Insurance Solutions for Smallholder Farmers
Insurance Solutions for Smallholder Farmers
Business Model Description
Invest in insurance solutions (to not exceed 7.5% of daily minimum wage for premiums and charges) for low-income and vulnerable smallholder farmers. This model incorporates an efficient claims-processing system, through physical and digital platforms, thereby increasing access, and automatically initiates payouts when predefined index triggers are met.
Product design, after-sales service of insurance products for smallholder farmers can be implemented in partnership with intermediary organizations like microfinance service providers.
CARD Bank, Inc. is a microfinance bank that was founded in San Pablo City, Laguna on September 1, 1997. It has since grown to become a nationwide financial institution with 54 branches and 329 Micro Banking Offices (MBOs). CARD Bank serves over 900,000 clients across the country and has recently partnered with Cebuana Lhuillier in the inclusion of microinsurance as part of a requirement for small-scale agricultural financing. While the current coverage is small, there's significant growth in the market for those areas that have proven the viability of claims in case of calamity.
Sureserv is a Filipino microfinance service provider that helps working-class Filipinos pay for healthcare. It aims to fill the healthcare access and convenience gap by providing loans to working-class Filipinos so they can afford the healthcare they need and has helped employees from manufacturing, manpower, retail, SME, and BPO companies.
ASA Philippines is a non-profit, non-stock corporation specializing in microfinance. The first branch that the foundation started with was in Camarin, Caloocan in August 2004, and as of today, the foundation has already expanded its operations nationwide. The foundation caters to more than 2 million clients who are called by ASA as Micro Entrepreneurs.
The "Weather Index-Based Insurance (WIBI) Mindanao Project," an initiative implemented by the UNDP in partnership with the Philippine government (specifically PCIC and the Department of Agriculture) from 2014 to 2017, aimed to address climate-related risks in agricultural communities in Mindanao, focusing on Regions X and XI. The program offered insurance coverage for major grain crops, particularly rice, against both low and excess rainfall. By the end of 2015, the project had distributed weather index-based insurance to 837 enrolled farmers, covering approximately 961 hectares and amounting to around Php 19.19 million payouts.
Expected Impact
Providing improved financial security to poor families within the agriculture industry through microfinancing and microinsurance products.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Philippines: Bicol Region
- Philippines: Central Luzon
- Philippines: Cagayan Valley
- Philippines: Eastern Visayas
Sector Classification
Financials
Development need
Consistent across the different sectors is the need for financing solutions which either increase capital or protect it from losses. According to the Banko Sentral ng Pilipinas, around 56% of adults have bank accounts as of 2022, an increase from 29% in 2019 which is mainly driven by electronic banking.
However, access to insurance and other financing solutions are still below adequate levels. In 2022, insurance industry in the Philippines contributed only around 1.72 percent to its total gross domestic product.(4)
Policy priority
The Philippine Development Plan for 2023 to 2028 expressed the focus to increase access of low-income families to financial solutions through improving awareness and product availability for micro financing and insurance. The Department of Agriculture expressed their focus to improve access of farmers to micro-financing and insurance especially for losses brought by calamities.(4)
Gender inequalities and marginalization issues
While there's a significant increase in Filipinos with access to basic banking services, only 27% of low-income families have access based on the financial inclusion report of the Banko Sentral ng Pilipinas 2021. (6)
Meanwhile, women are also traditionally more excluded from accessing financial products such as insurance due to prevailing factors including access to required documents, and lack of time to submit and process requirements given their household roles.
Investment opportunities introduction
There is recent increase in both the population that has access to basic financial services of around 30%, coupled with the clear increase in banking activity, especially though e-banking and fulfillment centers.
The Banko Sentral ng Pilipinas showed in their recent Financial Inclusion Dashboard 2021Q2 that the year on year growth in activities that use online payments such as Instapay and PESOnet are up 227% and 163% in volumes respectively. (6) Invested assets increased by 7.9% year on year in 2021 to PHP1.83 trillion, with its total net income growing by 17.3% (PHP47.8 billion). (4)
Key bottlenecks introduction
The Philippine Development Plan 2023 to 2028 cites key bottlenecks related to insurance acces and investments, including financing literacy or the lack of awareness and knowledge, especially among low income families that limits business operations on the ground. In addition, insurance providers should ensure physical and digital accessibility of service providers.
