RTD on Climate Change Policy Reforms May 14, 2014 William H. Martirez, Country Manager
What is MicroEnsure? Micro Ensure is a global insurance intermediary dedicated to serving poor households and the rural market with an affordable and suitable range of insurance products ME operates as a holding company structure with its head office located in Illinois, USA and a global operations office in Cheltenham Gloucestershire, UK and subsidiaries in the countries of operation.
MicroEnsure Philippines MicroEnsure Insurance Brokers Philippines, Inc. In Started operations in 2007 Registered as an insurance broker Issued more than 9 Million Policies since 2007 At present, we work with partners in 50 provinces nationwide Paid about PHP 600 Million in Claims since 2007 Calamity insurance pay out since 2008 is Php 334 Million representing 60,000++ families Introduce 60 innovations since 2007
Fire/ Calamity Insurance MicroEnsure first introduce Fire/Calamity Assistance to partners last 2008 with its Microhousing Product. In May 2011, Fire/Calamity Assistance was bundled with other major products like life and accident. Paid out Php334M in calamity insurance claims since last year covering more than 60,000++ families. Flashflood (Davao) 623 Typhoon Sendong (Cagayan de Oro, other Mindanao Areas) 2,284 Typhoon Gener & Habagat (Metro Manila) 6,830 Various Provinces 1000 Yolanda 40,000
Microhousing A. Fire & Lightning 1. Applicable to Home Owners & Home Renters Php50, 000 B. Calamity Assistance 1. Typhoon 2. Flood 3. Earthquake 4. Volcanic Eruption 5. Landslide 6. Tsunami C. Evacuation Assistance D. Family Personal Accident Principal Insured/Spouse 50% (Php50,000) Children/Siblings 25% (Php25,000) Php10, 000 Php200/day Maximum of 5 days Php100,000 Maximum allocated limit
Weather Index Based Insurance An agriculture insurance product based on a weather index or parameter such as deficit or excess of rainfall, fluctuations of temperature, high wind speeds, and/or a combination of the above. It is a financial protection based objective measurable weather parameter such as rainfall level at a local weather station. This product is non-indemnity and parametric. Payments are not linked to actual losses in the field. MicroEnsure first to introduce Weather Index Based Insurance in the country.
WII Products Developed Drought - Insures the cost of cultivation against the peril of drought which is defined as deficit rainfall on the different stages of the crop growth Typhoon - Insures the cost of cultivation against the peril of typhoon which is defined as crop damage caused by high wind speeds as a result of typhoon to the insured farm.
Typhoon Track
CURRENT WII PRODUCTS Wet and dry day crop insurance Classify any day as either wet or dry Dry day is defined as a day with less than 2.5 mm of rain recorded. Amount varies depending on geographical area. Dry Day Cover - Insures the cost of cultivation against the peril of continuous dry days during the cover period. - Pays out if count of consecutive dry days is more than 18 days or if the total rainfall in 21 days block is not enough for crop s growth. Wet Day Cover - is a weather index based crop micro insurance product that insures the cost of cultivation against the peril of continuously wet days during entire coverage period. - Pays out if cumulative rainfall in 3 days is more than optimal amount for crop s growth
CURRENT WII PRODUCTS Portfolio Protection WII - An innovative insurance product that addresses the risk exposures of lending institutions with respect to extreme weather conditions such as typhoon and flood - Can be bundled with pests and diseases cover The policy pays out a predefined percentage of the MFI s loan portfolio if a parametric trigger has been reached. Weather Indices/Trigger: - Wind speed trigger or - Rainfall trigger: Accrued rainfall measured in mm within 24 hours.
What is Triple 10? Aims to provide insurance protection for the family in the event of : Death Loss or damage of property due to fire or calamity Reimbursement of medical expenses due to accident or illness
What is Triple 10? - Optional Features Increase of Personal Cover Family cover Increase cover for dependents Additional fire & lightning cover Has medical reimbursement cover for the family May purchase the additional units based on capacity to pay
Innovations - First to introduce calamity insurance thru Microhousing - First to embed calamity insurance to life and health insurance - First to integrate and design a credit portfolio with life, health and calamity - First to introduce - Weather index insurance in the country - Use of satellite data to design an insurance product - Use of satellite to pay-out claims - Use satellite imagery to settle catastrophic claims - Use crisis maps to check extent of damage
Investing in Low Premium Products for the BOP Market Whilst Achieving Financial Sustainability & Growth Level playing field The government should to encourage private insurers to provide protection against agricultural/ catastrophic and other social risk, not to compete but to support. This will generate additional revenue for government while relieving it from absorbing all losses if catastrophic calamities occur. Government participation in macroinsurance such as catastrophic pool and encourage mesoinsurance such as microinsurance consortiums. Fixed microinsurance stocks, use to develop insurance industry.
Key Challenges A viable and sustainable private insurance market for the poor One of the key strategies to achieve this is for an increased participation of the private sector in the provision of microinsurance services. Level playing field for insurance companies to encourage private insurers to provide protection against agricultural/ catastrophic and other social risk (e.g. health) This will generate additional revenue for government while relieving it from absorbing all losses if catastrophic calamities occur
Risk Transfer Mechanism Cannot be of government/s alone It is the concern of all Prudent use of government subsidy Government should not use subsidy to disincentive private sector participation
Risk Transfer Mechanism Levelling the playing field For insurance companies to encourage private insurers to provide protection against catastrophes, calamity and agricultural risks
Risk Transfer Mechanism Rationalization of taxes on insurance premiums and services Ex. Taxes is 25% 27% of nonlife/ property and Weather index insurance
Full Implementation of Agri Agra Law Banking Industry Loan Portfolio 3 Trillion 25% Agri Agra 750 Billion Proposed 2% commitment fee 15 Billion 50% catastrophic insurance 7.5 Billion Number of policies @ Php500 premium per policy Total Sum Insured @ Php10,000 per policy 15 Million 150 Billion
Policy Reforms: Needed Premium Tax Structure Currently, microinsurance products are levied the same taxes as commercial insurance products for property such as fire. Insurance has a cumulative tax equivalent to 25%-27% of the premium which unduly burdens the poor. Suggestion: Impose a uniform 2% premium tax to all Microinsurance products Rationalize subsidy structure Currently, there are a number of responsive weather index agricultural insurance products available in the country. These insurance products cannot compete with traditional insurance in terms of premium prices due to prohibitive (therefore, non-competitive) taxes. The cost(premium) of weather index insurance is from 5% to 10% of the coverage while a traditional PCIC multi peril insurance is from 6% to 14%_but PCIC does not pay taxes while private insurance products are charged with premium tax, documentary stamp tax, local government tax, fire service tax, etc., in addition to local government sales tax and income tax.
Critical Success Factors & the Philippine Situation Category Critical Success Factors Philippine Situation Weather infrastructure High density of automated weather stations or alternative satellite solutions within target agriculture. Weather data Historic weather data (>30 years). Availability of real time data. Accessibility of real time data Limited stations in areas of target clients. There are a small number of farmers within 20km of available stations. Currently, new automatic weather stations are installed, but not all stations have been calibrated Good historical weather data for most of the weather stations. Having problems on PAGASA s delivery of real-time data. Looking into the data generated from the new automatic weather stations Looking into the data generated from the new automatic weather stations Reasonable cost of weather data. Expensive cost (if taken from PAGASA) Risk transfer Availability of local risk carrier support. 100% reinsurance required by local insurer International reinsurance capacity. 100% reinsurance available but reinsurers require viable number of farmers per weather station (at least 200 per station)
Critical Success Factors & the Philippine Situation Category Critical Success Factors Philippine Situation Lower entry barriers Speedy regulatory approval process. Favorable premium tax structure. Still an issue. Favorable subsidy structure, if applicable. Very unfavorable. Public confidence with insurance. No market distortions caused by the presence of alternative solutions to index insurance. Product demand and distribution Large product distributor network ( such as MFIs, seed and fertilizer companies, Rural Banks) interested in the product. A lot of institutions are interested but weather stations are limited Availability of premium financing facilities. Through MFIs, Rural Banks and Cooperatives
Critical Success Factors & the Philippine Situation Category Critical Success Factors Philippine Situation Product demand and distribution Product development Product administration Attractive product packaging at affordable premiums. High market potential Local market research capabilities Local agronomic and climatic knowledge base. Farmers want cover for excess rain, pests and diseases. This is why 420 out of 446 farmers were double insured with PCIC during the pilot in 2009. Currently, the wet and dry day insurance is introduced Local funding to do demand analysis and crop/client mappings. Available. Available. IT requirements Available. Country staff for follow ups, data and claim management Available.
Opportunities Agri-agra Law (RA 10000) the mandatory credit allocation of 25% of loanable funds of all banking institutions to the agricultural sector through agrarian reform and agri-agra activities. In 2010, total loanable fund for agriculture, with the compliance of the agri-agra law, would be PHP 122 billion. Loanable funds for agri. (agri-agra law complied) PHP 122 B Philippine total rice area Average Production Cost per hectare Total needed fund for rice 4.3 M has. PHP 25,000/ha. PHP 109 B Source: Department of Agriculture (DA) Press Release as of 08 March 2010 http://countrystat.bas.gov.ph, Palay, Area harvested as of 2010
Issues and Recommendations Regulatory Issues The full implementation of the Amended Agri-Agra Law as a source of agricultural credit. At least twenty percent (20%) of the required agricultural loan allocation should be strictly complied with; no substitution or alternative compliance for the bank. Impose a uniform 2% premium tax for all Microinsurance products. Currently, Microinsurance products are levied the same taxes as commercial insurance products for property such as fire. WII product has a cumulative tax equivalent to 25%-27% of the premium which unduly burdens the poor.
Issues and Recommendations Levelling the playing field Level playing field for insurance companies to encourage private insurers to provide protection against agricultural risk. Prudent use of government subsidy Promotion of private partnerships (PPP) As part of the public-private partnership with the government, TELCOs should be encouraged to put up weather stations not only for early warning but also for weather real time weather information. Paradigm shift
Technologies Use of Global Positioning System in determining distance of farms from the typhoon track and computing possible claims payment to farmers Utilization Rainfall and Cloudiness Forecasting software Partnership with DOST Data gathered from automatic weather stations is transmitted to a server through a GSM wireless network. Transmitted data validated and processed by PAGASA Evaluated data can be accessed through the internet using PCs or GPRS capable phones Text-a-weather As additional service to microfinance clients Weather monitoring for farmer s information and purposes of insurance
Use of Relief Maps
Use of Maps
Use of Maps
Possible Funding for Development Agricultural insurance cover Partial premium support Local capacity building Regulations and Policy Leveling of playing field for private and government owned insurance companies Training for local staff Training for MFI, IC, data provider, local insurer Full implementation of the Agri-agra law Taxation Expanded definition of insurance intermediary
Food Sufficiency Program With Responsive Agricultural Insurance
Thank you for your attention For more information please visit: philippines.microensure.com email: philippines@microensure.com