Written by Jonathan L. Mayuga / Reporter, Business Mirror
November 25, 2012 – THE Climate Change Commission (CCC) is pushing for weather index-based insurance (WII) to help farmers and fishermen cope with the worsening effects of climate change.
Farmers and fishermen, who are vulnerable to extreme weather events like super typhoons, severe floods and drought, will greatly benefit from such insurance, according to CCC Vice Chairman Lucille Sering.
The CCC, together with the Institute for Climate and Sustainable Cities (iCSC) and Oxfam in the Philippines, on Friday launched a report, titled “Braving the Uncertainties of Weather: Weather Index-based Insurance as Agricultural Risk Transfer Mechanism for Climate Change Adaptation and Risk Reduction in the Philippines,” on the occasion of Climate Change Consciousness Week, which ended on Sunday.
The report, which identifies the challenges posed by climate change and faced by the rural poor, promotes WII through public-private partnerships that will allow private insurance companies to extend insurance coverage to the agriculture sector.
A copy of the report, Sering said, will be submitted to President Aquino.
“We are proposing to the President to look into weather index-based insurance and recommend policies that will enable the private sector to come in,” the CCC official said.
“We need to look at agriculture because it contributes a lot to our economy, but it is also the most vulnerable,” she added.
Sering said weather index-based insurance, a viable risk transfer mechanism in agriculture, is a climate-change adaptation strategy outlined in the National Climate Change Action Plan (Nccap).
The report, which also identified challenges and barriers to the implementation of weather index-based insurance, gave recommendations promoting a policy environment that would encourage such insurance in the agriculture sector.
These include overcoming market and operational barriers, promoting investment and supporting local government units as part of their local adaptation action and disaster-risk reduction strategy.
Sering said the government, with its limited capacity, is unable to provide farmers and fishermen adequate support after every calamity, which has become more frequent and severe. She added that this is where private insurance companies should come in.
There are currently two main financial sources of disaster-risk financing in the country: calamity funds, or the disaster-risk reduction and management funds; and external assistance, mainly public-sector loans. For the agriculture sector, another source of funds is the public agricultural insurance being administered by the Philippine Crop Insurance Corp. (PCIC), an attached agency of the Department of Agriculture.
Sering said it is time to encourage private agriculture insurance companies to become involved to sufficiently cover a big part of the agriculture and fisheries sector that remain uninsured. The situation of the rural poor is aggravated by the economic losses they suffer because of climate change.
THE Philippines experiences an average of 18 typhoons a year. It is highly vulnerable to geological hazards such as floods and landslides, as it receives excessive rainfall during the wet season. During the dry season, the agricultural sector suffers from drought due to El Niño.
Contrary to traditional multi-peril indemnification insurance, weather index-based insurance pays indemnities based not on actual losses, but on the realization of a weather index that is correlated with these losses.
The system assures farmers the payment of the amount of insurance coverage bought once a weather index is in place. This allows farmers to collect insurance premiums without the usual hassles experienced by policy holders, such as verification and validation of insurance claims.
Sering said in case of fire, claimants would have to wait for the results of an investigation. She added in case of accident insurance, a police probe is required.
Under the WII model, an insured person or organization is assured of immediate compensation as long as a weather index is breached.
Examples of this breach include the amount of rainfall exceeding a previously determined norm, the velocity of wind exceeding the average wind speed passing through a particular locality, or dry days experienced exceeding a town’s average.
This would also avoid cost on the part of farmers and fishermen who need not spend for transportation to follow up on insurance claims.
Red Constantino, iCSC executive director, said policy instruments need to be developed in order to help agricultural communities cope with climate change.
“Mechanisms such as weather index insurance are already available and can already be deployed with the right kind of support from the right government agencies,” Constantino said.
There are at least three weather index-based insurance schemes being piloted in the country: crop-specific insurance, offered by Mindanao-based private insurance company MicroEnsure Philippines; insurance sponsored by the multi-lateral project Millennium Development Goal-Adaptation Fund (MDG-AF), administered by the International Labor Organization (ILO) in partnership with the PCIC and different government agencies and local government units in Agusan del Norte; meso-level insurance, called “Natural Catastrophe Insurance,” that offers protection to loan portfolios of cooperatives that is implemented by Cooperative Life and Mutual Benefit Societies (Climbs).
While the number of those insured under these schemes remain limited, WII has been proven to be viable and could be replicated in other parts of the country, according to Constantino.
The agricultural sector remains to be the country’s biggest employer, according to Sering. She said, however, that market penetration for insurance remains low at 12 percent, compared to Japan, where it is estimated at 90 percent.
“A very big part of the rural population is not insured, even though they can afford coverage,” Sering said.
“With the right incentive from the government, the private sector can tap this market.
The market is very big,” Constantino said.
Putting in place the right policy environment would require an executive order, a department order, or a joint circular as such risk transfer mechanism is already identified as a climate-change adaptation strategy under the NCCAP, according to Constantino.
He said the government and the private sector can work together to make the WII option more available, affordable and accessible to vulnerable communities.
“With broader, participatory planning, resources such as the People’s Survival Fund [PSF] can be tapped by LGUs for this purpose,” Constantino said.
Under Republic Act 10174, or the PSF Act, P1 billion is provided annually to support local adaptation programs, which could be used for the promotion of WII in the country.#
Photo: Sec. Lucille Sering of the Climate Change Commission speaks to the media present during the launch of “Braving the Uncertainties of Weather”, a policy brief on Weather Index-based Insurance for Climate Change Adaptation. To her right is iCSC Executive Director Red Constantino and to her left, Roy Miclat from CLIMBS. (c) iCSC/Reina Garcia