Insurance
Development need
Recent research shows a widening gap for lending activities in the agriculture industry, banks usually site the risk level of default as the main barrier to financing agriculture better. In addition, as of 2021, only 1 in 3 farmers in the country has access to insurance.
This phenomenon is known as the agriculture credit gap, the difference between the credit requirements of the priority commodities and the financing supplied by banks. In 2014, the Agriculture Credit Policy Council (ACPC) in the Philippines pegged this gap at ~USD 7 billion. (7)
Coupled with the increasing losses brought by the effects of climate change, the agriculture sector and consequently the country's food supply is at risk if no adequate financing and insurance solutions will be placed.
Policy priority
The Philippine Development Plan 2023 to 2028 expressed the current administration's focus to improve access to financing and insurance solutions for families in agriculture. One action reflected in the Development Finance Assessment 2022 was the Philippine Rural Development Project (PRDP) aligned with the Department of Agriculture’s “new thinking” in agricultural development.
To increase rural incomes and enhance farm and fishery productivity in the targeted areas, an additional funding amounting to USD 170 million for PRDP was made with the World Bank (5)
Gender inequalities and marginalization issues
The Annual Poverty Incidence Report of 2018 shows that families within the agriculture and fishery sector constitute 31% and 26% of poor families, respectively.
Consequently, it is to be noted that population within the lowest income levels only have 27% of them with access to basic financial services - therefore, there's a wide gap in solutions and better financing that are not offered to marginalized population, especially women. (6)
Investment opportunities introduction
The increase in activity in online payment platforms are in tandem with the increase in the capabilities and services offered by small payment/fulfillment centers worldwide.
Through their proximity to vulnerable areas, they offer financing solutions to low income families through the form of micro insurance, and financing products and enabling such families to pay for services through their platforms. With the current gap of population with and without access to such financial products, it also shows the viability for further investment to increase coverage.
Key bottlenecks introduction
Industry leaders point out that pricing is a critical driver for uptake of micro-financing and low cost financial products as the market has a thin spending margin. Additionally, conventional banking risk profile tends to be unable to accept the required risk levels of lending to key impactful sectors such as agriculture.
Insurance
Pipeline Opportunity
Insurance Solutions for Smallholder Farmers
Invest in insurance solutions (to not exceed 7.5% of daily minimum wage for premiums and charges) for low-income and vulnerable smallholder farmers. This model incorporates an efficient claims-processing system, through physical and digital platforms, thereby increasing access, and automatically initiates payouts when predefined index triggers are met.
Product design, after-sales service of insurance products for smallholder farmers can be implemented in partnership with intermediary organizations like microfinance service providers.
CARD Bank, Inc. is a microfinance bank that was founded in San Pablo City, Laguna on September 1, 1997. It has since grown to become a nationwide financial institution with 54 branches and 329 Micro Banking Offices (MBOs). CARD Bank serves over 900,000 clients across the country and has recently partnered with Cebuana Lhuillier in the inclusion of microinsurance as part of a requirement for small-scale agricultural financing. While the current coverage is small, there's significant growth in the market for those areas that have proven the viability of claims in case of calamity.
Sureserv is a Filipino microfinance service provider that helps working-class Filipinos pay for healthcare. It aims to fill the healthcare access and convenience gap by providing loans to working-class Filipinos so they can afford the healthcare they need and has helped employees from manufacturing, manpower, retail, SME, and BPO companies.
ASA Philippines is a non-profit, non-stock corporation specializing in microfinance. The first branch that the foundation started with was in Camarin, Caloocan in August 2004, and as of today, the foundation has already expanded its operations nationwide. The foundation caters to more than 2 million clients who are called by ASA as Micro Entrepreneurs.
The "Weather Index-Based Insurance (WIBI) Mindanao Project," an initiative implemented by the UNDP in partnership with the Philippine government (specifically PCIC and the Department of Agriculture) from 2014 to 2017, aimed to address climate-related risks in agricultural communities in Mindanao, focusing on Regions X and XI. The program offered insurance coverage for major grain crops, particularly rice, against both low and excess rainfall. By the end of 2015, the project had distributed weather index-based insurance to 837 enrolled farmers, covering approximately 961 hectares and amounting to around Php 19.19 million payouts.
