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Why insuring Philippine agriculture holds key

By Atty. Arthur C. Yap

When PBBM declared a state of calamity last week due to the devastation wrought by Typhoon Paeng, it was in reaction to one of the most destructive typhoons our people had to face this year. More than 110 people had been declared dead with hundreds more missing and injured. Tens of thousands have also been displaced. Damage to infrastructure has breached more than a billion pesos with damages to agriculture and fisheries now at more than P3 billion, affecting more than 50,000 farmers.

The fact that the Philippines is one of the world’s most climate change affected countries, with an average of more than 20 tropical cyclones annually, is one of the major challenges that we face as a people on our road to food security and sustainable rural livelihoods. With the destruction brought by these seasonal visitations a regular occurrence, what chance do we really have at increasing our food inventories?

At this point in the life of an affected farmer, our national aspirations of food security are furthest from his mind. As he surveys the devastation around him, what is top of mind is saving what little possession he has. His roof may be partially or totally destroyed, along with the flimsy walls of his home. His assets, in the form of livestock, tools and beasts of burden may have perished or lost by now. What remains of his planted crops may be too meager to save if the crops can be saved at all. This is considering that his family has not had to relocate to an evacuation center. This is an all too familiar scene that is replayed many times annually.

At the scale and regularity of these calamities, what is appropriated by the National Government Agencies (NGAs) will simply not be enough due to the national debt and the deficit. And even if funds are sufficient, the reality is that distribution is always marred by inefficiencies due to warring political sides on the ground. Farmers are usually at the crossfires. And the reality is, even with crop insurance, payouts go through a long and painful time of settlement.

After a typhoon, it is common knowledge that the local community goes through at least a month of just cleaning up and getting back to where they were. It takes time for crop insurance adjusters to go to a site and validate losses. Upon getting to an affected site, it is impossible to evaluate the state of planting, the seeds or inputs used and other attendant losses. Almost always, the farmer just collects a small portion of what was insured. Not to take anything away from the Philippine Crop Insurance Corporation, which is the only entity in the country giving any level or modicum of crop insurance, the PCIC must not measure its accomplishments just on the number of pay-outs given to the most number of farmers. It must be measured on “timely” and “accurate” compensation for losses suffered by our farmers.

Unfortunately, the tools at the disposal of the PCIC to do its job are just not there at this point in time. We are still issuing crop insurance policies on the basis of long-standing indemnity contracts. No payouts for non-verifiable losses. It is time for the PCIC to move away from traditional indemnity policies and into “Parametric Insurance” for farmers. Under a Parametric Insurance Policy, farmer-policyholders are insured against the occurrence of a specific event (like a typhoon or an earthquake), and paying a set amount based on the magnitude of that event. Here the payout is not based on actual losses.

An example is paying out to a farmer P100,000 if a typhoon of signal number three parameters or an earthquake of certain parameters happens. In this case, when “parameters” regarding magnitude, level of tremor, wind speed, precipitation, water levels are breached: a payout happens. No arguments, no adjusters, no lengthy debates. The result is an earlier and faster settlement for losses for the farmer, which he can then use to restore his home and equipment, and gets him planting again. And that is what we want: more farmers getting back to planting again, instead of falling in line for “ayuda” or seeing the neighborhood 5/6 loan shark.

Of course the parameters are all specified in the contract and to the extent that the parameters are breached, a corresponding amount of payout is issued. A third party, usually a government agency or a weather system monitoring entity, can be tasked with providing the information regarding each calamity so that a determination of whether or not parameters have been breached can be settled. PAGASA and the SARAI system of the DOST-PCAARRD are examples of third party agents that can give on-line decision-support tools for crop risk and crop insurance services. The SARAI system is capable of providing weather monitoring, advisories and even plant health assessments on the basis of satellite coverage services.

There are even foreign groups today that are just waiting to see whether or not the Philippines can roll out a national parametric insurance system, before financing entities and social impact groups pump in funds for crop production and agricultural modernization straight to farmers and farmers groups. Satellite services are now much more affordable and insurance companies all over the world are using these technologies and innovations to offer better products to stakeholders.

We cannot be said to be unaware of Parametric Insurance because in 2017, under the leadership of the Bureau of the Treasury, the national government started a trial program with the World Bank. This program, which included the GSIS, was meant to provide rapid liquidity to 25 provincial LGUs in the event of typhoons and earthquakes. From 2017 to 2019, the combined coverage for damages was in excess of P30 billion on premiums paid for by the BTr at P3 billion and insured with the GSIS. The World Bank re-insured the policies and retroceeded them in turn, to international re-insurers. According to the World Bank Report commissioned thereafter, the loss ratio was less than 50 percent proving that even should this rise, the system would be sustainable in the coming years. What was most impressive was the payouts, which were completed in 6 weeks. We are now ready to move to phase 2 of this program. Lessons learned have been documented and scaling up to insure critical government infrastructures, including school buildings, can now follow.

With Parametric Insurance, the national budget can be protected from unprogrammed allocations brought about by calamities that visit us regularly. This is possible because “risks” are distributed not only among local players, but can even be re-insured with international re-insurance companies, as we did during our trial run with the World Bank. Moreover, payouts can be done quickly, efficiently and painlessly, avoiding political hazards during funds distribution.

We must realize that the resources are just lying around us. The Agriculture and Credit Policy Council regularly dispenses close to P2 billion in loans per year, the PCIC about P4 billion in insurance coverage, and the Agriculture Guarantee Fund Pool, a program started in 2008 that saw GOCCs set aside funds for food production, now stands at P8 billion and is now managed by PHILGUARANTEE. If these funds are just structured properly with a Parametric Insurance component, we will now invite global finance and re-insurance into funding Philippine agriculture, not just in the hundreds of millions, but in the billions of pesos.

Impoverished African states are already on Parametric Insurance and there is no reason why the Philippines cannot scale this up. This may just open the door to greater direct farmer funding in the coming years and answer the challenge to greater farm productivity.

The author was Secretary of Agriculture from 2004 to 2010, Member of Congress from 2010 to 2019, and Bohol Governor from 2019 to 2022.


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