Insurance Funds in Mexico

January 2013 - 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.

These funds began to operate in 1988, but it was not until 2005 that the government approved a specific law regulating this type of entities and their activities. They offer agricultural, property, life and health insurance. In the rural sector, they offer coverage of agricultural crops and livestock.

Producers’ premiums must be sufficient for the funds to take out — a legal requirement — reinsurance coverage and to defray administrative costs and establish a reserve for claims. At the end of the year, the operating balance is placed in a social fund and in a special contingency fund for use when catastrophic losses arise.

At the funds’ general meeting, members decide how to use the balance in the social fund. Possibilities include reducing insurance costs in the following agricultural cycle and providing technical assistance.

In practice, the funds operate as insurance companies, although in most cases, on a much smaller scale than customarily seen in the market. The funds underwrite policies and settle claims, and  oversee accounting and file reports with the regulatory bodies (ANFA and OINFA). They are also required to report their operating income to the reinsurers of their programs, whom may conduct an  "audit" if necessary.

In 2010, nearly 365 funds managed more than USD 80 million in premiums, accounting for approximately 66% of Mexico's agricultural-insurance market (commercial insurance). The remaining 34% in premium revenue was managed by the only two private insurance companies operating in Mexico's agricultural sector. This situation underscores the strength of Mexico’s mutual systems.

Although catastrophic insurance policies, known as CADENA, are not included in this calculation, approximately USD 100 million in premiums is managed for the sector through such policies. They are composed of different types of index insurance programs that cover both crops and livestock and offer coverage based on climate and production indexes and satellite images.

The insurance fund system offers considerable advantages for both the production sector and the insurance market. The joint management of the insurance program, for example, makes it possible for operating income to be set aside as profits for the producers themselves. Additionally, for the insurance market, the establishment of these funds has resulted in a greater and better geographic distribution of insured risk and possible reduction in fraud.



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