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Security against climate variability
through agricultural insurance
Experts agree that agricultural insurance is one of
the best ways to address the adverse impacts of
seasonal climatic variability and secure the welfare
of smallholder farmers. Designed to protect agricultural
producers against loss due to natural calamities, pests, and
other risks, agricultural insurance has a lot of potential
benefits especially in the Philippines where climatic and
other environmental uncertainties are of great concern.
Agricultural insurance in the country is implemented
and managed by the Philippine Crop Insurance
Corporation (PCIC). Although the government subsidizes
insurance for rice and corn, the PCIC operates as a business
corporation and does not receive any budget from the
government for its administrative operations.
Rice and corn insurance constitute about 84 percent
of PCIC’s total business. From 1981 to 2007, the program
was able to serve a total of 3,468,155 farmers, insuring a
total sum of PhP31 billion. Total gross premiums received
during the period exceeded indemnities paid at a ratio
of 1.27:1. Earlier, however, the PCIC had a rough time
during its first decade of operation when damage claims
consistently surpassed premium collections from 1983 to
1989. The program had its highest accomplishment
during the early part of the 1990s when it reached its peak
coverage at 336,000 farmers.
Seasonal climate variability proved to be the top
source of uncertainty for rice and corn farmers. Overall,
typhoons and floods were the major causes of production
damage for rice while drought was the number one cause
of loss for corn. Claims on rice insurance from typhoon
and flooding totaled PhP1.050 billion from 1981 to 2007.
Table 1. Cumulative insurance coverage and claims paid for rice
and corn from 1981 to 2007
Insurance Insurance Coverage Claims Paid
Lines No. of Farmers/ Sum Insured No. of Farmers/ Claims Paid
Policies Written (PM) Policies Paid (PM)
Rice 3,010,929 26,437.23 845,812 1,960.54
Corn 457,226 5,011.11 189,548 611.22
TOTAL 3,468,155 31,448 1,035,360 2,572
Source: PCIC 2007
Claims on corn insurance caused by drought amounted
to PhP258 million from 1982 to 2007.
The PCIC attributes an aggregate amount of PhP1.7
billion in rice and corn crop insurance claims to damages
from typhoons/floods and droughts. This figure
represents 66 percent of the total indemnity paid by PCIC
for all insured commodities covering all causes since the
start of its operation. This effectively describes the impact
of seasonal climate variability on crop insurance
operations and agricultural productivity as a whole.
Bridging SCF with agricultural insurance use could
possibly soften the damage figures.
While agricultural insurance has earned its place in
the government’s risk management portfolio, program
implementation is greatly hampered by a number of
concerns. In the Philippines and in many parts of the
developing world, harnessing the potential benefits from
the scheme is constrained by operational and
sustainability issues.
In a recent PIDS-led survey conducted in Isabela,
Philippines, for instance, it was found that formal lending
institutions and crop insurance were virtually nonexistent
in select farming communities. Insurance service is also
inadequate in many other key agricultural production
areas. Data from the PCIC showed that program coverage
drastically declined after reaching its peak in 1991. By year
2001, the number of covered farmers leveled off just
below the 50,000 mark. PCIC closed the year 2006 with
barely 36,000 farmers covered.
Estacio and Mordeno (2001) attributed the decline
in insured farmers to the contraction of the self-financed
market program and the shrinking of directed credit
programs which automatically availed of insurance
coverage. PCIC also claimed that with the borrowing
farmers dominating the traditional lines, the
decreasing trend on crop insurance coverage greatly
reflected the lending performance of formal lenders,
particularly the Land Bank of the Philippines (LBP)
which accounted for 77 percent of its clients.
As it is right now, agricultural credit and
agricultural insurance are intertwined. If the
insurance program is not allowed by law to impose