Agricultural insurance as administered by state-owned Philippine Crop Insurance Corp. (PCIC) is severely deficient, the Department of Finance (DoF) said over the weekend, citing the results of a World Bank study that also recommended a system overhaul.
In a statement, the Finance department said a World Bank specialist, in a recent briefing to the PCIC board, concluded that the insurer failed to perform its function of protecting Filipino farmers.
"[T]he current agriculture insurance approach in the Philippines is not providing adequate value for money to the Philippine taxpayer nor adequate protection to farmers," the statement quoted Benedikt Signer, a senior financial specialist at the World Bank's Disaster Risk Financing and Insurance Program, as having told the board.
PCIC's premium rating, capital management, financial reporting, and other areas of company operations were found to be not in line with worldwide best practices. The insurer "also remains very exposed to catastrophe losses which are not reinsured" and its capital "is not maximally and efficiently invested," Signer said.
PCIC's insurance policies were found to be unsuitable for the vast majority of Filipino farmers, particularly small subsistence farmers and producers. Paid claims also understate damages and are frequently late.
The country's agriculture insurance market is also constructed in such a way that the PCIC has a de facto monopoly, the World Bank study found, preventing the entry of competing companies.
Signer said the World Bank was recommending that the PCIC implement reforms and that government strategy and support, including subsidies, be reviewed.
"In the short term, the World Bank recommended that the board create a steering committee to improve the operations and cost efficiency of PCIC," the Finance department said.
Among others, the study recommended that policy objectives for agricultural insurance be clarified by identifying who to protect based on whether loss of consumption or income would result in the inability to repay loans.
Restructuring the PCIC's operations and capital management; reviewing its product offerings (including developing products for subsistence and semi-commercial farmers and improving existing insurance for high-value crops and commercial farming); and reforming the market's structure to allow the private sector access to premium subsidies and considering alternatives such as a co-insurance pool, among others, were also suggested.
Signer was said to have emphasized that these could be accomplished by bringing the PCIC under the Insurance Commission's regular oversight and reporting; developing and refining its rating methodology as well as its reinsurance, investment and dividend strategies; and revising the coverage and loss-adjustment methodology for existing products.
The World Bank also recommended that the government conduct feasibility studies for new products, develop and review options for premium subsidy reform, conduct international knowledge exchanges, and explore the use of new technologies such as satellite monitoring and geo-tagging of farms to provide direction and grounding for significant medium-term reform, the Finance department said.
Source - https://www.manilatimes.net
