PCIC pilot-testing microinsurance for crop protection

MANILA, Philippines - The adoption of the area-based yield insurance (ARBY) scheme for crop insurance could result in huge savings for the government amounting to millions of pesos.

Proponents also claim that the scheme would also result in faster payment of claims and better protection in the face of the rampaging climate change. The Philippines is one of the developing nations that suffers most from climate change.

The ARBY is an index-based crop insurance, classified as microinsurance. The German International Cooperation (GIZ) introduced the product with the help of the government-run Philippine Crop Insurance Corp. (PCIC).

Crop insurance is designed to protect farmers from below-average yield, regardless of cause. The importance of insurance protect has been magnified by the worsening conditions of climate change.

The PCIC is the only insurer of crop damage, for small farmers. Its existing product for rice is called multi-peril, which has a coverage of P10,000 per hectare with premiums worth roughly P900 per hectare.

Of the total premium, government through the PCIC subsidizes P600 while the farmer accounts for P300.

With the ARBY, the coverage remains at P10,000 per hectare but with a higher premium of P400 exclusively accounted for by the farmer.

In its pilot test for ARBY in the Leyte province, 500 farmers for irrigated land were involved. That could be translated into savings of P300,000 for the PCIC in terms of government subsidies.

Then there are savings in terms of operational expenses.

In the present system, the PCIC and the Department of Agriculture (DA) must field its personnel to check each and every loan application. In the ARBY system, PCIC will create an index or average yield in a particular area based on a historic 20-year period, data of which are available in the DA network.

So under the ARBY system, if for example the average yield per hectare is 10 cavans and the insured only creates a yield of eight cavans, PCIC will pay for the shortfall of two cavans, regardless of cause.

And it will take a maximum of 10 days for pay-outs under the ARBY system, versus the six to 10 months under the present multi-peril system.

“We hope to roll it out in the rest of the country next year,” Norman Cajucom, PCIC senor vice president, said.

The roll out will likewise involve forging partnerships with microfinance institutions (MFIs), cooperatives, non-government organization (NGOs), and rural banks. These are the same partners and advocates of microfinance.

However, there are challenges that will confront the smooth introduction of the new crop microinsurance system.

Dr. Antonio Malagardis, GIZ program manager said that there are still policy and technical issues that need to be resolved.

Malagardis said that the technical issues could be solved with a public private partnership with interested foreign groups. “There are German and Swiss groups that are interested in coming in,” he said, without giving additional details.

But the policy issues are a more difficult.

The entry of more private groups or companies could reduce the risks for government while increasing the level of microinsurance products designed for various crops including livestock.

The PCIC and GIZ are also concerned that farmers may reject the new microinsurance product or may in fact abuse it.

“We still have to conduct literacy campaigns with the farmers,” the GIZ program manager said.