issues and challenges in implementing parametric insurance in … · 2017-04-19 · competitiveness...
TRANSCRIPT
Page 1
Issues and Challenges in Implementing
Parametric Insurance in the
Philippines: Lessons Learnt and
Recommendations
10 February 2017
GIZ RFPI Asia
Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
Page 2
Outline: The Philippines Case
I. Factors Affecting Agriculture Micro insurance
II. Natural Catastrophes and Crop Insurance
III. Index Insurance Overview and Philippines
Experience
IV. Lessons Learnt
V. Recommendations
Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
Page 3
I. Factors Affecting Agriculture Insurance Development in the
Philippines: Internal and External Factors
Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
Ageing Labour
Force
Underdeveloped
Agro System High Input Cost
Agriculture Microinsurance Policy Framework
Agri-Agra Law
High Agro Loan
interest Low Production
Page 4
I. Factors Affecting Agriculture Insurance Development in the
Philippines: Internal and External Factors
Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
Extreme Weather
Risks
Unfair Regional
competition
Low Credit and Crop Insurance Supply and Demand
(-) Impact of
Trade
Page 5
19.87
2.59 4.65
80.13
97.41 95.35
89.52
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
Nueva Ecija Iloilo Leyte
Province ALL
(in Percent)
Adoption of crop insurance, all crops, 2007-2011.
Insuredfarmers
Non-insuredfarmers
Source: Tanzo, I. The Pinoy Rice Farmer. PhilRice
Type of insurance Percentage
N.Ecija Leyte
Traditional 73 0
Weather-index based 20 100
II. Natural Catastrophes and Crop Insurance
in 3 Provinces, Philippines
Page 6
Crop
Insured
Farmers
Insured
Hectares
Amount of
Cover
(Insurance,
Php M)
GoP
Premium
Subsidy
(Php M)
Rice 202,259 302,935.89 5,585.063 318.226
Corn 12,562 14,067.17 254.515 15.545
Total 214,821 317,003.06 5,739.578 333.771
2012 Crop Insurance Penetration Rate, Philippines
Enrolment Rate: 6.96%
II. Natural Catastrophes and Crop Insurance
Source: PCIC, 2012
Page 7
Reasons for Buying Crop Insurance Percentage
N. Ecija Leyte
Peace of mind/security 20 0
Access to credit 37 0
Influenced by other farmers 17 75
Attractive policy 47 0
Just want to try 0 25
Subsidized by seed grower 3 0
*Reason for not insuring: addn’l prodn cost
Source: Tanzo, I. The Pinoy Rice Farmer. PhilRice
II. Natural Catastrophes and Crop Insurance
Page 8
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%G
ove
rnm
en
t
Cla
ims
So
ld A
sse
ts
Re
du
ce
Co
nsu
mp
tio
n
Le
nd
er/
MF
I
Sa
vin
gs
Fri
en
d
Risk Coping Mechanisms
Risks NatCats
RisksForeseeableRisk Events
RisksUnforeseeableRisk Events
Household Risk Coping Mechanisms in Four Provinces, Philippines
Source: GIZ Study on Risk Coping Mechanisms in Four Provinces
Page 9
III. Index Insurance Overview and the Philippines Experience
Weather Index
Insurance:
Rainfall as the “Index”
Page 10
Instrument for
Measuring
Weather Index
Insurance
(ex. Rainfall):
Automatic
Weather Station
What is Index-based Insurance?
Page 11
Index Insurance: Trigger
Drought
Flood Rainfall, mm
Page 12
Hybrid Index Insurance: Rainfall as Trigger;
Yield estimate
(kg/ha)
5303
Agreement (%) 90
Nueva Ecija yield estimate
map, Wet season 2014
Area Yield to determine
Pay-out
Page 13
Comparison: Multi-Peril Crop Insurance, Index Insurance
Multi-Peril Crop Insurance Index Insurance
Various perils covered (Flood,
Drought, Hailstorm, Fire, Pest
and Diseases, etc.)
Either: Excess Rainfall (Flood),
Lack of Rainfall (Drought),
Temperature, Typhoon, etc.
Individual farm adjustment One overall measurement
Higher Premium (10%-12%) Lower Premium: ≥ 3%-6%
Individual farm lot assessment
(slower)
One-off measurement
(faster)
Individual assessments and
payments based on damage
One uniform payment
Disadvantage: Moral hazard;
limited expansion; high admin
cost
Disadvantage: Basis Risk:
Risk that Payment ≠ Damage
Page 14
RIICE Dry-test Timeline of the core processes
Un
derl
yin
g c
ore
pro
ce
ss
es
The RIICE project deliverables (product, distribution, yield estimates) need to be delivered at the
right time in the course of the under-lying processes (crop cycle, loan cycle etc.).
