Jimmy Loro Senior Advisor, GIZ RFPI Asia II 14 March 2017 Expanding the Agriculture Insurance Market in the Philippines: Lessons Learnt and Recommendations Jimmy Loro Senior Advisor, GIZ RFPI Asia II 14 March 2017 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

Outline: The Philippines Case Status of Agriculture Insurance in the Philippines Crop Insurance Status: Philippines, Vietnam, & Thailand Drivers of Agriculture Insurance in the Philippines Lessons Learnt and Recommendations Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

I. Status of Agriculture Insurance in the Philippines One major provider: PCIC < 30 years, private sector catching-up 60% - 70% premium subsidies for rice and corn, multi-peril product linked with LBP Loans Php 2 Billion Gov’t premium subsidies, targeting farmers with >7 hectares land, reached 10% of rice farmers RIICE Project, 2012-2015 Issuance of the Agriculture Microinsurance Policy Framework in 2015 PCIC has been the only provider of crop insurance in the Philippines for more than 3 decades. Government and financial institutions subsidizes 60%-70% of the premium for the main crop, rice and corn under an all risk product. Government provided premium subsidy of Php 2 Billion or around USD49 million in 2013 prices. Majority of the PCIC insurance policies are inked with the captured loan for the rice crop, from state bank, Land Bank of the Philippines. In 2012-2015, the Remote Sensing-based Information and Insurance for Crops in Emerging Economies was implemented in the Philippines with the Insurance Commission, the Department of Agriculture, the Philippine Insurers and Reinsurers Association, and a private insurer. An Agriculture Microinsurance Policy Framework, was issued by the Insurance Commission as Circular Letter 2015-53 in October 2015. Micro Agri defined the types of insurance products, the target sectors, the stakeholders, and data required. Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

II. Crop Insurance Status: Philippines In terms of performance, PCIC registered an average damage rate of only .54% and a loss ratio of .12% for all crops in 2014-2015. Highest damage was with rice at 6.63% in 2015 with a loss ratio of .53%, due to typhoons and the El Nino phenomenon. The lowest damage rate and loss ratio product of PCIC is not on crop, but a Term Insurance Package for farmers with .05% damage rate and .19% loss ratio. 2014-2015 were good years for PCIC. Source: PCIC, 2016 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

II. Crop Insurance Status: Philippines For the period 2007-2014, the highest damage rate was in 2011 with 10.30%, due to flood from excess rainfall and typhoons. At the same time, drought also affected rice and corn farming in the same years. Source: PCIC, 2016 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

Problems Encountered in Rice Farming, the Philippines However, in the survey on problems encountered by rice farmers by PhilRice in 2014, high price of agricultural inputs was seen as the most significant, followed by pests and diseases and low price of rice. One significant characteristic of the farmer’s response is the lacking perception on problems with weather risks. PhilRice shared that it was not part of the options. Even then, granting that farmers placed extreme weather events under “others”, it is still 6 time lesser than high price of inputs, despite an average 20 typhoons hitting the Philippines. Source: Tanzo, I. The Pinoy Rice Farmer. PhilRice

Thailand Rice Insurance Background II. Crop Insurance Status: Vietnam and Thailand Vietnam Agriculture Insurance Total Premium, 30 September 2012 Company Premium Share (VND) Premium Share (USD) Loss Ratio (%) Bao Viet 97.799.000.000 4.890.000 21.4 Bao Minh 28.972.000.000 1.449.000 49.8 Source: Bao Viet, 2012 Thailand Rice Insurance Background 2011 2012 2013 2014 2015 Area Insured 169.460,96 139.590,48 19.2 132.907,8 241.931,56 Premium 3.960.240,00 3.262.210 12.470 10.435.940 17.815.860 Compensation 21.938.151,2 7.425.313,6 902,13 Not Available Loss Ratio 553.96% 227.62% 7.23% In Vietnam, the loss ratio is on average 27.89% of the premium for Bao Viet and Bao Minh; which is a little over 5 x more of PCIC’s loss ratio at 4.89% for the same year. Loss ratios are even higher in Thailand with 554% in 2011 and 228% in 2012 significantly higher than the Philippines and Vietnam. Among the three countries compared for the same year 2012, it can be theorized, that the highest crop insurance product value on rice could be attributed to Thailand, but with detrimental financial effects for the insurer for calendar year 2012; while the most financially viable is the PCIC product with the lowest loss ratios among the three countries. Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

