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Agricultural Insurance in Latin AmericaDeveloping the Market
Report no. 61963-LAC
Agricultural Insurance in Latin A
merica —
Developing the M
arket Rep
ort n
o. 61963-LA
C
World Bank Insurance for the Poor Program
1818 H Street, NWWashington, DC 20433www.insuranceforthepoor.org
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Agricultural Insurancein Latin AmericaDeveloping the Market
December 2010
TABLE OF CONTENTS
Acknowledgments ....................................................................................................... ixExecutive summary .................................................................................................... xiii
Institutional challenges .............................................................................................. xxFinancial challenges .................................................................................................. xxTechnical challenges .................................................................................................. xxOperational challenges ............................................................................................. xxiConclusions .............................................................................................................. xx
1. Introduction ............................................................................................................. 12. Overview of the agricultural sector ....................................................................... 5
Agribusiness segmentation ....................................................................................... 8Risks affecting agricultural production ....................................................................12Agricultural risk management in LAC ...................................................................... 21Rural finance in Latin America ................................................................................. 23
3. Status of agricultural insurance ........................................................................... 27Size of agricultural insurance markets and premium volumes in LAC ...................... 29Availability of agricultural insurance products ........................................................ 32
Crop insurance products ....................................................................................... 33Livestock insurance products ................................................................................. 38Aquaculture insurance products ............................................................................ 40Forestry insurance products .................................................................................. 40Bloodstock insurance products .............................................................................. 41
Models and channels of delivery ............................................................................. 42Cost of agricultural insurance provision in LAC ....................................................... 43Agricultural reinsurance in LAC ................................................................................ 44Public sector support to agricultural insurance in LAC ........................................... 46Agricultural insurance penetration in LAC .............................................................. 56Gaps in the provision of agricultural insurance in LAC ........................................... 58
Agricultural insurance product gaps ...................................................................... 59Agricultural insurance penetration gaps ................................................................ 63
4. Opportunities and challenges for agricultural insurance ................................... 69Opportunities for the development of agricultural insurance ................................. 70
Crop insurance ..................................................................................................... 70Livestock insurance ............................................................................................... 74Forestry insurance ................................................................................................. 75Aquaculture insurance .......................................................................................... 76
iv ] Agricultural Insurance in Latin America
Challenges for the development of agricultural insurance in LAC .......................... 77Institutional challenges ......................................................................................... 77Financial challenges .............................................................................................. 79
Technical challenges .................................................................................................. 80Operational challenges .............................................................................................. 82
5. Final remarks .......................................................................................................... 85Bibliography ............................................................................................................... 91Annex. Agricultural insurance country fact sheets .................................................. 94
LIST OF BOXES
Box 3.1 Crop insurance products: Indemnity-based and index-based covers ............ 34Box 3.2 Types of livestock insurance products .......................................................... 39Box 3.3 Models of government support to agricultural insurance ............................ 48Box 3.4 Named-peril hail crop insurance program in Mendoza Province, Argentina .................................................................... 53Box 3.5 SEAF crop-credit insurance guarantee program of the federal government of Brazil ................................................................................. 54
LIST OF FIGURES
Figure 2.1 Economic and social importance of the agricultural sector in LAC ................. 7Figure 2.2 Economic and social importance of agriculture in Mexico, by state ............... 8Figure 2.3 Agricultural risk layering ............................................................................ 22Figure 2.4 Ratio of agricultural sector GDP to total GDP and agricultural sector loans to total loans .................................................................................... 24Figure 2.5 Development financial institution share of total agricultural credit .............. 25Figure 2.6 MFI lending to the rural population in select countries of LAC, 2007 .......... 26Figure 3.1 Insurance companies offering agricultural insurance in LAC ....................... 29Figure 3.2 Agricultural insurance direct premiums written, 2005–09 .......................... 31Figure 3.3 Distribution of agricultural insurance premiums per business subline in LAC, 2009 .................................................................... 32Figure 3.4 Crop insurance acquisition expenses, A&O expenses, and LAE in LAC countries, 2007 ................................................................. 44Figure 3.5 Premiums and fiscal expenditures on agricultural insurance in LAC, 2004–09 ....................................................................................... 55Figure 3.6 Agricultural insurance penetration in LAC .................................................. 57Figure 3.7 Agricultural insurance gaps in LAC, by type of insurance ............................ 63Figure 4.1 Agribusiness value chain and insurable interest .......................................... 71
vi ] Agricultural Insurance in Latin America
LIST OF MAPS
Map 2.1 Drought hazards in LAC countries ...............................................................13Map 2.2 Flood hazards in LAC countries .................................................................. 14Map 2.3 Anomalies during El Niño events ................................................................ 15Map 2.4 Anomalies during La Niña events ............................................................... 15Map 2.5 Hailstorm hazards in LAC countries ............................................................ 16Map 2.6 Tornado hazards in LAC countries .............................................................. 17Map 2.7 Winter storm hazards in LAC countries ...................................................... 18Map 2.8 Earthquake and tropical cyclone hazards in LAC countries .......................... 19Map 3.1 Regional distribution of agricultural insurance direct premiums .................. 30Map 3.2 Distribution of agricultural insurance direct premiums in LAC ..................... 33Map 3.3 Agricultural insurance products in LAC ....................................................... 42Map 3.4 Current status of government support for agricultural insurance in LAC ..... 49Map 3.5 Agricultural insurance penetration in LAC .................................................. 60Map 3.6 Degree of development of agricultural insurance in LAC ............................ 64
LIST OF TABLES
Table 2.1 Major farming systems in LAC .....................................................................10Table 2.2 Risk management strategies and mechanisms .............................................21Table 3.1 Financial performance of public sector MPCI in select LAC countries ................28Table A.1 Agricultural insurance country fact sheet: Argentina .................................. 94Table A.2 Agricultural insurance country fact sheet: Bolivia ........................................ 96Table A.3 Agricultural insurance country fact sheet: Brazil ......................................... 98Table A.4 Agricultural insurance country fact sheet: Chile ..........................................100Table A.5 Agricultural insurance country fact sheet: Colombia ..................................103Table A.6 Agricultural insurance country fact sheet: Costa Rica .................................105Table A.7 Agricultural insurance country fact sheet: Dominican Republic ...................107Table A.8 Agricultural insurance country fact sheet: Ecuador .....................................109Table A.9 Agricultural insurance country fact sheet: El Salvador .................................110Table A.10 Agricultural insurance country fact sheet: Guatemala ................................112Table A.11 Agricultural insurance country fact sheet: Honduras ..................................114Table A.12 Agricultural insurance country fact sheet: Mexico ......................................116Table A.13 Agricultural insurance country fact sheet: Nicaragua ..................................118Table A.14 Agricultural insurance country fact sheet: Panama .....................................120Table A.15 Agricultural insurance country fact sheet: Paraguay ...................................122Table A.16 Agricultural insurance country fact sheet: Peru ..........................................123Table A.17 Agricultural insurance country fact sheet: Uruguay ....................................124Table A.18 Agricultural insurance country fact sheet: República Bolivariana de Venezuela ...........................................................................................127Table A.19 Agricultural insurance country fact sheet: Windward Islands ......................128
ACKNOWLEDGMENTS
This report was authored by Ramiro Iturrioz (senior agricultural insurance specialist, GCMNB, World Bank) and Diego Arias (senior agricultural economist, LCSAR, World Bank). The authors owe thanks to Antony Randle for his editorial contributions. The work has been partly financed by the Trust Fund for Environmentally and Socially Sustainable Development (TFESSD).
The authors are grateful to the peer reviewers, John D. Nash (lead economist, LCSSD, World Bank), Panayiotis Varangis (lead advisory services, International Finance Corporation [IFC]), Charles Stutley (agricultural risk management international consultant, ARD, World Bank]), Martin Buehler (principal insurance officer, IFC), and Carlos Arce (senior agricultural economist, ARD, World Bank),
The authors thank the many respondents who contributed to this study. They are listed below.
• Agroasemex, S.A. (Mexico)• Aon Re (Argentina)• Aon Re (República Bolivariana de Venezuela)• Aseguradora Agropecuaria Dominicana
(Dominican Republic)• Aseguradora Magallanes (Chile)• Aseguradora Tajy Propiedad Cooperativa S.A.
