The Federation of Free Farmers (FFF) appealed to government to reconsider its plans of converting the Philippine Crop Insurance Corp. (PCIC) into a reinsurance company, as doing so will leave the produce of around 3.5 million farmers unprotected from damage caused by pests and calamities.
The group’s comments came after the Department of Finance, which took over the supervision of the PCIC from the Department of Agriculture last September, reiterated the conversion will improve the corporation’s financial health while providing more insurance for farmers and their crops.
“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 anymore. Or, the companies will insure only crops and cover areas that are not susceptible to damage,” said Raul Montemayor, FFF national manager.
Montemayor in a statement said crop insurance is an “inherently risky business” due to the number of typhoons and calamities that the country encounters every year as well as the growing severity of pest and disease outbreaks.
The FFF said historical damage rate on rice and corn averaged at 10 to 12 percent of the sum insured with total premiums reaching as high as 20 percent of the sum insured if administrative costs and profit margins are added.
Montemayor said underwriting of policies and validation of claims are costly because of the large number, and the remote location, of farmers.
The FFF also insists the government may 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.
“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 to reduce its subsidy costs, 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,” Montemayor said.
The FFF added prior to the PCIC’s transfer to the DOF, policies were also not reinsured as reinsurance companies are setting very high thresholds for damage rates before claims can be filed.
