State-run Philippine Crop Insurance Corp. (PCIC) is at risk of suffering heavy losses once major catastrophic events occur, which would eventually be shouldered by the taxpayers, an in-depth analysis by the Insurance Commission (IC) revealed.
According to the IC analysis released by the Department of Finance (DOF) on Friday, Oct. 1, the PCIC’s financial status showed a high net retention rate or number of policies the company currently has on hand.
The IC also noted that the PCIC has relatively low investment income due to very high concentration of its assets in “Cash in Bank and Time Deposits, averaging around 40 percent of the total assets in the past years.”
“If the PCIC will continue this practice, the Philippine Government is expected to infuse more capital to the PCIC for it to survive should there be large-scale losses which will affect most of its insured,” the IC said in a report to Finance Secretary Carlos G. Dominguez III.
Likewise, the IC pointed out that the PCIC uses an account naming system in its financial statements not specific to an organization engaged in insurance, which makes its business operations “difficult to comprehend.”
Moreover, the commission said the PCIC issued several board resolutions from 2018 to 2020 providing subsidies to small farmers and fisherfolks whose names are not included in the registry system for agriculture sector.
In addition, the report said that PCIC's manuals of operations have also not been updated to reflect the revisions to its policy forms and guidelines since 2011, the IC said.
The IC also noted that PCIC engages in lines of insurance other than crops, such as credit life, term life, fire insurance, and personal accident.
“However, the pertinent Board Resolutions relative to PCIC's issuing these products, as well as the corresponding basis for adopting such Resolutions, have not been submitted for review,” the IC said.
In addition, the IC found out that the PCIC does not conduct a regular review of the premium rates of its products vis-a-vis its claim experience.
Moreover, based on a World Bank report, the PCIC’s traditional indemnity-based insurance is only applicable to large commercial farmers but not suitable for small farmers due to operational challenges and expensive loss assessment procedures, the IC said.
The IC also observed that the charter of PCIC was last revised in 1995 while some laws on agricultural insurance in the Asia and the Pacific region have already been revised recently.
This makes PCIC's charter 15 to 25 years behind some countries with similar public sector-based Agri-insurance providers like Bangladesh, Vietnam, and India, the IC noted.
A separate analysis by the Bureau of the Treasury also showed that PCIC’s operations are “costly.”
“For every peso income it generated , it is already spending an average of P0.71,” the Treasury said.
The bureau also said that as admitted by the PCIC, its claims adjusters are not duly licensed by the IC, but are agriculture graduates hired by the firm and trained in-house to assess damages on their various lines of insurance.
It also pointed out that for the past five years, loss ratio for the PCIC’s seven regular insurance products have been increasing from 56 percent in 2016, and jumped to 69 percent by 2020 or an annual average of 65 percent.
The IC has submitted its findings and recommendations to the DOF on May 7, 2021.