Agricultural Insurance in Latin America

January 2013 - Agricultural insurance in Latin America has increasingly drawn media attention because governments and the private sector need to find efficient ways to protect crops and livestock. That need rose, in turn, as a result of this subcontinent's growing share of global agricultural output.

In Mexico, the Caribbean and Argentina, we have seen a large number of farmers join traditional agricultural-insurance programs. However, this shift has not been sufficient to guarantee income stability for most of them.

Governments in several countries have shown greater interest in supporting the development of agricultural insurance, either by providing subsidies or by constructing specific policies for the sector. This is extremely important given that, with few exceptions, the growth of this type of insurance in any country of the world depends greatly on government support.

In addition, the significant rise in agriculture's share of GDP in Latin American countries, along with climate change and natural disasters and global financial instability, is encouraging the development of new and more suitable coverage solutions in this segment of the insurance market.

Despite the progress made already in many countries of Latin America, there remain significant differences in the structure of agricultural risk in the region and in how it is developed and managed. That underscores the need to broaden the discussion on this topic and promote the various success models and programs.

In response to that need, Swiss Re this year held a workshop on agricultural insurance in Latin America — Agro Latin America Workshop 2012 – during which different market players, including insurance companies and governments, shared their experiences and discussed the new directions of agricultural insurance in the region.

The discussions helped the participants better understand some business models in Latin American countries that have drawn attention in this segment, whether because of innovation, government support or simply the volume of premiums generated. We were able to ascertain that the construction of a more solid insurance base involves structuring stable and permanent government policies and a reliable and suitable database, in addition to investments in know-how and technology and the establishment of legal frameworks that allow the market to expand.

The insurance and reinsurance market, as it has done in Brazil in the last three years, must innovate and develop differentiated solutions that are more in tune to the conditions in each region. Additionally, it is important that the government become more involved in the issue and create a specific program for the sector, following Mexico's lead.

The agricultural-insurance market in Latin America has considerable growth potential, either from an increase in crops insured or the use of technology (satellite images, mobile technology, etc.) to manage risk and create new products. We have seen much progress regarding risk management in countries such as Uruguay and Chile with the development of the so-called Insurance Index. In Argentina, whose agricultural-insurance market was established years ago, some insurance companies are now making heavy investments in technology to monitor insured fields.

Contrary to widespread beliefs, insurance is not an innovative instrument. It is an important part of risk management for agricultural companies and governments, especially now that we see a greater frequency and severity of climate events and global economic instability impacting agriculture.

Insurance Funds in Mexico

The stakeholders in Mexico's current agricultural-insurance system are the government, the private sector and rural producers, through what are known as mutual insurance funds, or “Fondos de Aseguramiento”, which have offered substantial advantages for both the production sector and the insurance market. Read more.

Income Insurance in Brazil and the Government's Role

Since the federal government implemented the Insurance Premium Subsidy Program in 2005, the insured area in Brazil soared from 70,000 hectares to more than five million hectares in 2011, while the sum insured increased from 127 million reais to more than seven billion reais. Read more.

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