How Pula’s index insurance can reduce poverty in the Philippines
Natural disasters represent an extreme form of risk to farmers and fisherfolk around the world. The threat is especially prominent in the Philippines where three quarters of the population is exposed to multiple natural hazards and $3.5 billion in losses is expected yearly as a result of earthquakes and typhoons. To combat this, the country successfully implemented a $390 million index-based insurance program in 2018, facilitated by the World Bank, against severe natural catastrophes.
Prior to this, the UNDP had partnered with the Department of Agriculture to test a weather index-based insurance product in Mindanao. It targeted 2,000 households with the objective of protecting them against natural disasters, as well as other climate-related risks to agriculture. The demand to build resilience among vulnerable agricultural communities in the Philippines is evident. This is where Pula comes in.
In 2021, Pula carried out a trial to see how its index based insurance products can offer additional protection to smallholder farmers in the Philippines. The Philippine Crop Insurance Corporation (PCIC), the executor of the government’s agriculture insurance programmes, partnered with Pula to run a pilot test targeting rice. The initiative sought to test Pula’s Area Yield Index Insurance (AYII) and Weather Index Insurance (WII) products on the country’s highest valued crop.
As part of the pilot, the PCIC supplied a list of eligible farmers to take part in a dry run, which took place between September and November 2021. Pula’s role here was to carry out crop cutting exercises, measure yields and collect other data towards the end of the season. Lessons learned from this trial will can be used for subsequent index insurance product development.
In 2021, the PCIC initiated the “Agriculture Insurance for Farmers and Fisherfolk under the RSBSA” (the Registry System for Basic Sectors in Agriculture). The programmes provides a government subsidy premium valued at $69.5 million, covering 10.9 million farmers and fisherfolk tending to crops, livestock, fisheries and non-crop agricultural assets.
For farmers who took out loans, the programme will cover a portion of the amount borrowed. For farmers who are self-funded, the programme will cover a predefined value per unit of land or equivalent. The insurance cover prioritises those farming on smaller parcels of land too. With 5.1 million farmers insured globally by Pula to date, the Philippines offers a substantial new market for expansion.
An ongoing partnership with Pula would complement existing projects. The World Bank recently approved $280 million in financing and an €18 million grant to support rural development in the Philippines. Some of these funds are directed to strengthening climate vulnerability in agriculture by reinforcing rural roads against adverse weather and developing communal irrigation.
In this context, AYII could encourage farmers to invest properly in their crops, backed by the possibility of a payout in the event of lower-than-expected yields. With increased investment, rural infrastructure and irrigation can improve significantly. Financial institutions may also be more inclined to lend to farmers enrolled in a crop insurance programme, as this allows farmers to replant within the cropping cycle and service their loans. Index insurance can play a pivotal role in addressing poverty in rural areas.
As it has in many emerging economies, theCovid-19 pandemic has dampened domestic demand in the Philippines. Despite suffering a 9.6% contraction in 2020, the Filipino economy is expected to have grown by 4.5% in 2021. In 2022, GDP is expected to rise by 5.5%. In the future, a partnership approach with the Government of the Philippines could be the best way to protect smallholder farmers against risks to their yields and contribute meaningfully to the economy’s recovery.
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