Drivers of Agriculture Insurance in the Philippines The Agriculture Microinsurance Policy Framework PCIC Products (Crop and Term Life) Licensed Agro Products by IC: Excess Wind on rice: MicroEnsure (2009) Excess wind on banana: PGA Sompo (2014) Indemnity-based and Wind Speed, Rainfall Index on rice (2016): CARD Pioneer Index-based Insurance Products Pilot Tests: Area Based Yield Index for rice: GIZ, PCIC, OCCCI Weather Index-based: PCIC, UNDP, WB RS-based Area Yield Index simulation: RIICE, CARD Pioneer 1.) In October 2015, the Insurance Commission released Circular Letter Number 2015-53 or the Agriculture Microinsurance Policy Framework defining the types of insurance products based on the output of a DoF-led Technical Working Group on Agriculture Insurance: for indemnity based and index-based products. In the same framework, area yield index insurance was identified as a means to determine the insurance pay-out, while the trigger is weather-based. This policy insured that reductions in yield are weather-related, and are thus, based on contingent events. 2.) Crop Insurance in the Philippines is driven primarily by PCIC products for non-life and life or term life insurance packages for farmers. 3.) The Insurance Commission has licensed index insurance products for rice and banana. 4.) While weather index insurance pilot tests are on-going with PCIC, UNDP and World bank for rice and corn. RIICE computer simulated an Area Based Yield index insurance product in 2014, prior to the release of the Micro Agri Policy Framework. Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

IV. Lessons Learnt and Recommendations Need of a data sharing protocol for insurance by DA, IC, PAGASA, PSA, etc. Complementation of subsidized PCIC products, with private agro insurance, not competition Formal public – private partnership, with specific targets, strategy, timelines by DA-IC-PIRA-PCIC-PAGASA-PSA Assessing Farmer’s willingness to pay for Agro insurance products by DA and PIRA Allocation of distinct smart subsidy to DA, PSA, IC, to support crop insurance, separate from PCIC premium subsidy Knowledge exchange with GIZ RFPI MEFIN Network on best practices 1.) From these experiences, the need to constantly share data and design those that are useful for insurance purposes was highlighted. Based on the RIICE product simulation, the Department of Agriculture emphasized the need of a Data Sharing Protocol to manage data access on a Municipal level area yield for rice available for all rice producing municipalities in the Philippines, since 2014. 2.) Incoming private agro insurance products cannot compete with the 60%-70% subsidized premium by Government. The value added is on complementing PCIC’s reach of 10% of farmers with less than 7 hectares of rice. However, the feature of speed in determining pay-outs for example, provided by index-based insurance products can be used to make a strong case for index products, particularly for wide spread damages due to natural catastrophes. 3.) A formal public-private strategy that includes specific targets, is needed among relevant stakeholders to drive the Micro Agri Framework. 4.) Along this line, knowing the drivers for crop insurance uptake is crucial. Products have been proven more attractive for farmers when bundled with agro inputs like fertilizers. All the rest are standard product features such as capacity to pay, use of technology, distribution or consumer access points. i. Use of independent technology ii. Distribution iii. Consumer touch points 5.) A separate allocation for smart subsidies on top of premium can be provided by Government to the Department of Agriculture for farmer trainings; the Statistics Authority for data collection for insurance use; and the Regulator for Financial Literacy training. 6.) Knowledge exchange and continuous monitoring can be facilitated by the Mutual Exchange Forum on Inclusive Insurance Network or MEFIN. Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com

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