PCIC flagged for possible collapse

MANILA, Philippines — State-run Philippine Crop Insurance Corp. (PCIC) needs to tap the private sector and rework its business model to avert a broader collapse due to the company’s dependence on state subsidies, according to two agencies under the Department of Finance (DOF).

In a report to the DOF, the Insurance Commission (IC) said the bulk of PCIC’s assets, at around 40 percent, revolve on cash in banks and time deposits, exposing the firm to financial instability due to lack of investment income to fund its services.

Further, the IC concluded taxpayers will be forced to shoulder additional costs that the PCIC may incur in the event that catastrophes hit its clients and they claim their insurance.

Even without  future losses, Finance Secretary and PCIC board chairman Carlos Dominguez last week said subsidies extended to the PCIC reached P28.6 billion in the past two decades. More than 81 percent at P23.3 billion came from the national budget, while the remaining P5.3 billion originated from loan penalties collected from banks.

The IC said the PCIC can look into the Indian model of a public-private partnership (PPP) for its livestock industry. Likewise, it can study PPP frameworks employed by China, Indonesia, Japan, Mongolia, Nepal, Pakistan, South Korea and Vietnam in insuring their crops.

As a recommendation, the IC said the PCIC should involve the private sector in coming up with new policies to expand its insurance reach and reduce its financial exposure.

The IC also told the PCIC to hire the services of an accredited actuary in developing and pricing its products, finding out that the crop insurer has skipped multiple times the regular review of its premium rates.

According to the insurance regulator, the ratio of claims to risk premium rate for PCIC’s rice and corn farmers has exceeded 100 percent since 2018, and the program only appeared profitable thanks to provisions on administration cost and surplus reserve.

On the other hand, the Bureau of the Treasury said the PCIC spends at least P71 centavos excluding direct cost and financial expenses, for every P1 it generates. In turn, its operating cost over total expenses is equivalent to 15 percent, triple that of Government Service Insurance System and Social Security System’s five percent.

The Treasury also said the loss ratio of PCIC’s seven products rose to 69 percent last year from 56 percent in 2016, or an average of 65 percent during the five-year period. Rice accounts, for one, posted a loss ratio of 97 percent in 2019, notably at the height of dropping farm gate prices when the economy opened up to imports.

Similarly, the Treasury asked the PCIC to tap claims adjuster licensed by the IC and to do away with agriculture graduates in assessing damages filed by their clients.

Under the DOF’s helm, the PCIC is envisioned to work with private firms in insuring the crops of farmers, as Dominguez plans to wean the agency from its reliance on state subsidies.