Seguros (Paraguay)• Asociación Latinoamericana de Empresas de
Seguro Agropecuario (ALASA)• Banco de Seguros del Estado del Uruguay
(Uruguay)• Cámara Hondureña de Aseguradores
(Honduras)• Colonial Insurance Company (Ecuador)• Comité de Seguro Agrícola (COMSA, Chile)• Compañía Cooperativa de Seguros Surco
(Uruguay)• Hannover Re (Germany)• Instituto Nacional de Seguros (Costa Rica)• Instituto Nicaragüense de Seguros y
Reaseguros (Nicaragua)• La Segunda Cooperativa Limitada de Seguros
Generales (Argentina)• Mapfre Colombia (Colombia)
• Mapfre Re (Spain)• Mclarens Toplis Peru Ajustadores y Peritos de
Seguros, S.A. (Peru)• Ministerio da Agricultura, Pecuária e
Abastecimiento do Brasil (Brazil)• Ministerio de Agricultura (MAGPyA, Uruguay)• Ministerio do Desenvolvimento Agrario do
Brasil (Brazil)• Munich Re (Argentina)• Novae Re (Switzerland)• Oficina de Riesgo Agropecuario (Argentina)• Partner Re (Chile)• Protección Agropecuaria, Compañía de
Seguros S.A. (Mexico)• Scor Re (Switzerland)• Seguradora Brasileira Rural (Brazil)• Swiss Re (Brazil)• UIB Colombia S.A. Corredores de Reaseguros
(Colombia)• Willis Argentina S.A. (Argentina)• Windward Islands Crop Insurance (1988) Ltd.
(Dominica)
x ] Agricultural Insurance in Latin America
ABBREVIATIONS
ADACA Aseguradora Dominicana Agropecuaria, Dominican RepublicAGDP agricultural gross domestic productAGRODOSA Aseguradora Agropecuaria Dominicana, Dominican RepublicANAGSA Aseguradora Nacional Agrícola y Ganadera, MexicoA&O administrative and operatingAPH actual production historyBANADESA Banco Nacional de Desarrollo Agrícola, HondurasBGA Banana Growers AssociationsCOMSA Comité de Seguro Agrícola, ChileCONASA Consejo Nacional de Salud (National Health Council), Ecuador CSF classical swine feverDFI development finance institutionENSO El Niño-La Niña-Southern OscillationFCR Fundo de Catastrofe Rural, BrazilFOGASA Guarantee Fund for Crop Insurance, PeruGDP gross domestic productGNP gross national productINDAP Instituto de Desarrollo Agropecuario (Small Farmer Lending Bank), ChileINISER Instituto Nicaraguense de Seguros y Reaseguros, NicaraguaINS Instituto Nacional de Seguros, Costa RicaIRB Instituto Nacional de Resseguro do Brasil (Brazilian Reinsurance Institute)ISA Instituto de Seguro Agropecuario, PanamaLAC Latin American and Caribbean countriesLAE loss adjustment expensesMFI microfinance institutionMPCI multiple-peril crop insuranceNDVI normalized dry vegetative indexPACC Program to Assist Climatologic Contingencies, MexicoPML probable maximum lossPPP public-private partnershipPROAGRO Programa de Garantia da Actividade Agropequária (Brazilian Guarantee
Program)PRONAF Programa Nacional de Fortalecimento da Agricultura Familiar (Brazilian
Program to Strengthen Family Agriculture)
REDD reducing emissions from deforestation and degradationSAGARPA Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Aliment-
ación (Ministry of Agriculture), MexicoSEAF Seguro da Agricultura Familiar (Insurance for Family Agriculture)SENASA Servicio Nacional de Sanidad Animal (National Service of Animal Health),
ArgentinaSICAF Integrated Agricultural Insurance System, ArgentinaTSU technical support unitWINCROP Windward Islands Crop Insurance Limited
EXECUTIVE SUMMARY
The agricultural sector plays a pivotal role in the economy and in the lives of people in the Latin American and Caribbean (LAC) countries. Agricultural producers in LAC face a myriad of risks that can threaten their output, their income, and, sometimes, their consumption. However, they have devised various strategies to deal with the risks affecting their production, using both active risk management and risk-coping strategies. While risk management strategies attempt to address the risk ex ante, risk-coping strategies address it ex post. The management of agricultural production risks relies on an optimal combination of technical and, when they are available, financial tools. Agricultural producers can retain small but recurrent risks through the use of appropriate on-farm risk mitigation techniques (such as irrigation, crop management, and pest prevention) and self-insurance tools such as savings and contingent credit. However, agricultural producers are not able to manage the less frequent but more severe losses affecting their agricultural activities; thus some farmers transfer them to other parties through financial mechanisms like insurance, when available and accessible.
Agricultural insurance is typically one of many tools that farmers can use as part of their comprehensive strategy for managing agricultural production risks. The level of development of agricultural insurance is heterogeneous among the different countries and geographic areas in the LAC region. The study focuses on how agricultural insurance can complement and enhance agricultural risk management in LAC. The overall objective of this study is to provide the key elements for a strategy to increase the penetration of agricultural insurance in the region. The specific objectives are to (a) diagnose the current situation, (b) identify gaps in the provision of agricultural insurance, and (c) identify impediments to increasing penetration and recommend a series of actions to remove those impediments.
There are some key aspects to consider when designing an adequate agricultural insurance strategy for LAC. These include (a) an understanding of the economic and social relevance of the agricultural sector, (b) the deconstruction of agricultural producers into agribusiness segments, (c) the assessment of the risks affecting agricultural production, (d) the identification of the risk management strategies implemented by agricultural producers and governments, and (e) the assessment of the rural finance sector. The LAC region has a wealth of natural resources, the world’s greatest agro-biodiversity, and immense economic, social, and environmental diversity. The region also benefits from a stock of natural resources suitable for agricultural production. Agricultural production can be classified into three sectors: traditional farming sector, semi-commercial farming sector, and commercial farming sector, but the predominance of each type of sector varies among geographic areas, so
xiv ] Agricultural Insurance in Latin America
the analysis of agricultural farming systems provides a good proxy for the segmentation of agricultural producers in the region.
Agricultural production in LAC faces a myriad of production risks. Drought and floods are devastating perils that affect agricultural production in almost all LAC countries. Hailstorms are frequent in the Southern Cone countries and along the Andes Mountains, in Central America, and in western Mexico. Tornadoes affecting agricultural production are common in the Southern Cone countries, eastern Mexico, and Baja California peninsula. Winter storms are common in Uruguay and the southern coasts of Argentina and Chile. Tropical storms have devastating effects on agricultural production in Mexico, Central America, and the Caribbean. Earthquakes, although frequent in the region, do not cause severe direct losses to agriculture production. Agricultural production in the coastal areas of the Pacific and the Caribbean region face the risk of tidal waves caused by tsunamis. Volcanic activity is also a source of risk for agricultural production in LAC.
Agricultural producers and governments in LAC have devised risk management strategies to deal with the production shocks faced by the agricultural sector. The types of agricultural risk management mechanisms implemented by agricultural producers and farmers vary by country. The management of agricultural production risks relies on an optimal combination of technical and financial tools. The risk-layering concept is useful for analyzing the optimal combination of technical and financial risk management tools in agriculture (see figure 1). Farmers and herders can retain small but recurrent losses through the use of appropriate on-farm risk mitigation techniques (for example, irrigation and pest prevention) and self-insurance tools (for example, savings and contingent credit). More severe but less frequent nonsystemic losses can be pooled into cooperative or mutual insurance schemes. However, the relatively severe and frequent systemic losses, which cannot be managed through either on-farm risk management mechanisms or a cooperative or mutual insurance scheme, need to be transferred to commercial insurers and reinsurers. Governments have a large role to play in major disasters, acting as reinsurers of last resort or providing post-disaster aid.
Figure 1 Agricultural risk layering
Size of the loss
Type of event:Minor Small Medium Large Catastrophic
Risk transfer
Risk pooling
Risk retentions
Government
Reinsurers
Insurancecompanies
Cooperativesans mutuals
Agriculturalproducers
Source: Mahul and Stutley 2010.
Assessing the access of the agricultural sector to rural finance is important in the design of an agricultural insurance strategy. Agricultural producers in LAC use different sources to finance investments in agricultural production, but the penetration of rural credit is very low. Development financial institutions1 are the main source of financing for the agricultural sector, and commercial credit is an important source of rural finance in the agriculture net-exporting countries in the region. However, microfinance institutions are still not an important source of finance for agriculture in LAC. Access to agricultural finance depends on the farmers’ characteristics. Commercial farmers are mostly financed through formal financial institutions and commercial credit. Semi-commercial or emerging commercial farmers integrated in supply chains satisfy their financial needs mainly through commercial credit provided by supermarkets, agro-industry, exporters, input suppliers, or other supply chain agents. The main source of financing for traditional smallholder farmers is informal credit. The traditional smallholder farmers who are living in extreme poverty have, for the most part, no access to formal credit and are reliant almost completely on public sector support and nonfarm sources of income.
Agricultural insurance has a long history in some countries in the region. Agricultural insurance was provided in many LAC countries by public sector insurance companies from the 1950s up to the end of the 1980s. In this period, there was major growth in public sector multiple-peril crop insurance (MPCI) in Latin America, often linked to small farmer seasonal production credit programs offered by the public sector. Most of these public sector agricultural insurance programs performed very poorly, with high operating costs and very
1 Development financial institutions are institutions that carry on any activity, whether for profit or otherwise, with or with-out government funding, with the purpose of promoting development in the industrial, agricultural, commercial, or other economic sector, including the provision of capital or other credit facility.
xvi ] Agricultural Insurance in Latin America
high loss ratios, which were exacerbated by very low premium rates and poor management. Most public sector programs were terminated by 1990 on account of their poor results. The provision of agricultural insurance through the private sector and public-private partnerships is a new trend in the region. Agricultural insurance is currently available in most LAC countries.
Agricultural insurance in LAC is relatively well developed in comparison with other regions such as Africa and many Asian countries. Agricultural insurance premiums in LAC have been growing exponentially in recent years; however, they are not distributed evenly among the different agricultural insurance business sublines or among countries. The supply of agricultural insurance products in the region is relatively evolved in comparison with other regions in terms of diversification and number of companies offering insurance.
Crop insurance is the most developed business subline of agricultural insurance in LAC. Yield-based MPCI is the most common type of crop insurance marketed in the region. Individual-grower named-peril crop insurance (mainly hail) is the second most popular type of crop insurance after MPCI. Index-based crop insurance has been one of the most promising new products.
Livestock insurance is a relatively small segment of the agricultural insurance market in LAC. Livestock insurance is offered by the private insurance industry in several countries. Aquaculture insurance, including off-shore marine and on-shore freshwater aquaculture insurance for fish stock, crustaceans, and shellfish, is an important agricultural insurance business subline in some countries. Finally, forestry insurance provides traditional named-peril indemnity insurance against fire and allied perils affecting standing timber production.
The provision of agricultural insurance in LAC countries is expensive in comparison with other regions. According to a sample of 11 LAC countries extracted from the survey performed by Mahul and Stutley (2010), estimated average total expenses incurred by the insurance sector in the provision of agricultural insurance in 2007 were equal to 29 percent of total original gross agricultural insurance premiums. The estimated total expenses for the provision of agricultural insurance in LAC are 11 percent higher than average expenses of other regions in the same year—26 percent of original gross agricultural insurance premiums.
Agricultural reinsurers have an active role in the LAC agricultural insurance market. Agricultural risks in the region are ceded to reinsurers using different types of reinsurance agreements and different forms of reinsurance cession. The magnitude of agricultural risk reinsurance cessions varies from country to country. Reinsurance capacity, as long as the insurance proposals are technically sound, is widely available. Agricultural reinsurers in the LAC region do not just provide reinsurance capacity for domestic insurance companies; they also assist domestic insurance companies by providing advisory services in agricultural
risk assessment, risk modeling, pricing, and risk structuring as well as by designing loss adjustment and operational manuals, risk rating and risk accumulation control software, and the wording of insurance contracts.
The public sector has an active role in supporting agricultural insurance in LAC countries. The reasons for public sector involvement in agricultural insurance markets are varied. The public sector often justifies its intervention in agricultural insurance markets by pointing to (a) the absence of insurance infrastructure in rural areas and the absence of private sector agricultural insurance services, (b) the prohibitively high start-up costs in developing agricultural insurance products; (c) constraints on the capacity of reinsurers to underwrite the systemic risks in agricultural production; (d) high administrative costs of underwriting agricultural insurance; and (e) affordability issues, which arise from the often high costs of agricultural insurance premiums. See figure 2 for the models of government support.
Figure 2 Models of government support to agricultural insurance
LEV
EL O
F G
OV
ERN
MEN
T IN
TERV
ENTI
ON
NUMBER OF PLAYERS & PRODUCT DIVERSIFICATION
Public–PrivatePartnership
FullyIntervened
System
Pure MarketBased
Normally High Penetration (compulsory) Well Diversified Portfolios Social over Technical criteria Monopoly. Issues with the service Government assumes full liability High Fiscal Cost
High Penetration Well Diversified Portfolios Technical over commercial criteria Competition for service Government adds stability to the system Private Sector adds know how Reasonable Fiscal Cost
Low to moderate penetration Low risk diversification Commercial over technical criteria Competition for price No fiscal cost
Source: Iturrioz 2009.
xviii ] Agricultural Insurance in Latin America
A wide range of models for the provision of agricultural insurance are available in LAC countries. The public sector mechanisms to support the development of agricultural insurance vary among the LAC countries. Several countries have established public sector agricultural risk units that provide technical support to the public sector and agricultural insurance companies, and many countries subsidize agricultural insurance premiums in an effort to support development of the market. The public sector in many LAC countries has an active role in enabling the legal and regulatory framework to promote agricultural insurance. Direct intervention of the public sector in the provision of agricultural insurance or reinsurance is rare.
The creation of PPPs for financing the catastrophic agricultural risk layers is a recent trend in the region. The public sector (at the national and subnational levels) in several LAC countries has recently begun to purchase private agricultural insurance coverage to transfer catastrophic agricultural risks to international markets and protect small traditional and semi-commercial farmers. Some countries in the region have developed special agricultural insurance programs targeting small and marginal farmers, which has driven the exponential growth of agricultural insurance premiums in LAC. The challenge for LAC countries is to maintain the fiscal capacity to sustain the current levels of government support for these types of agricultural insurance programs and premium subsidies.
Agricultural insurance has reached reasonable penetration rates in parts of the region. However, LAC, on average, still lags behind other regions in terms of agricultural insurance development. The penetration of agricultural insurance is not homogeneous among LAC countries, and it is not homogeneous even across different geographic areas within the same country. The provision of agricultural insurance in LAC countries has several gaps. Gaps are evident in the products offered: (a) only 19 percent of the total cropped area is insured; (b) forestry insurance is only developed in Chile and Uruguay; (c) despite the importance of aquaculture in the region, the development of aquaculture insurance is limited to Chile and Mexico; and (d) the development of livestock insurance is minimal. Geographic gaps are also evident: agricultural insurance is only consolidated in the most dynamic areas in terms of agricultural production.
The level of development of agricultural insurance in the areas where agricultural insurance is consolidated is comparable with the level of agricultural insurance development in high-income countries. Furthermore, the geographic areas where agricultural insurance is in the process of consolidation in the region comprise areas that were turned over to agricultural production in the 1990s, and these are the areas where demand for agricultural insurance products is rising quickly. However, there are many areas where agricultural insurance is still not available but has the potential for development. These areas are characterized by the coexistence of well-developed market-oriented agriculture firms
with traditional or semi-commercial farming. Finally, the geographic areas where agricultural insurance is not yet available and has low potential for development are characterized by a vast population of small and marginal or semi-commercial farmers who produce for self-consumption and, eventually, for the market.
The development of the agricultural insurance market is a long-term PPP effort. The opportunities for increasing the current levels of crop insurance in geographic areas where crop insurance is already consolidated will come, mainly, from the development of more complex and sophisticated types of products. In the areas where crop insurance is already consolidated, the insurance industry is enhancing its portfolio of crop insurance products to cover more perils and crop activities, and it is also adopting an agribusiness value chain approach in order to deliver products.
The uptake of crop insurance is expected to keep growing in the geographic areas where agricultural insurance is in the process of consolidation. Large-scale agribusiness enterprises that operate in geographic areas where agricultural insurance is in a process of consolidation will continue to demand customized crop insurance solutions. It is also expected that small- and medium-size farmers and enterprises situated in geographic areas where crop insurance is in the process of consolidation will also increase their demand for crop insurance. Furthermore, the geographic areas where agricultural insurance is available but still not consolidated offer enormous potential for development. There are also many geographic areas in LAC where crop insurance is yet not available, but opportunities exist to provide crop insurance for commercial and semi-commercial farmers. However, in geographic areas where crop insurance is not yet available and the rates of rural poverty are high, the potential to provide crop insurance is very limited.
