Agricultural insurance in Latin America: preparing fertile ground

As a result of Latin America's growing share of global agricultural output, efficient ways to protect crop and livestock production have become increasingly important. More widespread use of agricultural insurance is one of the essential measures.

In Mexico, the Caribbean and Argentina, a large number of farmers have joined traditional agricultural insurance programmes. However, this shift has not been sufficient to guarantee income stability for most of them, as insurance policies are mainly covering a shortfall of production but not a drop in commodity prices.

Governments in several other countries have shown greater interest in supporting the development of agricultural insurance, either by providing subsidies or by constructing specific policies for the sector. Government support is extremely important given that, with few exceptions, the growth of agricultural insurance around the world is highly correlated with governmental policy measures.

In addition, the significant rise in agriculture's share of GDP in Latin American countries, along with climate change, natural disasters and the impact of volatile commodity markets on farmers' income, is encouraging governments to put their focus on the development of new and more suitable insurance solutions for farmers.

New requirements, new solutions

Despite the progress made already in many Latin American countries, the state of development of crop and livestock insurance markets in the regions varies significantly. That underscores the need to broaden the discussion on best practices and promote the successful models and programmes.

In response to that need, Swiss Re held a workshop on agricultural insurance in Latin America, during which various stakeholders including insurance companies and government representatives discussed new directions of agricultural insurance in the region.

The discussions helped participants to better understand the agricultural insurance markets in Latin America. One key take away was that structuring stable and permanent government policies and a reliable database lead to a stronger insurance base. In addition, investment in know-how and technology and the establishment of a legal framework is needed for 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 with the conditions in each region. In addition, it is important that governments become more involved in the issue and foster the development of insurance markets through specific policy measures, following Mexico's lead.

More innovation and investment

The Latin American agricultural insurance market has considerable growth potential, either from an increase in insurance penetration or the introduction of new products. There has been much progress regarding risk management in countries such as Uruguay and Chile with the development of the so-called index-based insurance programmes. In Argentina, whose agricultural insurance market was established years ago, some insurance companies are now increasing their investments in technology to monitor insured fields.

Agricultural insurance is an important part of risk management for farmers, agricultural companies and governments, especially now with the greater frequency and severity of climate events and natural disasters, and the global economic instability impacting agriculture.

Swiss Re's new sigma study, "Partnering for food security in emerging markets," puts agricultural insurance on the table, explaining how it helps manage risk, stabilises farm income and encourages agricultural investment.

Published 16 Jan 2013

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