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
5.6 million farmers nationwide, with only 30.8% of them having access to insurance as of 2021 report
The Philippines is one of the most disaster-prone countries in the world, with an average of USD 3.5 billion in asset losses each year from typhoons and earthquakes alone. In order to reduce the economic impact of these disasters, the World Bank has partnered with the Philippines for over a decade to help the country transfer risk to international reinsurers.
In 2017, the Bank helped the Philippines transfer USD 200 million of typhoon and earthquake risk, and in 2018, the government renewed this insurance program and doubled the amount of coverage. (22)
The National Agriculture and Fisheries Modernization and Industrialization Plan 2021-2030 indicates that 0.38% of the approx USD 143 billion sector investment requirement is needed for the development of credit, insurance, and financing facilities (18)
The microfinance industry in the Philippines has grown to around USD 7 billion loan portfolio as of March 2022. However, this figure is based on 2020 data, as the Cooperative Development Authority (CDA) has not yet released updated figures. This is the most recent and reasonable estimate of the total outstanding loans in the industry, given the lack of updated data. (22)
Indicative Return
5% - 10%
Maximum premiums for micro-insurance companies are limited to 7.5% of the current daily minimum wage rate in Metro Manila (per day), while maximum benefits are limited to 1000x the same daily minimum wage rate. (20)
Investment Timeframe
Short Term (0–5 years)
Coverage period of microinsurance products are typically one (1) year. However, returns are dependent on claims made.
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Market - Volatile
Market - Highly Regulated
Product Awareness
Impact Case
Sustainable Development Need
In 2021, agricultural damages brought by natural calamities amounted to a total of P25.05 billion (1). No improvement was seen in January 2022 where damages brought by rains and floods alone totaled to P740 million (2). Farmers are often not financially protected against these shocks.
Financing institutions are often apprehensive about supporting agriculture sector due to higher risk compared to industry or services sector. However, this IOA aims to contribute to challenges in food supply and household food security.
Gender & Marginalisation
Small scale farmers and fishermen are disadvantaged by natural calamities. More often, they lose their livelihood due to lack of capital to restart and funds to fix damages. If not, they incur huge amount of debt trying to do so.
Farmers can't access some financial services as they are geographically inaccessible for them (i.e too far from their house). Due to lack in investments for insurance solutions, last mile areas are also oftentimes not included.
Women smallholder farmers face a dual threat of vulnerability from climate change and from their lack of access to resources, especially when disaster strikes, limiting their ability to bounce back from calamities, faster than male farmers.
Expected Development Outcome
This IOA would help shorten the recovery rate of the agricultural sector after calamities. As a result, there would be an improvement in agricultural productivity contributing to an increase in the country's overall GDP.
Better access to financing can improve farmers productivity as they can use the capital to technology and infrastructures to increase yield. As a result, this also improves the household food security as stable supply leads to more manageable prices for consumers.
Insurance solutions will also increase investments for the agriculture sector which experiences weak investment due to the risk of natural disasters
Gender & Marginalisation
Microinsurance would protect small scale farmers and fishermen from financial insecurity after natural calamities. Moreover, it would also reduce their risks allowing them to try technologies that increases and improve farm yield.
Bayad centers can be more accessible to some small scale farmers and fishermen, making financing more inclusive. Microinsurance would help women to access resources immediately after disasters that will allow them to bounc back from calamities faster than before
Primary SDGs addressed
1.1.1 Proportion of the population living below the international poverty line by sex, age, employment status and geographic location (urban/rural)
Current levels are pegged at 2.7% however, it is important to note that per region poverty incidence show that some regions' poverty levels can go as high as 29% (BARMM), 25% (CARAGA) and 23% (Region IX)
Target for national level of poverty incidence is 5.4%
8.10.2 Proportion of adults (15 years and older) with an account at a bank or other financial institution or with a mobile-money-service provider
Current levels are at 51.4% since 2021 which a significant improvement from 34% baseline data from 2017. It is important however to note when looking at income levels, low income families only have 27% of their adults with access to basic financial services.