There are opportunities to develop livestock insurance in the region. Livestock insurance has not yet reached significant levels of uptake among herders. The provision of better livestock insurance in the region will improve when better livestock insurance products are offered. An increase in the supply of comprehensive livestock insurance in some countries is expected in the short term. The strengthening of the animal health care and prevention systems in LAC countries represents a direct opportunity for livestock insurance. Poultry and swine insurance also offers an interesting opportunity for the development of livestock insurance.
The LAC region offers opportunities to develop forestry insurance. The expected improvement of product design for standing timber forest plantations will enhance the uptake of forestry insurance. Developing suitable forestry insurance products to be used as collateral from reducing emissions from deforestation and degradation (REDD) credits constitutes an opportunity for forestry insurance in the region.
xx ] Agricultural Insurance in Latin America
There are several opportunities to develop aquaculture insurance in the region. Shrimp and tilapia production in LAC offers an opportunity to develop aquaculture insurance. In order to develop aquaculture insurance, efforts will have to be made to build local capacity.The process of promoting and enhancing agricultural insurance implies overcoming critical challenges. These can be classified into four categories: institutional challenges, financial challenges, technical challenges, and operational challenges. The challenges faced by the governments and the insurance industry, as well as the potential solutions to overcome them, are discussed below.
INSTITUTIONAL CHALLENGES
The development of agricultural insurance requires an appropriate institutional framework. In addition to an adequate legal and regulatory framework, the development of agricultural insurance requires the facilitation of access to technical and financial assistance for the development of products and the integration of agricultural insurance with other financial products and technical services received by the farmers.
FINANCIAL CHALLENGES
Risk-layering schemes should be seriously considered at the time of designing agricultural insurance programs for countries in the region. Also needed are efforts to (a) encourage domestic insurance companies to pool agricultural risks, (b) promote governments’ participation in risk financing on the top catastrophic risk layers to complement reinsurance markets, and (c) redefine the role of agricultural insurance premium subsidies.
TECHNICAL CHALLENGES
Proper assessment of agricultural production risks, linked to ongoing product development, is a precondition for the development of sustainable agricultural insurance programs. In addition, better agricultural and weather information services and data infrastructure are needed. Furthermore, support for research and development of innovative agricultural insurance products and services is necessary to reach small farmers and expand the market overall. In other words, agricultural insurance products should be tailored to the targeted clients.
OPERATIONAL CHALLENGES
LAC needs to build local capacity in operational procedures for designing and administering agricultural insurance, especially products based on simple operational models. The bundling of agricultural insurance products with existing services or networks operating in rural areas is important to increase coverage and reduce transaction costs. Complementary support for agricultural insurance operations could include the promotion of (a) cooperatives, producer associations, rural banks, and microfinance institutions as delivery channels for agricultural insurance and (b) technical support units for agricultural insurance in start-up situations.
CONCLUSIONS
Agricultural insurance has reached relatively good levels of development in several regions within LAC. Agricultural insurance is available in most countries in the region, and the industry offers a comprehensive range of products. The level of penetration, except for livestock insurance, is reasonably high in most countries. Total direct agricultural insurance premiums written in LAC during 2009 amounted to US$780 million, accounting for 3.5 percent of global agricultural insurance premiums.
The degree of development of agricultural insurance, however, is not homogeneous across LAC countries. Several heterogeneities are observed in terms of the penetration of agricultural insurance both between and within countries as well as between different agricultural insurance products. While agricultural insurance in some geographic areas, such as the Southern Cone countries, shows levels of market penetration similar to high-income countries, other geographic areas, such as the English-speaking Caribbean countries, show a complete lack of agricultural insurance markets.
Governments in LAC are already playing an important role in supporting the development of agricultural insurance markets. The main support roles assumed by governments in the region are the provision of subsidies for agricultural insurance premiums and the purchase of catastrophic agricultural insurance products to protect small vulnerable farmers. The total fiscal expenditures on support for agricultural insurance in 2009 amounted to US$326 million, accounting for 42 percent of total agricultural insurance premiums written that year. Brazil and Mexico account for 90 percent of the total regional government expenditures on support for agricultural insurance.
The region shows several gaps in the provision of agricultural insurance. The reasons for these gaps are diverse and specific to the country and geographic area. Therefore,
xxii ] Agricultural Insurance in Latin America
the strategies for developing agricultural insurance markets are also diverse and have to be tailored to each specific situation. In other words, no one-size-fits-all strategy for the development of agricultural insurance is suitable for all countries in LAC.
The existence of gaps in the provision of agricultural insurance creates opportunities for development of the market in the region. The private insurance industry has an opportunity to enhance the use of agricultural insurance in geographic areas where commercial farming is the main type of agricultural production. In such geographic areas, the private insurance industry can enhance the use of agricultural insurance in two ways: (a) by making products more affordable and (b) by shifting the insurance industry’s approach to clients from a focus on farmers to a broader focus on the agribusiness value chain. The enhancement of agricultural insurance in geographic areas where semi-commercial and traditional subsistence farmers predominate will be more challenging and will likely require government support.
The development of agricultural insurance markets depends on the governments’ and the private insurance industry’s ability to overcome several challenges. In order to take advantage of the opportunities to develop agricultural insurance markets, the public and private sectors will need to overcome various institutional, operational, technical, and financial challenges. These challenges are different for different countries and geographic areas in the region. The private insurance industry in isolation is unable to overcome these challenges, and public-private partnerships are needed, along with direct government support.
1. INTRODUCTION
The agricultural sector plays a pivotal role in the economy and in the lives of people in the Latin American and Caribbean (LAC) countries. The agricultural sector contributed 5.5 percent of the GDP and 18 percent of total exports from the region in 2006 (FAO 2009). The region is more urbanized than the rest of the world, with 22.4 percent of the population residing in rural communities compared with the world average, 44 percent. As the level of urbanization rises, the need to modernize agriculture and attain higher levels of productivity becomes more acute.
Agricultural producers in LAC face a myriad of risks that can threaten their output, their income, and sometimes their consumption. Throughout history, the LAC region has been among the most disaster-prone areas in the world: volcanoes, earthquakes, droughts, floods, and yearly cycles of major tropical storms all affect agricultural production. It is widely believed that these hazards will intensify through the effects of global warming. A comparison of two five-year periods, 1971–75 and 2002–05, shows that the incidence of droughts has increased 360 percent, hurricanes, 521 percent, and floods, 266 percent. Scarcely a country in the region, which has a population of approximately 550 million, has escaped serious damage from natural disasters within the past two to three years. Disasters affecting the region are relentless, frequent, and highly destructive in the areas affected. LAC agricultural producers have devised strategies to deal with the multiple risks affecting their production. Agricultural producers in the region use both active risk management and risk-coping strategies. While risk management strategies attempt to address the risk ex ante, risk-coping strategies address it ex post. Managing the risks to agricultural production relies on an optimal combination of management and, when they are available, financial tools. Agricultural producers can retain small but recurrent risks through appropriate on-farm risk mitigation techniques (such as irrigation, crop management, and pest prevention) and self-insurance tools (such as savings and contingent credit). However, agricultural producers often cannot manage the less frequent but more severe losses affecting their agricultural activities; thus some farmers transfer them to other parties through financial mechanisms like insurance, when available and accessible.
Agricultural insurance is typically one of many tools that farmers can use as part of their comprehensive strategy for managing agricultural production risks. Agricultural insurance is used primarily to hedge against the risk of a loss of production. It
2 ] Agricultural Insurance in Latin America
is defined as the equitable transfer of the risk of a loss, from an agricultural entity2 to an insurer, in exchange for a premiu. Agricultural insurance is a financial tool that provides a mechanism to transfer risks faced by crop, livestock, bloodstock, forestry, or aquaculture production.
The level of development of agricultural insurance is heterogeneous among the different countries and geographic areas in the region. Agricultural insurance in LAC, compared with other regions in the developing world, is quite well developed in most countries. However, this development is concentrated in the most productive areas. Outside these areas, agricultural insurance, if available, is underdeveloped or not developed at all. In addition, agricultural insurance has been targeted at the commercial farming sector. Few initiatives have sought to tailor agricultural insurance to the vast semi-commercial and traditional farming sectors. As a result, although agricultural insurance has reached relatively significant levels of development in LAC, there is still a significant gap in the provision of this risk transfer tool for the semi-commercial and traditional farming sector.
