Despite the rapid increase in subsidies extended by the government to state-run Philippine Crop Insurance Corp. (PCIC) through the years, its agricultural insurance has only reached a third of the country’s farmers, according to a World Bank study.
The study done by a team from the World Bank’s Disaster Risk Financing and Insurance Program (DRFIP) also revealed that the agricultural insurance provided by PCIC is also not well targeted to ensure that taxpayers are getting their value for money.
Senior Financial Sector Specialist of the DRFIP Benedikt Signer presented an overview of the World Bank study to the PCIC board led by Finance Secretary Carlos G. Dominguez III.
Signer said the study found out that PCIC is “very exposed to catastrophe losses which are not reinsured” and that its premium rating, capital management, financial reporting, and other aspects of its operations are not in line with international best practices.
“So, to put it very bluntly, I guess as a starting point, the World Bank’s findings were that the current agriculture insurance approach in the Philippines is not providing adequate value for money to the Philippine taxpayer, nor adequate protection to farmers,” Signer said in his presentation during a PCIC board meeting held last May 5.
To recall, President Duterte last year signed Executive Order 148 authorizing the transfer of PCIC from the Department of Agriculture to the Department of Finance to ensure that operations of the PCIC will be aligned with “national developmental policies and the government’s overall fiscal plan.” On its website, PCIC said its principal mandate is to provide insurance protection to farmers against losses arising from natural calamities, plant diseases, and pest infestations.
In 2021, the PCIC received its record-high government subsidy of P4.6 billion, surging by 45.8 percent from P3.16 billion in 2020, based on data from the Bureau of the Treasury.
Last year’s level also eclipsed its previous record-high subsidy of P3.95 billion in 2019 by 16.8 percent.
During the meeting, Signer added that PCIC’s capital “is not maximally and efficiently invested” and the state-run firm’s insurance products are also not suitable for the majority of Filipino farmers, especially for small subsistence holders and growers.
He said PCIC’s paid claims do not adequately reflect losses and are often paid late.
He also lamented that the agricultural insurance market in the country has been structured in such a way that the PCIC enjoys a de facto monopoly in this field, which has discouraged the entry of new players.
Recommendations
TO overcome the challenges faced by the PCIC and to strengthen its operations for the benefit of farmers and taxpayers, Signer said the World Bank proposed that the PCIC institute several reforms.
These include clarifying policy objectives for agricultural insurance by identifying who to protect, based on whether it would lead to loss of consumption or loss of income and ability to repay loans; reviewing government strategy and support, including subsidies; and overhauling PCIC operations and capital management.
The World Bank said the government must also review the products PCIC offers by developing appropriate index-insurance products for subsistence and semi-commercial farmers and improving/targeting existing indemnity crop insurance for high-value crops and commercial farming, and reforming the market structure by letting the private sector come in and gain access to premium subsidies, and considering alternative market structures such as a co-insurance pool.
In the short-term, the World Bank recommended the creation of a steering committee to improve the operations and cost-efficiency of PCIC through bringing it under the regular oversight and reporting of the Insurance Commission, developing and refining its rating methodology as well as its reinsurance, investment and dividend strategies; and revising the coverage and loss-adjustment methodology for its existing products, Signer said.
The World Bank said the government must conduct feasibility studies for new products; developing and reviewing options for premium subsidy reform; conducting international knowledge exchange with other countries; and exploring the use of new technologies, including satellite monitoring and geo-tagging of farms.
In response, Dominguez said the PCIC board can still find time to either accomplish or at least start to accomplish the creation of a steering committee before President Duterte’s term ends this month.
The finance chief said the governance committee of the PCIC board, which he chairs, will act as the steering committee while National Treasurer Rosalia V. De Leon will act as his alternate in the governance panel.
For her part, De Leon recommended that the governance committee also start working on proposed legislation that aims to reform the PCIC so it would be ready for filing in the next administration.
Apart from the creation of a steering committee, Dominguez said the PCIC board can also act on the World Bank’s recommendation on knowledge exchange and exploring new technologies to improve PCIC’s services by visiting India, one of the countries that have learned from its missteps and have now improved on its agricultural insurance program.
Meanwhile, Land Bank of the Philippines (LandBank) president and CEO Cecilia Borromeo said PCIC can also adopt World Bank’s recommendation to develop appropriate index-insurance products for its stakeholders to ensure that subsistence farmers receive coverage that would work for them, rather than those suited for semi-commercial farmers.
Other PCIC board members present during the meeting were PCIC President Jovy Bernabe, Government Service Insurance System (GSIS) President-General Manager Rolando Macasaet; Agriculture Undersecretary Dr. Fermin Adriano (representing Agriculture Secretary William Dar); subsistence farmers’ sector representative, Dr. Gina Terencio; GSIS Executive Vice President Nora Malubay and LandBank Senior Vice President Emellie Tamayo.