Target for the national level of access to basic financial services is 54.3%
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Public sector
Outcome Risks
Insurance farmers may not take adequate precautions to safeguard their produce and resources and indulge in undesirable activities simply because they are insured. Insurance companies charging high premiums due to high risk may result in farmers not acquiring insurance.
Gender inequality and/or marginalization risk: Incresed access to capital may increase presssure for more output. To meet this demand, some may exploit women and children though forced labor.
Impact Risks
Delayed payment of claims can cause users to decline because of unreliability. Gender inequality and/or marginalization risk: Without financial insurance, farmers will experience greater losses which may render them financially inadequate to continue farming in future.
Impact Classification
What
Providing financial security, through microinsurance, to low income and small scale agricultural workers, making them more resilient to natural risks
Who
Farmers who are vulnerable to natural calamities, or are not provided capital due to high risk of crop failure.
Risk
Inability to collect premium payments will result to huge amount of claims vis-a-vis premiums.
Contribution
Increase of farmers with access to insurance which is currently at 30.8%
How Much
Provide insurance solutions to the existing 5.6 million farmers in the country
Impact Thesis
Providing improved financial security to poor families within the agriculture industry through microfinancing and microinsurance products.
Enabling Environment
Policy Environment
RA 10607: Amends PD 612 or 'The Insurance Code' and contains provisions that defines the microinsurance implemented in the country (7)
RA 8425: Also known as the Social Reform and Poverty Alleviation Act of 1997, it recognizes microfinance as the central strategy for poverty alleviation. (8)
Insurance Commission Circular Letter 2015-53: Legalizes and details the adoption and implementation of the agricultural microfinance framework by private insurance companies (9)
RA 10693: Microfinance NGOs Act: Duly accredited Microfinance NGOs can access technical assistance and programs from the government 11)
Financial Environment
RA 10693: Microfinance NGOs Act states that duly registered and accredited Microfinance NGOs shall pay a 2% tax based on gross receipts (10)
Foreign direct investments is limited to 40% maximum ownership for this sector.
Regulatory Environment
Microinsurance Regulatory Framework: As promulgated by Circular Letter 2015-54, it outlines the government's policy thrusts on the provision of microinsurance products and services by the private sector (11)
Insurance Commission Circular Letter 2013-18: Outlines the guidelines for the implementation of ADReM involving commercial insurance companies that offer microinsurance products (12)
Insurance Commission Circular Letter 2013-17: Outlines the guidelines for the implementation of ADReM involving cooperative insurance societies that offer and sell microinsurance products (10)
Insurance Commission Circular Letter 2013-16: Outlines the guidelines for the implementation of ADReM involving microinsurance providers in mutual benefit associations (14)
Insurance Commission Circular Letter 2013-15: Details the procedures for the accreditation of mediators-conciliators in Alternative Dispute Resolution for Microinsurance(ADReM) (15)
Marketplace Participants
Private Sector
BPI Direct Banko, Maybridge Financing, CARD-Pioneer Microinsurance, Alalay sa Kaunlaran, Inc (ASKI) Philippine Crop Insurance Corporation (PCIC), Malayan Insurance; Catholic Relief Services (CRS) BDO Network Bank
Multilaterals
World Bank, Asian Development Bank
Government
Bangko Sentral ng Pilipinas, Insurance Commission
Non-Profit
SA Philippines Foundation, CARD-MRI, Ahon sa Hirap, Inc., Alalay sa Kaunlaran Microfinance Social Development, Inc., Oxfam Philippines
Target Locations
Philippines: Bicol Region
Philippines: Central Luzon
Philippines: Cagayan Valley
Philippines: Eastern Visayas
References
- (1) Philippine Statistics Authority. (2022). Compendium of Philippine Environment Statistics: Component 4. https://psa.gov.ph/content/compendium-philippine-environment-statistics-component-4
- (2) Rivera, D. (2023, January 17). Weather disturbances leave P746 million agriculture damage. Philippine Star. https://www.philstar.com/nation/2023/01/17/2238087/weather-disturbances-leave-p746-million-agriculture-damage
- (3) Asian Development Bank. (2022). Testing Public–Private Partnership in Crop Insurance to Boost Filipino Farmers’ Resilience. https://www.adb.org/news/features/testing-public-private-partnership-crop-insurance-boost-filipino-farmers-resilience 4 NEDA. Philippine Development Plan 2023 to 2028 https://pdp.neda.gov.ph/philippine-development-plan-2023-2028/
- (5) BSP. Financial Inclusion Dashboard. https://www.bsp.gov.ph/Media_And_Research/Financial%20Inclusion%20Dashboard/2021/FIDashboard_2Q2021.pdf
- (6) PIDS. Distinct Problems in Supporting Inclusive Development Access to Credit. https://cids.up.edu.ph/wp-content/uploads/2021/11/EMIT_Article-2021-3.pdf#:~:text=Access%20to%20credit%20presents%20a%20distinct%20problem%20for,existing%20credit%20arrangements%20to%20support%20inclusive%20development%20goals.
