Farmers say reinsurer role for PCIC to leave coverage gaps

THE Federation of Free Farmers (FFF) said the conversion of the Philippine Crop Insurance Corp. (PCIC) into a reinsurance company will leave a gap in the market that will leave crops uninsured.

“If PCIC shifts to reinsurance, who will now insure farmers’ crops? Unlike PCIC, private entities will venture into this business only if they can pay all the claims and still make money. Most probably, premiums will be so high that even farmers will decide not to have their crops insured. Or, the companies will insure only… cover areas that are not susceptible to damage,” FFF National Manager Raul Q. Montemayor said in a statement.

In September, the Department of Finance (DoF) was handed control over the PCIC, formerly led by the Department of Agriculture.

The DoF recently proposed the conversion to improve the PCIC’s financial health and expand available coverage.

The FFF said crop insurance is an “inherently risky business” as the Philippines is frequently hit by typhoons and other natural calamities.

“Climate change has also increased the frequency and severity of pest and disease outbreaks. Further, underwriting of policies and validation of claims are costly because of the large number and the remote location of farmers, and inherent moral hazards that lead to fictitious or overstated claims,” it said.

The FFF said the typical crop insurance premium for rice and corn was between 10%-12% of the amount insured, with total costs for the insured of up to 20% if administrative costs are considered.

“The government could end up spending more for subsidies if it wants to encourage the private sector to venture into crop insurance while making the policies still affordable to farmers. If not, the government will have to subsidize the operations of PCIC as a reinsurer that can absorb most of the risks faced by private insurers… the PCIC itself has opted not to have its policies reinsured because reinsurance companies were playing safe and setting very high thresholds for damage rates before the PCIC could file claims,” the FFF said.

“The risks and costs of crop insurance will remain essentially the same, and it will be just a question of who foots the bill — the farmers, or the private insurers, or the PCIC as the reinsurer, or the government as the subsidizer. If the government backs out (by reducing) its subsidies, then the whole system will collapse because either PCIC will end up absorbing most of the losses, or the private companies will just refuse to insure farmers’ crops,” Mr. Montemayor added. — Luisa Maria Jacinta C. Jocson