The study focuses on how agricultural insurance can complement and enhance agricultural risk management in LAC. The overall objective of this study is to provide the key elements for a strategy to increase the penetration of agricultural insurance in the region. The specific objectives are (a) to diagnose the current demand and supply of agricultural insurance in LAC; (b) to identify the gaps in the provision of agricultural insurance; (c) to identify impediments to increasing penetration; and (d) to recommend a series of actions for removing them.
The study is based on a comprehensive approach to the development and analysis of agricultural insurance provision in the region. The study presents the operational, institutional, financial, and operational issues associated with the provision of agricultural insurance, and it conducts the first regional assessment of the current status of and opportunities for the provision of other types of agricultural insurance such as forestry and aquaculture insurance. The study assesses (a) the status of the development of traditional products as well as index-based insurance and opportunities for their further development; (b) the roles of governments in the region in supporting the development of agricultural insurance; and (c) the perspectives and attitudes toward risk of the various participants in the agribusiness value chain.
The study follows the agricultural risk management framework developed by the World Bank. The framework is a tool that has been used to assess and develop agricultural insurance markets in several countries. It is based partly on corporate risk management but
2 Agricultural entity includes agricultural producers, cooperatives, associations, and agribusiness enterprises, among others.
also considers economic and social factors such as a government’s fiscal profile and the living conditions of the farmers in each country. Such a framework should be implemented only after cost-effective risk mitigation techniques (for example, irrigation and pesticides) have been successfully implemented. This framework thus deals only with the residual risk that cannot be mitigated. The framework is based on four pillars: (a) agribusiness segmentation; (b) agricultural risk assessment; (c) agricultural risk financing; and (d) legal and institutional capacity.
The study is organized into five chapters, including this introduction. Chapter 2 provides an overview of the agricultural sector in LAC, including a description of the main farming systems and an assessment of the main perils affecting production. Chapter 3 describes the current provision of agricultural insurance, describing the evolution of agricultural insurance, providing the current market figures, assessing the availability of agricultural insurance products, describing government support to agricultural insurance, and estimating the current levels of penetration. Chapter 4 focuses on the challenges in attempting to increase coverage and penetration. It assesses the current gaps in the provision of agricultural insurance, identifies opportunities for further development, and recommends some future actions that can be taken. Chapter 5 presents the conclusions of the study.
The study is complemented by a detailed description of the agricultural insurance market in LAC countries where this financial product is currently available. This information is presented in the form of fact sheets for 19 countries. Each fact sheet contains information about the history of agricultural insurance in the country, the market structure, the main channels for delivering agricultural insurance, the degree of government support for agricultural insurance, the main agricultural insurance products marketed, the penetration rate of agricultural insurance, and the volume of market premiums. This information is presented in an annex to the main body of the study.
2 OVERVIEW OF THE AGRICULTURAL SECTOR
An understanding of the economic and social relevance of the agricultural sector is a key first step in designing an adequate agricultural insurance strategy in Latin American and Caribbean (LAC) countries. The economic and social importance of the agricultural sector determines whether a national agricultural insurance strategy will have commercial and/or social goals. On the one hand, social insurance—safety net—aims to assure a minimal level of economic security for all farmers, particularly those involved in low-profit activities. These social objectives rely on (contingent) wealth transfer instruments. On the other hand, commercial insurance is oriented toward viable business activities that generate enough profit for farmers to afford the insurance premium. These instruments are based on sound actuarial principles and should apply only to viable farms whose survival may be jeopardized by the occurrence of an insurable event. Country and regional factors should also be considered in the design of a risk-financing strategy.
The LAC region has a wealth of natural resources, the world’s greatest agro-biodiversity, and immense economic, social, and environmental diversity. The region covers approximately 205 million hectares and encompasses 32 countries with a total estimated population of 561 million. The size of the region and its wide range of favorable ecologies have led to an extremely high level of biodiversity. Population varies considerably throughout the region, from Brazil—the world’s fifth-largest country in both area and population—to numerous Caribbean island nations with fewer than 100,000 people.
The region benefits from a stock of natural resources suitable for agricultural production. The region contains 36 percent of the main cultivated food and industrial species and 28 percent of the world’s forest area (UNEP 2000). It also contains some 168 million hectares of cultivated land, including 19 million hectares equipped for irrigation and a further 600 million hectares devoted to grazing and pastureland. It has 40 percent of the developing world’s humid areas and almost half of its total renewable water resources, but only 4 percent of its arid and semiarid lands. Some 90 percent of the region’s land area is humid and subhumid.
The agricultural sector is an important economic sector in many LAC countries. The agricultural sector accounts for 5.5 percent of regional GDP and 15.6 percent of total exports of the region. However, the degree to which agriculture contributes to the economy varies widely from country to country. Whereas in Trinidad and Tobago agriculture accounts for just 0.1 percent of national GDP and 2 percent of total exports, in Paraguay it accounts
6 ] Agricultural Insurance in Latin America
for 20 percent of national GDP and 88 percent of exports (World Bank 2007). Agriculture makes an even larger contribution to the regional economy when linkages with farm-input, food-processing, and distribution industries are taken into account. Although data are limited to certain countries and years, results of studies undertaken by the Inter-American Institute for Cooperation on Agriculture in 2005 indicate that the sector contributes a much higher share of GDP than is reflected in the official data. Data for Costa Rica and Uruguay in 2006, for instance, estimate the contribution of all agricultural industries to be between 30 and 35 percent of these countries’ national output compared with official figures of just 9 percent of GDP in each county (ECLAC 2008). Strong forward linkages to the agribusiness and food services sectors exist in all of the region’s countries; examples include soybean oil and derivatives in Argentina, Brazil, and Paraguay.
The agricultural sector is also relevant from a social standpoint. With an average GNP per capita of US$6,544 in 2009, LAC is the wealthiest of the developing regions. However, it is characterized by striking inequality in the distribution of wealth: the poorest 20 percent of the population receives only 3 percent of all income, whereas the wealthiest 20 percent receives 60 percent. Although urban poverty rates in some countries are high, poverty is more widespread in rural areas. More than 50 percent of rural people live below the poverty line. Poverty data vary extensively, from fewer than 2 percent of the population with an income of under US$1 a day in Uruguay (1989 data) to 40 percent in Guatemala (FAO 2004).
LAC countries can be classified into four groups according to the economic and social importance of their agricultural sector. The first group comprises those countries in which the agricultural sector has neither relevant economic nor social importance. The agricultural sector in these countries makes a small contribution to national GDP, total exports, or both; at the same time, a small portion of the population lives in rural areas, so the incidence of rural poverty is very low. The República Bolivariana de Venezuela is an example of countries in this group. In the second group of countries, the agricultural sector does not have economic relevance, but it does have social relevance, either because agriculture is the source of livelihood of a major part of its population or because rural poverty is a serious issue. Andean countries and Mexico are examples of countries in which the agricultural sector has low economic but high social relevance. The third group comprises countries in which the agricultural sector is economically as well as socially relevant. The agricultural sector in these countries makes a major contribution to national GDP, to total exports, or both; at the same time, a major part of the population has agricultural production as its main source of livelihood, and rural poverty is high. Caribbean and Central American countries are examples of countries in which the agricultural sector is highly relevant from the economic as well as the social standpoint. The fourth group comprises countries in which the agricultural sector constitutes an important economic activity and has a large role in total exports, but their
populations are largely urban or there is a low incidence of poverty in rural areas. Argentina and Uruguay are examples of such countries. Figure 2.1 maps the LAC countries according to the economic and social importance of their agricultural sector.
Figure 2.1 Economic and social importance of the agricultural sector in LAC(size of the balloons represent the level of agriculture GDP)
Soci
al Im
port
ance
Inde
x0.
5 *R
ural
Pop
ulat
ion
/ Tot
al P
opul
atio
n +
0.5
*Ru
ral
Pove
rty
/ Rur
al P
opul
atio
n
Economic Importance Index0.5 *Agriculture GDP / Total GDP + 0.5 *Agricultural Exports/Total Exports
60
50
40
30
20
100 10
Trinidad & TobagoSt. kitts & Nevis
PeruBolivia
EcuadorColombia
Suriname
Mexico
Jamaica
Venezuela Brazil
Chile
Dominican Republic
BrazilDominica
Argentina
Uruguay
Costa Rica
El SalvadorAntigua & Barbuda
St. Lucia Guyana
Panama
Paraguay
St. Vincent & Grenadines
Nicaragua
GrenadaBelize
HondurasHaiti
Guatemala
Barbados
20 30 40 50
Source: Authors based on Giordano 2006; World Bank 2010.