- (7) Official Gazette. (2013). The Insurance Code. https://www.officialgazette.gov.ph/2013/08/15/republic-act-no-10607/
- (8) Supreme court. RA 8425. https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/2/4057
- (9) Insurance Commission. (2015). Circular Letter 2015-53. https://www2.insurance.gov.ph/wp-content/uploads/2017/02/CL2015_53.pdf
- (10) Official Gazette. (2015) https://www.officialgazette.gov.ph/2015/11/03/republic-act-no-10693/
- (11) Insurance commision (2015). https://www.insurance.gov.ph/circular-letter-2015-54-adoption-and-implementation-of-enhanced-microinsurance-regulatory-framework/
- (12) Insurance Commission. (2013). Circular Letter 2013-16. https://www.insurance.gov.ph/circular-letter-2013-16-guidelines-for-the-implementation-of-alternative-dispute-resolution-mechanisms-for-microinsurance-adrem-involving-mutual-benefit-associations/
- (13) Insurance Commission. (2013). Circular Letter 2013-17. https://www.insurance.gov.ph/circular-letter-2013-17-guidelines-for-the-implementation-of-alternative-dispute-resolution-mechanisms-for-microinsurance-adrem-involving-cooperative-insurance-societies/
- (14) Insurance Commission. (2013). Circular Letter 2013-18. https://www.insurance.gov.ph/circular-letter-2013-18-guidelines-for-the-implementation-of-alternative-dispute-resolution-mechanisms-for-microinsurance-adrem-involving-commercial-insurance-companies/
- (15) Insurance Commission. (2013). Circular Letter 2013-15. https://www.insurance.gov.ph/circular-letter-2013-15-procedures-for-accreditation-of-mediators-conciliators-in-alternative-dispute-resolution-for-microinsuranceadrem/
- (16) International Labour Office. (n.d.). A field study of microinsurance in the Philippines. https://www.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_117980.pdf"
- (17) DoF, (2022). https://www.insurance.gov.ph/wp-content/uploads/2023/03/Q4-2022-Consolidated-Insurance-Industry-Performance-Report.pdf
- (18) DA (Department of Agriculture, Philippines). 2022. National Agriculture and Fisheries Modernization and Industrialization Plan 2021-2030: Transforming the Philippine Food System Together. Philippines: DA https://www.bfar.da.gov.ph/wp-content/uploads/2022/08/06232022_NAFMIP-2021-2030.pdf
- (19) AgroInsurance, (2017). Philippines - Binhi Micro-Crop Insurance Program https://agroinsurance.com/en/philippines-binhi-micro-crop-insurance-program
- (20) Insurance Commission, (2018). A Handbook on Microinsurance. https://www.insurance.gov.ph/wp-content/uploads/2022/08/MicronInsurance-hand-book.pdf
- (21) Sacdalan-Pateño, (2022). sedpi.com/en/philippine-microfinance-industry-estimates/#:~:text=Players%2C%20portfolio%20and%20number%20of,microfinance%20institutions%20in%20the%20Philippines.
- (22) Rapisura, V. G. (n.d.). Philippine Microfinance Industry Estimates. Retrieved July 6, 2023, from https://vincerapisura.com/philippine-microfinance-industry-estimates/#_ftnref10
- (23) Insurance Commission, 2022 https://www.insurance.gov.ph/as-of-the-quarter-ending-31-march-2022/