A World Bank study recommending reforms in the Philippine Crop Insurance Corp. (PCIC) has found that the state-run firm’s current approach to agricultural insurance neither provides value for money to taxpayers nor adequate protection to farmers.

The PCIC is also “very exposed to catastrophe losses which are not reinsured,” said the study done by a team from the Washington-based institution’s Disaster Risk Financing and Insurance Program (DRFIP).

This study revealed that while premium subsidies given by the government to the PCIC grew rapidly over the years, agricultural insurance has only reached one-third of the country’s farmers and is not well-targeted to ensure that taxpayers are getting value for their money.

An overview of the World Bank study was presented recently by Benedikt Signer, a senior financial sector specialist of the DRFIP, to the board of the PCIC chaired by Finance Secretary Carlos G. Dominguez III.

Signer said the study found that PCIC’s premium rating, capital management, financial reporting and other aspects of its operations are not in line with international best practices.

The PCIC “also remains very exposed to catastrophe losses which are not reinsured” and its capital “is not maximally and efficiently invested,” Signer said.

“So, to put it very bluntly, I guess as a starting point, the World Bank's findings were that the current agriculture insurance approach in the Philippines is not providing adequate value for money to the Philippine taxpayer, nor adequate protection to farmers,” Signer said.

Signer said PCIC’s insurance products are also not suitable for majority of Filipino farmers, especially for small subsistence holders and growers.

He added that PCIC’s paid claims do not adequately reflect losses and are often paid late.

Moreover, the agricultural insurance market in the country has been structured in such a way that the PCIC enjoys a de facto monopoly in this field, which has discouraged the entry of new players.

Signer said the World Bank team has proposed several actions to overcome these challenges faced by the PCIC and strengthen its operations for the benefit of both farmers and taxpayers.

They include clarify policy objectives for agricultural insurance, by identifying who to protect, based on whether it would lead to loss of consumption or loss of income and ability to repay loans.

World Bank also recommended a review of government strategy and support, including subsidies as well as overhaul of PCIC operations and capital management.

In addition, a review of the products PCIC offers was recommended by developing appropriate index-insurance products for subsistence and semi-commercial farmers and improving/targeting existing indemnity crop insurance for high-value corps and commercial farming.

Last year, World Bank wants to reform the market structure by letting the private sector come in and gain access to premium subsidies, and consider alternative market structures such as a co-insurance pool.

In the short term, the World Bank recommended that the board create a steering committee to improve the operations and cost efficiency of PCIC.