Philippines: Crop insurer has poor risk management practices
Source: Middle East Insurance Review | Nov 2021
Philippine Crop Insurance Corporation’s (PCIC) weak risk management practices put it at risk of suffering large losses from major CATs, which would eventually be shouldered by taxpayers, according to the Philippines department of finance (DoF).
A report in www.manilatimes.net quotes a statement by the DoF that the Insurance Commission of Philippines (IC) in an in-depth review of PCIC’s financial situation showed the latter’s high net retention rate or the amount of policies it currently has on hand.
The IC emphasised that PCIC “stopped surrendering its risk to the National Reinsurance Corp. of the Philippines (NRCP) as early as 2010.”
The crop insurer also has poor investment income because its assets are concentrated in cash in bank and time deposits, averaging around 40% of the total assets in the past years.
The DoF statement said, “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.”
Given the PCIC’s precarious financial position, the IC has recommended that the PCIC revisit its overall risk management programme and include reinsurance among its risk transfer mechanisms to better manage its risks and avoid the need for future government capital infusions to cover potentially large-scale losses.
It said the PCIC should involve the private sector and establish an enabling environment for the development of private crop insurance, a recommendation from a review based on an earlier World Bank report.
The primary function of a private insurer is to repair any market flaws that may obstruct the development of a competitive private insurance market.
The DoF said the IC has also recommended that the PCIC adopt IC regulations in relation to the naming convention, presentation and calculation as regards the preparation of their financial statements because it was unable to determine whether the company was following the Philippine Financial Reporting Standards for insurance companies. M