Several situations of economic and social relevance can be found within different geographic areas in a particular country. For instance, in Mexico the agricultural sector has low economic importance, but moderate-to-high social importance. The contribution of the agricultural sector to total growth was 6 percent during the period 1993–2004, whereas the share of rural poor in total poor was 25 percent during the same period. While this is true from a national perspective, there are regional differences within Mexico. The sector is economically and socially relevant in the states of Zacatecas and Sinaloa, with the agricultural sector contributing 31 percent to economic growth in Sinaloa and 27 percent in Zacatecas, but with a share of rural poor to total poor of 65 and 70 percent, respectively. Conversely, the economic and social relevance of the agricultural sector in states like Yucatán or Jalisco is very low. Agricultural production contributes only 3 and 9 percent of the total economic value added in Yucatán and Jalisco, respectively. At the same time, the rural poor constitute less than 20 percent of the total poor in these states. Figure 2.2 shows the economic and social importance of agriculture in different states in Mexico.
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Figure 2.2 Economic and social importance of agriculture in Mexico, by state
Rural poor/total poor 2002
50
40
30
20
10
0
-10
-200 0.2 0.4 0.6
Agriculuture's contributionto growth, 1993-2004, %
Mexico
Agriculture-based
Zacatecas
Queretaro
Sinaloa
Chiapes
Jalisco
YucatanMexico
Puebla
Hidalgo
GuerreroMichoacán
Oaxaca
Urbanized Transforming
DistritoFederal
BajaCalifornia
Durango
0.8 1.0
Source: World Bank 2007.
AGRIBUSINESS SEGMENTATION
The deconstruction of agricultural producers into agribusiness segments is key for defining the objectives of an agricultural insurance strategy. Obtaining a correct understanding of the characteristics of agricultural producers present in each of the geographic areas is a fundamental initial step in the design of an agricultural insurance strategy. An agricultural insurance strategy can have either commercial or social objectives. Agricultural insurance programs with social objectives, or safety nets, aim to assure a minimal level of economic security for all agricultural producers, particularly those involved in predominantly subsistence-based agricultural production activities. These social objectives rely on (contingent) wealth transfer instruments. Market-based agricultural insurance is oriented toward commercial agricultural activities that generate enough profit for the producer to afford to pay insurance premiums. Thus market-based agricultural insurance instruments are only meant for commercially viable farms that may be jeopardized by the occurrence of an insurable loss.3
3 An “insurable loss” is a loss that is accidental, unforeseen, definite in time and place, and measurable.
Agricultural production can be classified into three general categories, namely traditional subsistence farming, semi-commercial farming, and commercial farming. The traditional subsistence farming sector is characterized by a large number of agricultural producers operating small holdings using mainly family labor and limited production technology. Farmers in this sector produce primarily for home consumption and in good seasons may sell their surplus in the market. These agricultural producers rarely borrow from the formal banking sector to invest in their agricultural business activity. Usually, nonfarm income represents a large fraction of the household’s total income. Since traditional subsistence farmers do not perform business-oriented activities, the basic precondition for developing commercial agricultural insurance is missing in this sector. The semi-commercial farming sector includes medium-size holdings that grow at least one commercial crop and derive a significant proportion of their household income from agriculture. Family labor is still predominant, although producers in this sector invest in production technology. The main challenge associated with the provision of agricultural insurance to the semi-commercial farming sector is the high transaction costs relative to the level of liability involved in the provision of relatively small insurance contracts. Standardized index-based insurance products (for example, area-yield insurance, rainfall insurance), offered through cooperatives or rural finance institutions, may be a potential solution to this problem. The commercial farming sector includes medium-size and large, specialized production units that are run on a purely commercial basis. The individual enterprises are commercially viable and have large asset bases. The enterprises use expensive technology that requires intensive capitalization, which is financed by funds borrowed from the formal financial sector. Traditional named-peril and multiple-peril agricultural insurance products are suited to meet the needs of the commercial farming sector for risk transfer.
The predominance of each type of farming sector varies among geographic areas in the region. Traditional subsistence farming systems, although they are distributed throughout the region, are predominant in the high altitudes along the Andean mountains, in the maize-bean production systems in Mexico and in Central America, in northeastern Brazil, in the step valleys in the Andes region of Peru, and in the Amazon basin. Traditional subsistence agricultural producers, although mixed with commercial agricultural producers, can also be found along the northern coastal areas of South America and in Central America and the Caribbean countries. Semi-commercial farming systems are common in the llanos area of Brazil, Colombia, República Bolivariana de Venezuela, and Guyana. They are also present in the southern Andean region of Argentina and Chile, the southern area of Brazil, and the northern area of Uruguay. Other regions with this type of farming include the Chaco region in Argentina, Paraguay, and Bolivia, the coastal areas of Central America, northern South America, and the Caribbean countries. Commercial farming systems are predominant in the irrigated areas of northern and central Mexico, in the irrigated valleys of Peru, Chile, and western Argentina, southeastern and central Brazil, and the coastal zones of central
10 ] Agricultural Insurance in Latin America
Chile. Uruguay and the Pampas area of Argentina also have commercial farming systems. Commercial farming is also present in combination with traditional subsistence and semi-commercial farming in the coastal areas of Central America, the northern coastal areas of South America, and in some Caribbean countries.
The analysis of agricultural farming systems provides a good proxy for the segmentation of agricultural producers in the region. An agricultural production system is defined as a population of individual farms that have broadly similar resource bases, enterprise patterns, household livelihoods, and constraints, for which similar development strategies and interventions would be appropriate. Farming systems are strongly linked to particular types of agricultural producers. Within a certain agricultural farming system, it is usual to find similar types of agricultural producers or, at least, a consistent pattern in the mix of agricultural producers in a particular zone.
Agricultural farming systems in LAC are extremely heterogeneous and complex. Owing to its enormous latitudinal range, varied topography, and rich biodiversity, the LAC region has one of the most diverse and complex ranges of farming systems of any region in the world. The sources of livelihood of the farmers, the type of farmers, and the prevalence of rural poverty vary across the different types of farming systems present in the region. According to the Food and Agriculture Organization and the World Bank (2001), it is possible to find 16 major farming systems in the region (see table 2.1).
Table 2.1 Major farming systems in LAC % of region
Farming system Land area
Rural population Location Principal
livelihoodsPrevalence of
poverty
Irrigated 10 9 Northern and central Mexico as well as coastal and inland valley areas of Peru, Chile, and Argentina
Horticulture, fruit, cattle
Low to moderate
Forest based 30 9 Amazon basin Subsistence and cattle ranching
Low to moderate
Coastal plantation and mixed
9 17 Coastal areas of Central America, Colombia, República Bolivariana de Venezuela, Guyana, and northeastern Brazil
Export crops and tree crops, aquaculture, fishing, tubers, tourism
Low to extensive and severe (highly variable)
Intensive mixed 4 8 Eastern and central Brazil Coffee, horticulture, fruit, off-farm work
Low (except laborers)
Cereal and livestock (campos)
5 6 Southern Brazil and northern Uruguay
Rice, livestock
Low to moderate
Farming system Land area
Rural population Location Principal
livelihoodsPrevalence of
poverty
Moist temperate mixed forest
1 1 Coastal zone of central Chile Dairy, beef, cereals, forestry, aquaculture
Low
Maize-beans(Mesoamerican)
3 10 Coastal zone of Mexico to Panama
Maize, beans, coffee, horticulture, aquaculture
Extensive and severe
Intensive highlands mixed (northern Andes)
2 3 Andean region of Colombia, Ecuador, and República Bolivariana de Venezuela
Vegetables, maize, coffee, cattle and pigs, cereals, potatoes, off-farm work
Low to extensive (especially at high altitudes)
Extensive mixed (cerrados and llanos)
11 9 Central-western Brazil, eastern Colombia, República Bolivariana de Venezuela, and Guyana
Livestock, oilseeds, grains, some coffee
Low to moderate (smallholders)
Temperate mixed (Pampas)
5 6 Central and eastern Argentina and Uruguay
Livestock, wheat, soybean
Low
Dry-land mixed 6 9 Coast of northeastern Brazil and Yucatán peninsula of Mexico
Livestock, maize, cassava, wage labor, seasonal migration
Extensive, especially drought induced
Extensive dry-land mixed (Gran Chaco)
3 2 North-central Argentina, through Paraguay and into eastern Bolivia
Livestock, cotton, subsistence crops
Moderate
High-altitude mixed (central Andes)
6 7 Step valleys in Peru, altiplano region of southern Peru, western Bolivia, northern Chile, and Argentina
Tubers, sheep, grains, llamas, vegetables, off-farm work
Extensive and severe
Pastoral 3 1 Patagonia region, Argentina Sheep, cattle Low to moderate
Sparse (forest) 1 <1 Southern Andes of Argentina and Chile
Sheep, cattle, forestry extraction, aquaculture
Low
Urban based <1 3 Periurban and intraurban agricultural systems of major cities throughout the region
Horticulture, dairy, poultry
Low to moderate
Source: FAO and World Bank 2001.