Explanation
1 Insurance product design and tariff
Product marketing and distribution
Service to customer and distributor / agents
Claims payment process (insurer & distributor)
Monitoring and yield estimates
2a
2b
3 2c
Option for early pay-out, day 72
Final Yield Pay-out, day 120
Januar
y
Jul
y
Decembe
r
February March April May June Augu
st
Septemb
er October Novemb
er
Crop cycle
Loan cycle (Peak) 2a Loan cycle
(Peak)
Insurance product cycle 1
2c 2c
SAR-based loss & yield monitoring 3 3
RIICE Project
deliverables
Philippine
stakeholders
deliverables
Crop cycle
2b 2c
Sales cut off, w/o
Flood cover
Sales cut off, w/ Flood
cover
Page 15
Insurance product features
Key Inputs and deliverables
Product design
Product type: Area-based yield index
Risks covered: Flood, drought, typhoon, pest and diseases
Sum insured: Agro Loan (rice), Min Php5,000 – Max 15,000
Summary Technical rates per municipality:
Description of commercial loadings: Basic rate: (Net Premium / (1-(XX% Overhead + XX% Profit Margin + XX% Commission)))
Gross Rate: Basic Rate x (1+(12% VAT + 12.5% Documentary Stamp Tax + 0.2% Local Gov’t Tax))
Type: Compulsory Current distribution channel: MFIs, Rural Banks
2.79% (DS) 5.5% (WS)
on average in 6 municipalities in Leyte @80% coverage
Page 16
Policy Pest/Disease Included
Province Leyte
Municipality Ormoc Hilongos Hindang
Coverage
Level
guaranteed
yield
[t/ha]
rate
[%
of SI] Forecast Pay-out
guarantee
d yield
[t/ha] rate
[% of SI] Forecast Pay-
out
guaranteed
yield
[t/ha]
rate
[% of
SI] Forecast Pay-out
70.00% 2.75 2.0 3.51 None 2.68 2.0 2.64 2.0
80.00% 3.14 4.5 3.51 None 3.06 2.3 3.01 2.4
90.00% 3.53 8.3 3.51
54,368.30 3.44 5.6 None 3.39 5.8 None
Wet Season, 2014
Page 17
SAR-technology & insurance features
Key Results of the Simulation @ 90% average yield coverage
Pay-out in 2 out of 6 Municipalities in 6 cropping
seasons, 2012-2014 @ 90% coverage
Details Amount
Technical premium rate Php7,587,720.00
Rice Farmers Covered: 5,084
Gross Pay-out: Php414,430.18
Page 18
IV. Philippines Lessons Learnt: Government Policy
Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
1. Current financial penalties for banks that do not meet the
25% required allocation under the Philippines Agri-Agra
Law is not effective in encouraging crop insurance
product development, and reigning in demand.
Agriculture loan portfolio was 14,4% out of 15%; and
agrarian loan portfolio was 1,1% out of 10% required in
2015.
2. A Policy Framework on Agriculture Micro insurance is not
enough to mobilize the Philippine Agriculture insurance
market.
Page 19 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
3. Area Based Yield (ARBY) Index insurance works! Had pay-
outs in 2 out of 6 municipalities in Leyte Province in 2012-
2014 based on actual yield results!
4. Area Based Yield index insurance for rice using remote
sensing can be done in the entire Philippines! DA is
gathering rice yield data for ALL MUNICIPALITIES in the
Philippines using remote radar satellites, which can be used
to insure area yields.
IV. Philippines Lessons Learnt: Product Level
Page 20
V. Philippines Recommendations: Government Policy
Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
5. A direct and strong link between access to agriculture
credit and agricultural insurance has to be addressed
through the Philippine Agriculture Microinsurance Policy
Framework.
6. A separate and dedicated joint Circular strengthening
access to finance on agriculture, and access to
agriculture microinsurance, among the Department of
Agriculture, Central Bank (Bangko Sentral), the
Department of Finance and the Insurance Commission
could aid market development.
Page 21 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
7. More incentives (limited tax deduction?) for banks who
offer agro credit in partnership with the Philippines
Department of Finance, Department of Agriculture and
the Bangko Sentral could mobilize agriculture finance
and insurance.
8. Philippine Government smart subsidies that increase
agricultural competitiveness must be provided through
the Department of Agriculture along with access to
finance and agricultural insurance development.
V. Philippines Recommendations: Government Policy
Page 22 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
9. Lowering tariff for all index insurance products
distributed by the private insurance industry, lower than
property insurance, up to a level allowed by Philippine
law, could entice companies to engage.
10. Creation of a pool of insurers offering agriculture
insurance through the Insurance Commission, PIRA and
established distribution channels.
a. Nationally pooled risks for natural catastrophes,
assignment of share of risks for all participating non-
life insurance companies; and corresponding
reinsurance
V. Philippines Recommendations: Government Policy
Page 23 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
11. More studies on agricultural insurance at the macro, meso
and micro levels in the time of climate change are needed to
understand the financial impacts of NatCats, and create
effective options for insurers to develop products that
manage risks and losses adequately.
12. Creation of a data sharing protocol for insurance addressing
the following issues:
- Data granularity: level of aggregation
- Who can access the data
- Cost of accessing data
- Policy governing data use
- Legal independence of data source
V. Philippines Recommendations: Government Policy
Page 24 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
13. Delimit the features of weather index insurance by allowing all
stakeholders to choose the level of insurance protection they
prefer against natural catastrophes, instead of insuring specific
crops.
a. Design weather index insurance products on a unit basis
ex. P5,000, P10,000, etc.
b. Targeting all stakeholders in the agro value chain
c. Require proof of insurance interest
d. Use satellite-powered weather data to ensure
uninterrupted monitoring
V. Philippines Recommendations: Government Policy
Page 25 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
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Philippines.
References:
Page 26 Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) www.inclusiveinsuranceasia.com
4. Bordey FH, Moya PF, Beltran JC, Dawe DC, editors. 2016.
Competitiveness of Philippine Rice in Asia. Science City of Muñoz
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References: