PARAMETRIC insurance, one that is based on trigger events rather than on the traditional indemnity type of risk cover, has come to the Philippines.
It is being pilot tested among rice farmers in Leyte but should be available to farmers everywhere in the Philippines by the first semester next year.
The pioneering area-based yield insurance or ARBY program will initially benefit some 500 Leyte farmers collectively owning 500 hectares in this case for which they pay premium equal to 4 percent or alternatively 7.5 percent of the insured cover of P10,000 per hectare.
This means farmers have the option to pay a premium of either P400 or P750 per hectare per crop season but stand to get compensated for the difference between the potential yield of the insured area and the actual yield the insured area produces, the program manager of the Microinsurance Innovations Program for Social Security or MIPSS, Dr. Antonis Amalagardis, said.
Parametric insurance departs radically from traditional indemnity-based insurance in that instead of actually measuring crop damage, the insurer compensates farmers on the basis of the difference between a predetermined set of farming conditions or events and actual farming conditions at the end of the crop season.
“Parametric insurance is a group approach where there is no individual farm adjustment or visitation. We merely wait for the Bureau of Agricultural Statistics report and after two days when the verification process is completed, the insurance pay-out is made,” Norman Cajucom, assistant senior vice president at the Philippine Crop Insurance Corp. (PCIC), explained.
A farmer that opts on the 4-percent premium where his farm has been determined to have a potential yield of 100 cavans per hectare but gets only 60 cavans at season’s end instead of the 80 as expected gets paid on the 20-percentage point difference. This farmer then gets compensation of P2,500 per hectare insured, according to Cajucom.
Participation is easy. Farmers need only to accomplish a simple form and farm areas should be contiguous. They are encouraged to use accredited palay seeds and plant them in irrigated fields. Rain-fed palay has higher premium payments and is not qualified at this point.
Cajucom said the ARBY program is the third program of its kind in the world after earlier programs implemented in India and China.
ARBY is a market-driven innovation, does not involve government subsidy and will potentially cover risks faced by rice farmers that would otherwise go uninsured under traditional indemnity-based insurance schemes.
The PCIC covers an estimated 200,000 farmers at present for crops as varied as rice and corn, livestock and poultry as well as farm facilities and equipment. It receives a premium subsidy of only P183 million a year from government for its traditional insurance products but not a single centavo for ARBY which is a cofinancing program between the European Union and the German government.
The German government, through the Gesellschaft für Internationale Zusammenarbeit or GIZ, is directly involved in implementing the Enforcement of Food Security or Efos program in the Visayas.
Malagardis said risk cover limits of 80 percent up to 85 percent was considered the optimum cover rate as any higher would mean higher premium that farmers consider excessive.
