Severe Governance Failures and Conflicts of Interest Exposed at Agricultural Insurer Knat
A scathing new audit report reveals severe governance failures, conflicts of interest, and gatekeeper weaknesses at Knat, Israel's state-owned agricultural insurance monopoly.
The Natural Hazards Insurance Fund (Knat), which provides agricultural disaster insurance to approximately 10,000 farmers, manages reserves of about 1 billion shekels, and records a cash flow of roughly half a billion shekels, is facing severe criticism. Although its operations are critical in an era of climate change, a new report obtained by Globes reveals serious failures within the state-owned company, including conflicts of interest, vote coordination, and the weakness of gatekeepers. These findings have sparked government concern, with the Government Companies Authority even calling for its closure.
Established in the 1960s as a safety net for farmers against climate hazards, Knat is jointly owned on a 50-50 basis by the state, production boards, and growers' organizations. This structure grants equal representation on the board of directors but, as the report points out, places farmer representatives—who are also company clients—in a built-in conflict of interest. The company has about 10,000 clients and sells insurance across two tiers: basic coverage through organizations and expanded coverage sold directly. Meanwhile, the state subsidizes premiums with millions of shekels annually.
Conflicts of Interest on the Board
The audit report compiled by CPA Ofer Alkalai for the Government Companies Authority exposed a chain of conflicts of interest on the board of directors. A central part of the report is dedicated to the Plant Production and Marketing Board—a client represented on the board—for which a premium reduction of approximately 800,000 shekels was unanimously approved with the participation of its representatives. In another discussion regarding the reduction of insurance coverage for the board, the legal advisor clarified that its representatives were barred from voting. In response, one of the directors promised to provide a contradicting legal opinion, and the issue was transferred to the management committee without the minutes noting whether the directors actually abstained from voting.
Last year, the company was required to allocate 70,000 shekels for research by agricultural organizations initiated by directors holding positions within them, even though Knat had already submitted a professional stance on the issue. The report stated that "there is a concern that the company derives no benefit from the research and that the request was intended to subsidize sectoral activity." In another meeting, a director demanded that the company cover a 15 million shekel shortfall from its reserves due to funds delayed by the state—even though Knat itself faced no exposure as a result of the shortfall.
The blurring of boundaries was particularly prominent in directors' demands to transfer compensation to farmers based on a WhatsApp message regarding an additional 17 million shekels, without waiting for a binding agreement. The report noted that "this hasty conduct may violate the rules of proper corporate governance and illustrates the fear of a potential conflict of interest among directors representing the public of payment recipients."
Weakness of Gatekeepers and Calls for Closure
What happens when insurance reserves are eroded? One director argued that insurance coverage should not be reduced, though the auditor noted this was done without presenting alternatives, actuarial backing, or a professional explanation on how to prevent capital erosion. Even when it became clear that the company's expenses on natural disaster insurance exceeded its revenues for three consecutive years, a director demanded that premium hikes be avoided without presenting alternative funding sources.
When the auditor attempted to ascertain whether directors approach vice presidents to influence premium amounts, he was told that premiums are determined by a fixed formula. However, during the audit, vice presidents admitted that directors do approach them on the matter—improper conduct in its own right. It also emerged that vice presidents actually possess discretionary room, and instances were documented where decisions departing from formulas were made.
Against this backdrop, the Government Companies Authority called in February to close Knat, arguing it is a monopoly relying on state subsidies. Conversely, supporters argue the fund solves a critical market failure in an era of frequent climate change, since commercial insurance companies find no profitability in insuring farmers.
The Government Companies Authority stated in response: "The report contains severe findings regarding the company's performance, especially given its extensive state funding. The findings will be forwarded to the Ministries of Finance and Agriculture to formulate a governmental stance regarding the company's future."
Knat stated: "For about 60 years, Knat has operated in accordance with the law and serves as a safety net for agriculture. The unique ownership structure is based on a national vision, even if it raises challenges. It is regrettable that the Government Companies Authority chose to unilaterally promote a move to liquidate the company or alter its structure, and under this predetermined goal, an external audit report was commissioned to find flaws that would justify the decision. Knat will continue to operate professionally and will not allow damage to this vital national enterprise."
