PCIC insurance strategy burdens taxpayers, lacks protection for farmers, WB says

A World Bank (WB) study recommending reforms in the Philippine Crop Insurance Corp. (PCIC) has found that the state-run firm’s current approach to agricultural insurance neither provides value for money to taxpayers nor adequate protection to farmers.

The PCIC is also “very exposed to catastrophe losses which are not reinsured,” said the study done by a team from the WB’s Disaster Risk Financing and Insurance Program (DRFIP).

This study revealed that while premium subsidies given by the government to the PCIC grew rapidly over the years, 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.

An overview of this WB study was presented recently by Benedikt Signer, a senior financial sector specialist of the DRFIP, to the board of the PCIC chaired by Finance Secretary Carlos Dominguez III.

Signer said the study found that PCIC’s premium rating, capital management, financial reporting and other aspects of its operations are not in line with international best practices.

The PCIC “also remains very exposed to catastrophe losses which are not reinsured” and its capital “is not maximally and efficiently invested,” Signer said.

“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, 2022.

Signer said PCIC’s insurance products are also not suitable for majority of Filipino farmers, especially for small subsistence holders and growers.

He added that PCIC’s paid claims do not adequately reflect losses and are often paid late.

Moreover, 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.

Signer said the WB team has proposed several actions to overcome these challenges faced by the PCIC and strengthen its operations for the benefit of both farmers and taxpayers.

The PCIC board, led by Dominguez, immediately discussed what can be acted upon on the World Bank’s recommendations in the short span of less than two months before the term of President Duterte ends in June.

Signer said the WB is proposing that the PCIC institute the following reforms:

1. Clarify 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;
2. Review government strategy and support, including subsidies;
3. Overhaul PCIC operations and capital management;
4. 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
5. Reform 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 that the board create a steering committee to improve the operations and cost efficiency of PCIC.

This could be done by bringing it under the regular oversight and reporting of the Insurance Commission (IC); 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 also recommended that the government inform direction and grounding for significant medium-term reform by conducting 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.

Dominguez said that among the doables that the PCIC board can still find time to either accomplish or start to accomplish on the Duterte watch is the creation of a steering committee to improve the operations and cost efficiency of the PCIC.

The governance committee of the PCIC board, which he chairs, will act as this steering committee, Dominguez said. National Treasurer Rosalia De Leon acts as his alternate in the governance panel.

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.

Dominguez said the board can also act on the WB’s recommendation on knowledge exchange and exploring new technologies to improve PCIC’s services by visiting India, one of the countries that has learned from its missteps and has now improved on its agricultural insurance program.

Land Bank of the Philippines (LANDBANK) president and CEO Cecilia Borromeo said one of the World Bank’s recommendations that can be adopted by the PCIC now is the development of 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.

Signer said he was “impressed by the quick action” of the PCIC board on the WB’s recommendations.

During the meeting, the PCIC board also approved the financial statements of the corporation; its declaration of dividends to be remitted to the Bureau of the Treasury (BTr) for fiscal year 2021; and its updated operations manuals for fisheries’ insurance, non-crop agricultural asset insurance and credit and life-term insurance.

Also in attendance during the meeting were the other board members—PCIC president Jovy Bernabe, GSIS President-General Manager Rolando Macasaet, Department of Agriculture (DA) Undersecretary Dr. Fermin Adriano (representing DA Secretary William Dar), and subsistence farmers’ sector representative Dr. Gina Terencio.

Terencio, appointed to the PCIC Board on February 17, is also a member of the PCIC governance committee and its committee on audit and risk management.

An Aklan-based agronomist, Terencio is the president of the Provincial Farmers Action Council (PFAC) in Aklan and vice president of the National Confederation of Irrigators Association (NCIA).

She manages her family’s farm in Makato, Aklan, where she is also the president of the Makato Farmers Association (MFA) and the Aklan League of Federation of Irrigators Associations, Inc. (ALFIA).

GSIS Executive Vice President Nora Malubay and LANDBANK Senior Vice President Emellie Tamayo were also present during the May 5 meeting.