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RISkS AFFECTING AGRICULTURAL PRODUCTION
Assessing the risks to agricultural production is a key step in developing an agricultural insurance strategy for the region. The proper identification of the risks affecting agricultural production, the assessment of their frequency and intensity, the accurate mapping of such risks for particular agricultural activities, and the use of proper risk-modeling tools to determine the potential probable maximum loss (PML) that these risks may cause to agricultural production are essential if the private insurance sector and governments in the region are to devise suitable agricultural risk management strategies. This section describes the main risks to agricultural production in the region.
The types of risks faced by agricultural producers as well as their frequency and severity vary widely across countries. Agricultural production is exposed to droughts and floods in almost all LAC countries. Loss from hailstorm is an important risk facing producers in Argentina, Uruguay, and southeastern Brazil. Tropical cyclones are particularly damaging to agricultural production in Central America and the Caribbean countries. Tornadoes are frequent in Southern Cone countries. Winter storms are an important risk facing forestry plantations in Uruguay and Chile.
Drought is a devastating peril that affects agricultural production in almost all LAC countries. Seasonal droughts are fairly common in climates that have well-defined annual rainy and dry seasons. The northeastern states of Brazil, the semiarid areas of the Pampas region in Argentina, the southern areas of Chile, and the northern areas of Mexico are likely to experience episodes of seasonal drought. The main trigger for droughts is the occurrence of El Niño-La Niña-Southern Oscillation (ENSO) events. During El Niño events, drier weather conditions are prevalent in northeastern Brazil, the Caribbean, Central America, Ecuador, Colombia, and the República Bolivariana de Venezuela. During La Niña events, drier weather conditions are prevalent in the Argentine Pampas, Uruguay, and southeastern Brazil. The spatial distribution of drought hazard in LAC countries is presented in map 2.1.
Map 2.1 Drought hazards in LAC countries
Drought Hazard
Deciles1st - 4th
5th - 7th
8th - 10th
Source: World Bank 2005.
Flood is a common peril affecting agricultural production in the region. The causes of floods are varied. Whereas in Central America and the Caribbean countries floods are mostly associated with hurricanes and tropical storms, in South America they are mostly associated with El Niño events, which result in higher rainfall in the southern countries. El Niño events occur every three to seven years. The 1997–98 El Niño events were particularly devastating in Peru and Ecuador. The hydrological system in the region also contributes to the risk of flooding. The major drainage divide is far to the west along the crest of the Andes. West of this divide, in the mountainous regions, the slopes of riverbeds are very steep, which, in the event of storms, increases the risk of flash floods, the most dangerous type of floods. In the lower parts of rivers flowing into the Atlantic Ocean, the risk of flooding is very high, especially when there is sedimentation or when river channels are poorly defined. The spatial distribution of flood hazards in LAC countries is presented in map 2.2.
14 ] Agricultural Insurance in Latin America
Map 2.2 Flood hazards in LAC countries
Flood Hazard
Deciles1st - 4th
5th - 7th
8th - 10th
Source: World Bank 2005.
The occurrence of floods, droughts, and tropical storms in the region is influenced by the El Niño-La Niña-Southern Oscillation events. The ENSO refers to periodic (two- to seven-year) anomalies in sea surface temperatures over a large area of the eastern equatorial Pacific Ocean that alter large-scale weather patterns. The warm (El Niño) and cool (La Niña) phases of the ENSO have different effects in different areas of LAC. El Niño events are caused by an anomalous warming of the central equatorial Pacific Ocean. The occurrence of El Niño events results in higher rainfall and above-normal temperatures in Peru, Ecuador, Argentina, Uruguay, the southern regions of Brazil, and the northern regions of Mexico. However, El Niño events also trigger unpredictable droughts in some areas of the region. The occurrence of El Niño events during the northern hemisphere winter causes drier conditions in the northeastern regions of Brazil. The occurrence of El Niño events during the southern hemisphere winter causes drier conditions in Central America, Colombia, and República Bolivariana de Venezuela. El Niño events also cause above-normal storm activity in the Pacific basin and below-normal storm activity in the Atlantic basin during the tropical storm season. La Niña events are caused by an anomalous cooling of the central equatorial Pacific Ocean. During La Niña events, wetter conditions are observed in the northeastern regions of Brazil, Guyana, Suriname, Colombia, and República Bolivariana de Venezuela, while drier and cooler conditions are observed in Argentina, Uruguay, and the southern regions of Brazil, Peru, and Ecuador. La Niña events are also characterized by high tropical storm activity in the Caribbean basin and lower than normal tropical storm activity in the Pacific basin. Maps 2.3 and 2.4 summarize the anomalies observed in the region during El Niño and La Niña events, respectively.
Map 2.3 Anomalies during El Niño events
Anomalies during El NiñoWeatherconditions
wetterdriercoolerwarmer
fewer stormsmore storms
activityTropical cyclone
Source: Munich Re Group 2009.
Map 2.4 Anomalies during La Niña events
Anomalies during La NiñaWeatherconditions
wetterdriercoolerwarmer
fewer stormsmore storms
activityTropical cyclone
Source: Munich Re Group 2009.
Hailstorms are frequent in the Southern Cone countries, along the Andes Mountains of South America, Central America, and northwestern Mexico. Hail is particularly damaging for agricultural crop production. Almost all of the area devoted to crop production in Argentina (the main production area for cereals, oilseeds, and fruits), the whole territory of Uruguay, and southeastern Brazil (the production area for fruits and winter crops) are highly exposed to hailstorms. Hail is also a common phenomenon in the step valleys along the Andes Mountains and in Central America and Mexico. Also exposed to hailstorms, but less so, are southern Chile, northeastern Argentina, and southwestern and central Brazil. The distribution of hailstorms in the region is presented in map 2.5.
16 ] Agricultural Insurance in Latin America
Map 2.5 Hailstorm hazards in LAC countries
HailstormsFrequency and Intensityof hailstorms
Zone 1: lowZone 2:Zone 3:Zone 4:Zone 5:Zone 6: high
Source: Munich Re Group 2009.
Tornadoes affecting agricultural production are common in certain geographic areas in the region (for example, the Southern Cone countries, eastern Mexico, and Baja California peninsula in Mexico). Although the damage caused by tornadoes in agricultural production is localized, it can be significant. Multimillion-dollar losses in forestry production due to tornado damage have been claimed against the insurance industry in Argentina, Brazil, and Chile. In particular, northeastern Argentina, eastern Paraguay, Uruguay, and southern Brazil are heavily exposed to tornadoes. The distribution of tornadoes in LAC countries is shown in map 2.6.
Map 2.6 Tornado hazards in LAC countries
TornadoesHazard
Zone 1: low
Zone 2:
Zone 3:
Zone 4: high
Source: Munich Re Group 2009.
Winter storms are common in Uruguay and in the southern coasts of Argentina and Chile. Winter storms are a frequent cause of losses for aquaculture production in Chile. Winter storms cause the loss of cages and entire off-shore aquaculture farms and cause huge losses due to the escape of biomass (fish stock). Winter storms may also cause severe damage to forestry production. Damage due to winter storms is common in forestry production in Uruguay during the months of July and August. The distribution of winter storms in the LAC region is shown in map 2.7.
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Map 2.7 Winter storm hazards in LAC countries
Extratropical stormsPeak wind speeds*
Zone0:≤80km/hZone 1: 81-120 km/hZone 2: 121-160 km/hZone 3: 161-200 km/hZone 4: >200 km/h
Source: Munich Re Group 2009.
