THE Department of Finance (DOF) placed state-run Philippine Crop Insurance Corp. (PCIC) under the supervision of the Insurance Commission (IC) to ensure the regular examination of the state-run agricultural insurance firm’s financial condition.
Two days before President Duterte’s term ends, Finance Secretary Carlos G. Dominguez III signed on June 28 Department Order (DO) 038-2022, paving the way for the conduct of the regular examination of PCIC, the results of which shall be submitted to the DOF.
“In view of the foregoing, the PCIC is hereby placed under the supervision of the IC,” Dominguez said in his DO, which is set to take effect immediately. “The IC is hereby directed to conduct an examination into the affairs, financial condition, and method of business of the PCIC every three (3) years, or as often as may be directed by the Insurance Commissioner or the Secretary of Finance.”
To recall, President Duterte in September last year issued Executive Order (EO) 148 transferring the PCIC from the Department of Agriculture (DA) to the DOF as an attached agency “for policy and program coordination and general supervision.”
Likewise, the EO also re-organized the PCIC Board with the DOF Secretary as chairman.
The IC is mandated to conduct an examination into the affairs, financial condition and method of business of government-owned and -controlled corporations (GOCCs) engaged in social or private insurance, based on this presidential directive and under Section 253 of the amended Insurance Code.
DOMINGUEZ issued DO 038-2022 after the World Bank recommended reforms in the PCIC.
The world’s largest multilateral creditor institution found that the state-run firm’s current approach to agricultural insurance neither provides value for money to taxpayers nor adequate protection to farmers.
Moreover, the World Bank study—undertaken by a team from the lender’s Disaster Risk Financing and Insurance program (DRFIP)—concluded that PCIC is “very exposed to catastrophe losses, which are not reinsured.”
While premiums subsidies given by the government to PCIC grew rapidly over the years, the World Bank said its study revealed that agricultural insurance has only reached one-third of the country’s farmers and is not well-targeted to ensure that taxpayers are getting value for their money.
The study also found that PCIC’s premium rating, capital management, financial reporting and other aspects of its operations are not in line with international best practices.
PCIC’s insurance products are also not suitable for the majority of Filipino farmers, especially for small subsistence holders and growers, the study showed.
THE DOF said the IC also formed project audit teams to look into the compliance of the country’s social insurance institutions with the global accounting standards.
Insurance Commissioner Dennis B. Funa reported to Dominguez that audit teams will begin to audit the compliance of the Government Service Insurance System (GSIS) with Philippine Financial Reporting Standards 4 next month. Funa said the adoption to PFRS 4 by the Social Security System (SSS) and Philippine Health Insurance Corp. (PhilHealth) will be audited in September and October, respectively.
“We shall provide the Secretary of Finance the respective final audit reports immediately after the endorsement and approval from the Insurance Commission Executive Committee,” the IC chief said in his report.
In December last year, Dominguez ordered the SSS, the GSIS and PhilHealth to fully adopt PFRS 4, which provides guidance on the proper financial accounting of insurance contracts.
PFRS 4 is the current and interim accounting standard imposed on insurance entities in the Philippines that is based on International Financial Reporting Standards.
All private insurance companies in the Philippines have been using PFRS4 since 2005.
Dominguez issued the directive after a comprehensive review was conducted by the DOF led by Undersecretary Antonette C. Tionko with the assistance of the International Monetary Fund. The review revealed these institutions were not adopting internationally-accepted accounting principles in their financial reporting and management of their social benefit liabilities.