State-Owned Agricultural Insurer Faces Calls for Closure Amid Conflict of Interest Findings

A new report by the Companies Authority has revealed severe governance failures at KANAT, a state-owned company insuring approximately 10,000 farmers against natural disasters and managing nearly a billion shekels in reserves. The report details significant conflicts of interest, coordinated voting, and weak oversight within the company, prompting concerns within the government and calls from the Companies Authority for KANAT's closure.

KANAT, established in the 1960s as a safety net for farmers facing climate-related damage, is equally owned by the state and farmer organizations. This ownership structure grants equal representation on its board, but the report highlights how farmer representatives, who are also clients, are placed in inherent conflicts of interest. The state subsidizes farmer premiums annually, adding another layer to the financial entanglement.

The audit, conducted by Ofer Alkalai, identified a chain of conflicts of interest on the board. Notably, the Vegetable Council, a client represented on the board, received an unanimous approval for an 800,000 shekel premium reduction, with its representatives present. In another instance, board members pushed for KANAT to cover a 15 million shekel shortfall caused by state delays, despite no direct exposure for KANAT itself. The report also noted instances where board members demanded compensation for farmers based on WhatsApp messages, bypassing formal agreements, and pushed for premium reductions without presenting actuarial backing or alternative funding sources.

Concerns were also raised about the blurring of lines between business and politics, with allegations of "you scratch my back, I'll scratch yours" dynamics. The report indicated that board members' influence and the dependency of senior managers on them could lead to preferential treatment for connected farmers, lenient claim approvals, or the disclosure of excessive information, undermining principles of equality and proper governance. Despite these findings, board members reportedly described exceptional adherence to corporate governance, a claim contradicted by documented evidence.

Weaknesses in oversight mechanisms were also identified. The CEO's departure process was canceled last minute, with the stated reason of prioritizing agricultural experience, despite pre-established criteria. The report also flagged potential collusion among farmer representatives who held identical positions on multiple issues. Furthermore, a single individual holds multiple key roles, including legal counsel, company secretary, and compliance officer, while the external auditor's hours are deemed insufficient. In light of these issues, the Companies Authority recommended KANAT's closure in February, labeling it a state-subsidized monopoly. KANAT, however, maintains its vital role in addressing market failures in agricultural insurance due to climate change and argues the report was commissioned to justify a predetermined outcome.