The government should reduce the tax on nonlife and agriculture insurance premium to encourage the private sector to offer such insurance products, which will help expand farming activities, according to an agricultural finance expert.
Dr. Jaime Aristotle Alip said the tax on nonlife insurance products, including crop insurance, should be cut to 2 percent, or the current rate imposed on life insurance products. Taxes collected on nonlife insurance products reach as much as 27 percent.
Alip said during a webinar on microinsurance hosted by the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) that cutting the tax on insurance premium will significantly raise the number of private insurance offerings.
“If you want private sector participation, you must level the playing field. You should lower non-life premium tax [including tax for crop or agriculture insurance]. I think there will be many private sector players [if tax is reduced],” he said.
SEARCA held the virtual forum “Agricultural Investment Risks: Empowering Smallholder Farmers through Micro-Insurance” as part of its thrust toward Accelerating Transformation Through Agricultural Innovation (ATTAIN).
Alip said government does need to subsidize agri insurance because the regime will be market-driven.
“It will be the law of numbers and the law of efficiency [that will work]. The gap must be addressed. Lawmakers should make nonlife insurance affordable.”
Alip, a Ramon Magsaysay awardee (2008), said microinsurance plays a significant role in boosting private sector investment in microfinancing or in extending loans to small farmers.
Once there is insurance or a guarantee program for farmers’ loans, banks are automatically willing to lend even to small farmers, Alip said.
CARD pays insurance claims fast —precisely because there has already been a predeposited insurance premium for the disaster, calamity, or typhoon.
“Within 8 hours we’ll pay. If there’s an issue [problems] involved, in 48 hours we will pay. The speed of payment shows how serious you are. Microinsurance should be believable. It should just be like a deposit when there’s a claim. You pay it right away,” he said.
Insurance or a loan guarantee is critically important in financing the marginalized farmers, in enabling them to get out of poverty. If farms are paid right away, they will be able to re-invest in agriculture again after natural disasters strike their farms.
“Insurance is an important safety net so that the poor will not slide back to poverty. If we’re able to pay farmers right away, their loyalty and affinity to insurance will be there,” he said.
Because of digitization, CARD accelerated its payment systems. It now pays through mobile means (celfone).
With the Covid-19 pandemic’s lockdowns, its clients do not need to go to its offices. They can make payments, deposit, and withdraw online.
CARD was put up in December 1986. It has grown into a group of 23 mutually reinforcing institutions (MRI).
“My vision was for a bank owned and managed by the poor. I believe the reason why poor people are poor is not because of lack of access to resources. It is the lack of control over resources,” he said.
“After 10 years, we put up the first microfinance institution in the country, the CARD Bank, owned by its members. We completely turned banking system upside down.”
CARD Bank cut all bureaucracy in lending. It releases loans just two days from application and does not require collateral from borrowers.
Instead of requiring small borrowers’ financial projections or feasibility studies and numerous documents, it just requires a one-page form for loan application.
Now it has spin-off companies engaged in lending in both rural areas and urban areas.
It has the CARD MBA (mutual benefit association) owned by members and a nonlife insurance business linked with Pioneer Group.
“All policies, all regulations within the standard of the Insurance Commission, are implemented by the owners. What is our value proposition for these companies? Since they own it, we have a very small premium,” he said.
Overhead cost of the company is only 1 to 2 percent while some insurance companies incur 40 to 60 percent.
CARD now has 3,482 offices in 85 provinces covering 1,577 municipalities and cities and 40,440 barangays.
As of January 2021, it has served 7.43 million clients; insured 27.219 million individuals; has outstanding loan of P30.77 billion; savings of P28 billion; operational efficiency, 117.1 percent; financial sufficiency, 114.89 percent, number of stockholders, 120,252.
It accounts for 20 percent of the entire microfinance industry in the country.
It has extended 14,761 scholarships; 9,783 graduate scholarships; and 4.693 million with access to its health services.
It accounts for around 80 percent of the entire insured Filipinos. Those it insures are mostly in the poverty level who are given the chance to bounce back economically in times of difficulty and loss.
Its repayment rate before the pandemic was 99.9 percent. It faltered a bit due to the pandemic and is now recovering in repayment rate to a more stable 93 percent to 95 percent.