program. The frustrations of not knowing or being able to control the time lines are great but needless to say, when privatization does happen, RHIS will have played a vital role in both its development and ultimate success.