Geric Laude remembers how his Lolo Enteng lost his 10 hectares of land to pay off loans obtained from a local rice miller.
His grandfather had to use his farm as collateral for loans needed, especially after calamities—two in a row, at one point—struck their province. His grandfather lived until he was in his early 80s and saw how his lands in Zamboanga del Sur slowly got consumed by his indebtedness.
This, Laude said, is a sad story that is common among 8.5 million farmers nationwide. Farmers stand to lose what little land they owned when calamities like typhoons and habagat destroy their crops.
“He borrowed money from the owner of a rice mill who usually bought his produce to buy farm inputs. Since he did not have money and his crops were destroyed by typhoons, he eventually lost almost of all his landholdings to pay for his arrears,” said Laude, who is now the president of CARD Pioneer Microinsurance Inc. (CPMI).
One of the ways which can prevent this from happening is crop insurance. But since farmers are at the mercy of weather and other unpredictable situations, companies refuse to insure their crops.
Another challenge is the price point at which private companies will be able to meet farmer’s needs without endangering their own fiscal positions. This conundrum has been the main point of contention when it comes to crop insurance.
But after years of brainstorming, the private sector made a breakthrough by introducing Binhi Crop Insurance, the first crop insurance offered by a private company. It was developed by CPMI with the World Bank’s private-sector arm, the International Finance Corp. (IFC).
Initially, the crop insurance will just be available for CARD Mutually Reinforcing Institutions (CARD MRI) agriculture loan clients. After six months, the crop insurance can be availed by rice and corn farmers who are part of cooperatives and are clients of rural banks and other financial institutions.
“It was really a lot of input, a lot of brainstorming, because nobody wants to go into this area because this one is really very risky and, finally, we got the winning formula after brainstorming in several meetings with IFC,” CARD MRI Founder and Managing Director Jaime Aristotle B. Alip said.
Coverage is as low as P1,000 to a maximum of P10,000 a year. Premium is set at 10 percent of the preferred coverage and can be paid weekly or monthly.
If a farmer is covered for P5,000 for one year, the farmer only needs to pay a premium of P500 annually. This means he would pay only P9.62 a week or P41.67 a month.
While some would view this coverage as very low compared to other insurance products, Laude said Binhi Crop Insurance was not designed to cover all the inputs needed by farmers to plant their crops.
He added that it was meant to complement other financial programs, including the government’s own crop-insurance facility made available through the Philippine Crop Insurance Corp.
“The product was designed to complement other financial programs available to farmers offered by our partners, like microfinancing, micro savings, risk-reduction practices, etc. It does not seek to replace everything that will be lost, but intends to help the farmer replant again in case damage to crops happens,” Laude told the BusinessMirror.
“With manageable amounts of benefit, the premium can be made affordable and the claims processes simple so that claims can be paid within five days. Further, do note that the limit of benefit is dependent on the amount of loan being released to the farmers. Thus, the coverage can be adjusted to the same level of amount of loan released,” he added.
Laude said CPMI is also studying the possibility of allowing farmers to pay their insurance premiums after harvest.
He said farmers covered by the insurance would only need to wait a maximum of five days to claim their benefit. This is similar to CARD MRI’s 1-3-5 claim process, wherein clients are extended loans within five days.
If the damage to farms reaches 80 percent to 100 percent, farmers get the full amount of their coverage. But if the damage is only 20 percent to 79 percent, they will only get half. The company will not make any disbursement if the farm suffered damages of less than 20 percent.
“As it is, it’s more expensive to smoke cigarettes than pay for crop insurance,” Laude said.
CARD MRI situated across the archipelago will make the necessary inspection of the farm in question. They will take pictures and give their visual assessment of the damage incurred by farmers after a disaster.
Laude said CPMI hopes the crop insurance can be accessed by as many as 200,000 farmers by the end of 2018. Initially, the facility will be available in 12 regions but will soon be expanded to cover all regions nationwide.
CPMI is also now in the process of studying possible “riders” to crop insurance or separate insurance products, such as the insurance coverage of farm equipment and livestock. All these, Laude said, may be made available in over a year’s time.
The company is considered the first nonlife-insurance company in the country created to streamline product development and pro-poor insurance products.
In the first year of its operation, CPMI generated premiums written of P74 million with 920,000 lives covered. By the end of 2016, the company aims to increase gross premiums to P480 million with 1.3 million lives covered.
CPMI is a partnership of CARD MRI, known for providing microfinance products to women nationwide, and Pioneer, a veteran in the local insurance industry. The company became fully operational in January 2014.