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

• 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

Fire/ Calamity Insurance

Microhousing

A. Fire & Lightning 1. Applicable to Home Owners & Home Renters

Php50, 000

B.B. Calamity Assistance Calamity Assistance 1. Typhoon1. Typhoon 2. Flood2. Flood 3. Earthquake3. Earthquake 4. Volcanic Eruption4. Volcanic Eruption 5. Landslide5. Landslide 6. Tsunami6. Tsunami

Php10, 000Php10, 000

C. Evacuation Assistance Php200/day

Maximum of 5 days

D. Family Personal Accident —Principal Insured/Spouse 50% (Php50,000) —Children/Siblings 25% (Php25,000)

Php100,000 Maximum allocated limit

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.

Weather Index Based Insurance

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

15 Million

Total Sum Insured @ Php10,000 per policy

150 Billion

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.

Policy Reforms: Needed

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.

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

Weather data Historic weather data (>30 years). Good historical weather data for most of the weather

stations.

Availability of real time data.

Having problems on PAGASA’s delivery of real-time

data. Looking into the data generated from the new

automatic weather stations

Accessibility of real time data 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

Attractive product packaging

at affordable premiums.

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

High market potential Local funding to do demand analysis and

crop/client mappings.

Product

development

Local market research

capabilities Available.

Local agronomic and climatic

knowledge base. Available.

Product

administration 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.

Source: Department of Agriculture (DA) Press Release as of 08 March 2010

http://countrystat.bas.gov.ph, Palay, Area harvested as of 2010

Loanable funds for agri. (agri-agra law complied) PHP 122 B

Philippine total rice area 4.3 M has.

Average Production Cost per hectare PHP 25,000/ha.

Total needed fund for rice PHP 109 B

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

Leveling of playing field for private and government owned

insurance companies

Local capacity building

Training for local staff

Training for MFI, IC, data provider, local insurer

Regulations and Policy

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