RTD on Climate Change Policy Reforms May 14, 2014 William H. - PowerPoint PPT Presentation

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

Fire/ Calamity Insurance • 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

Microhousing A. Fire & Lightning 1. Applicable to Home Owners & Home Renters Php50, 000 B. B. Calamity Assistance Calamity Assistance 1. Typhoon 1. Typhoon 2. Flood 2. Flood 3. Earthquake 3. Earthquake Php10, 000 Php10, 000 4. Volcanic Eruption 4. Volcanic Eruption 5. Landslide 5. Landslide 6. Tsunami 6. Tsunami Php200/day C. Evacuation Assistance Maximum of 5 days D. Family Personal Accident Php100,000 — Principal Insured/Spouse 50% (Php50,000) Maximum allocated limit — Children/Siblings 25% (Php25,000)

Weather Index Based Insurance  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.

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 15 Million @ Php500 premium per policy Total Sum Insured 150 Billion @ Php10,000 per policy

Policy Reforms: Needed 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.

Critical Success Factors & the Philippine Situation Category Critical Success Factors Philippine Situation  Limited stations in areas of target clients.  High density of automated  There are a small number of farmers within 20km of weather stations or alternative Weather available stations. infrastructure satellite solutions within target  Currently, new automatic weather stations are agriculture. installed, but not all stations have been calibrated  Good historical weather data for most of the weather  Weather data Historic weather data (>30 years). stations.  Having problems on PAGASA’s delivery of real -time  data. Looking into the data generated from the new Availability of real time data. automatic weather stations  Looking into the data generated from the new  Accessibility of real time data automatic weather stations • Expensive cost (if taken from PAGASA)  Reasonable cost of weather data.  Availability of local risk carrier  Risk transfer 100% reinsurance required by local insurer support.  100% reinsurance available but reinsurers require  International reinsurance capacity. viable number of farmers per weather station (at least 200 per station)