In the Philippines, farming is a risky business. The country is battered by an average of 20 typhoons a year and as the storms become more intense due to climate change, the stakes get bigger for Filipino farmers, who make up a quarter of the country’s workforce.
Melinda Grace Labao knows this all too well. She saw firsthand the hardships that typhoons caused her now 77-year-old father as he managed the family’s 1-hectare rice farm in Bulacan province, north of Metro Manila, for over 40 years.
“When farms are hit by a typhoon, farmers are back to zero,” said Ms. Labao, Officer-in-Charge for Microinsurance at private insurer CARD Pioneer Microinsurance Inc. “They are wiped out financially because they cannot recover their investments in the crops.”
The government and crop insurers are trying to change that, with support from the Asian Development Bank (ADB). On 3 February 2022, the state-owned Philippine Crop Insurance Corporation (PCIC) and CARD Pioneer signed an agreement launching the country’s first public–private partnership on crop insurance, a move that could revolutionize the country’s agriculture insurance industry.
Insuring high-value crops
“Agriculture insurance empowers our farmers and farm managers to open up to new technologies and innovations in the market,” said Insurance Commissioner Dennis Funa during the signing ceremony. Insurance can reduce farmers’ risks, he said, allowing them to try new technologies to increase and improve their farm yield.
Under the co-insurance agreement, CARD Pioneer and PCIC will share, at a ratio of 70:30, the risk underwritten for each insurance policy to be issued under a pilot test. The product will initially target farmers of high-value crops, namely coconut, coffee, cacao, banana, sugarcane, and pineapple—a segment of the market that PCIC has had limited coverage so far.
Crop damage from typhoons and natural calamities can ruin farmers’ livelihood, wreak havoc on the food supply, and drive up prices in the country. Agricultural losses from Typhoon Odette, a category 5 typhoon that pummeled central Philippine regions in December 2021, were estimated at $82 million (Php4.2 billion), affecting more than 178,000 farmers and fishermen, according to the government’s National Disaster Risk Reduction and Management Council.
Crop insurance aims to give farmers relief during typhoons and in dry seasons, such as the El Niño drought phenomenon when crops, especially in rainfed areas, become too wilted to be harvested. But only about one-third of the estimated 10.9 million farm owners in the Philippines are covered by crop insurance, according to the PCIC.
Private sector participation critical
The PCIC, the country’s dominant agricultural insurer, provides subsidized coverage to mostly small farmers for losses due to natural calamities, plant diseases, and pests. Commercial farms comprise just 2% of the PCIC’s client base.
“Clearly, there is a huge market and a need for participation from the private insurance industry,” said PCIC President Jovy Bernabe. “That participation is increasingly critical, considering that the risks that farm producers are facing…have been exacerbated further by climate change.”
Discussions among ADB, the Department of Finance (DOF), the Insurance Commission, and private insurers on how to expand crop insurance began in 2018. A technical working group was created, with representatives from government agencies, development partners such as the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and the Philippine Insurers and Reinsurers Association.
“With private sector involvement in the crop insurance market, there will be more options for farmers, which, in turn, will help increase their financial resiliency,” said ADB Senior Financial Sector Specialist for Southeast Asia Kelly Hattel.
Expanding crop insurance coverage
With the agreement, CARD Pioneer is also expanding its operations into high-value crops. It currently offers insurance coverage against typhoons, floods, and monsoon rains for rice and corn under its Binhi (Seed) Crop Insurance Program launched in 2016.
CARD Pioneer will help widen high-value crop insurance in the country by offering the product in areas not reached by PCIC. It plans to tap its existing partners from rural banks, cooperatives, nongovernment organizations, and sellers of farm inputs to market the product. Crop insurance could be offered as an add-on to agricultural loans, said Ms. Labao.
“If the pilot testing is successful, CARD Pioneer will learn from us, they get the technology from us, the know-how. They might even expand to other portfolio like rice, corn, livestock. There is a huge market for livestock—swine, poultry,” said Mr. Bernabe.
ADB is assisting the crop insurance industry with a technical assistance grant, which builds on $600 million in ADB loans supporting government reforms since 2016. The Inclusive Finance Development Program aims to increase financial inclusion in the country over the long term, with ADB currently preparing additional support worth $400 million.
ADB has been assisting the government in developing its microinsurance industry since 2008. It supports implementation of the government’s National Strategy for Financial Inclusion and the Insurance Commission’s efforts to strengthen regulation for private insurers offering crop insurance. In November 2021, the commission issued guidelines for an agriculture insurance regulatory framework, under which falls the PCIC and CARD Pioneer partnership.