Tropical cyclones have a devastating effect on agricultural production in Mexico, Central America, and the Caribbean countries. The Caribbean countries are in the pathway of the North Atlantic and Caribbean tropical cyclone system; every year they experience a high number of tropical storms and hurricanes. Mexico and Central America are in the pathway of both West Atlantic and East Pacific tropical cyclones. According to the U.S. National Hurricane Center database, 1,419 tropical storms originating in the Atlantic Ocean were recorded between 1851 and 2009, while 911 tropical storms originating in the Pacific Ocean were recorded between 1949 and 2009. Hurricane activity is influenced by El Niño and La Niña events. During El Niño events, hurricane activity is higher in the East Pacific than in the North Atlantic, and there is evidence that the formation of tropical depressions off the coast of West Africa is lower in El Niño years. Conversely, during La Niña years, hurricane activity tends to be enhanced in the Atlantic region, while tropical cyclone activity tends to be lower in the East Pacific. Hurricane Mitch—a category 5 hurricane according to the Saffir Simpson hurricane wind scale—was one of the most powerful and destructive of all Atlantic hurricanes for agricultural production. This hurricane mostly affected Nicaragua, Guatemala, Honduras, and Yucatán peninsula in Mexico between October and November 1998. The hurricane reached winds of 290 kilometers per hour and a minimum storm pressure of 906 barometric pressure. The longevity of the hurricane (14.5 days) explains why it was so destructive. The hazard map for tropical cyclones in LAC countries is presented in map 2.8.
Map 2.8 Earthquake and tropical cyclone hazards in LAC countries
Earthquakes
Tropical cyclonesPeak wind speads*
Zone 0: MM V and balowZone 1: MM VIZone 2: MM VIIZone 3: MM VIIIZone 4: MM IX and above
Zone 0: 78-141 km/hZone 1: 142-184 km/hZone 2: 185-212 km/hZone 3: 213-251 km/hZone 4: 252-299 km/hZone5:≥300km/h
Typical track directions
Change in tropical cyclone activity
Threat of see level rise
Increase in droughts
Probable maximun intensity(MM: Modified Mercalli scale) withan exceedance probability of 10%in 50 years (equivalent to a "return period" of 475 years) for medium subsoil conditions
* Probable maximun intensitywith an exceedance probability of 10% in 10 years (equivalent to a "return period" of 100 years).
Source: Munich Re Group 2009.
Earthquakes, although frequent in the region, do not cause severe direct losses to agricultural production. Earthquakes cause damage to infrastructure, rather than direct losses to agricultural production. Nevertheless, damage to infrastructure might cause severe losses in agriculture. For instance, a broken dam as a result of an earthquake can flood an entire valley. The collapse of a drainage and irrigation system can cause losses to crops due to the lack of irrigation water or deficient drainage. The LAC region lies above five tectonic plates and is prone to intense seismic activity. Seismicity is concentrated along the South American Andes, the Caribbean islands, Central America, and western Mexico. According to historical catalogues, about 3,000 earthquakes with a magnitude greater than 5.0 were recorded in South America between 1900 and 1981, and 120 were recorded in Central America, the Caribbean, and Mexico between 1900 and 1979. The largest earthquake ever recorded in the Americas occurred in southern Chile in 1960, measuring 8.5 on the Richter scale. Several earthquakes with magnitudes greater than 8 were recorded during the last 100 years along the coasts of Ecuador (1906), Chile (1906, 1922, 1943, 1960, and 2010), and Peru (1940, 1942, 1966, 1974, and 2007). The January 2010 earthquake in Haiti produced relatively minimal losses in the agricultural sector (approximately 2 percent of total losses), although agriculture represents 30 percent of total GDP of the country. Map 2.8 shows the spatial distribution of earthquake hazards in LAC countries.
Tidal waves caused by tsunamis threaten agricultural production in the coastal areas of the Pacific coast and the Caribbean region. Tsunamis, though infrequent, can cause severe losses to aquaculture, forestry, and crop production. The salmon industry
20 ] Agricultural Insurance in Latin America
in Chile has a huge exposure to tsunamis. Chilean salmon production, which is the largest in the world, is located in an area that is highly exposed to tsunamis. The low-lying agricultural areas of the Caribbean region (for example, Guyana and Suriname) also face the risk of saline intrusion after a tsunami. Out of the 405 tsunamis recorded between 1900 and 1983, 61 originated on the Pacific coast of Latin America. Following the 1960 Chilean earthquake, a tsunami caused 200 fatalities in the coastal area. More recent episodes include tsunamis in Nicaragua (1992), Peru (1996), and Chile (2010).
Volcanic activity is also a source of risk for agricultural production in LAC. Latin America has 250 historically active volcanoes and witnessed 1,300 volcanic eruptions in the last 10,000 years. Chile has the largest number of historically active volcanoes in the region, followed by Ecuador. In Central America and Mexico, 36 active volcanoes are produced by the subduction4 of the Pacific oceanic crust beneath the North American and Caribbean plates. Although the effect of volcanic eruption on agricultural production is not well studied, volcanic ashes can damage crops, aquaculture, and livestock production. For instance, in 1990, the eruption of the Hudson volcano located on the border of Argentina and Chile had devastating effects on livestock production in the Patagonia area of Argentina. In 1979 following the eruption of Mount Sufriere, banana production on the island of St. Vincent was badly affected by volcanic ash.
AGRICULTURAL RISk MANAGEMENT IN LAC
Identifying the risk management strategies implemented by agricultural producers and governments is a critical step in the design of a cost-effective agricultural insurance strategy. Agricultural insurance deals with the residual risks that cannot be mitigated with cost-effective risk management measures implemented by agricultural producers and governments. Recognizing the type and effectiveness of risk management measures implemented by these parties is a key to designing suitable agricultural insurance programs.
Agricultural production is characterized by highly volatile production outcomes. Unlike most other entrepreneurs, agricultural producers cannot predict with certainty the amount of output that the productive process will yield due to the occurrence of perils such as weather, pests, and diseases. Adverse events occurring during harvesting or collecting the crop may result in lost production.
4 Subduction is the process that takes place at convergent boundaries when one tectonic plate moves under another tectonic plate, sinking into the earth's mantle as the plates converge. http://en.wikipedia.org/wiki/Subduction.
Table 2.2 Risk management strategies and mechanisms
Strategy Informal mechanismsFormal mechanisms
Market based Publicly provided
Ex ante strategiesOn farm Efforts to avoid exposure
to risk, crop diversification, income diversification, buffering of crop stocks, adoption of advanced cropping techniques
Agricultural extension, pest management, infrastructure
Risk sharing Crop sharing, informal risk pool
Contract farming, insurance, price hedging
Ex post strategies: risk coping
Sales of assets, relocation of labor, mutual aid
Credit Social insurance, social funds, cash transfer
Source: Anderson 2001; Townsend 2005.
Agricultural producers and governments in LAC have devised risk management strategies to deal with the risks facing agricultural production. These strategies can be divided into two categories: informal and formal strategies. Informal strategies are identified as “arrangements that involve individuals or households or such groups as communities or villages,” while formal arrangements are “market-based activities and publicly provided mechanisms.” The formal and informal risk management strategies can be divided, in turn, into ex ante and ex post strategies. The ex ante or ex post classification focuses on the point in time in which the reaction to risk takes place: prior to the occurrence of the potentially harmful event (ex ante) or after the event has occurred (ex post). Among the ex ante reactions, it is also useful to highlight the differences between on-farm strategies and risk-sharing strategies (Anderson 2001). Table 2.2 summarizes the main types of risk management strategies that are present in the LAC region.
The types of agricultural risk management mechanisms implemented by agricultural producers in LAC vary by country. Countries where financial markets are underdeveloped rely heavily on government post-disaster aid. For instance, in most of the Caribbean countries, Bolivia, and Nicaragua, producers rely almost exclusively on government post-disaster assistance and informal risk management mechanisms. In LAC countries with more sophisticated financial markets (such as Brazil and Mexico), agricultural insurance complements government post-disaster assistance.
The management of agricultural production risks relies on an optimal combination of technical and financial tools. The risk-layering concept is useful for analyzing the optimal combination of technical and financial risk management tools in agriculture. Farmers and herders can retain small but recurrent losses through appropriate on-farm risk mitigation techniques (for example, irrigation and pest prevention) and self-insurance tools
22 ] Agricultural Insurance in Latin America
(for example, savings and contingent credit). More severe but less frequent nonsystemic losses can be pooled into cooperative or mutual insurance schemes. Cooperative or mutual insurance schemes are popular in Mexico to insure various perils and in Argentina, Uruguay, and the state of Rio Grande do Sul in Brazil to insure fire and hail risks. However, the relatively severe and frequent systemic losses (drought, flood, windstorm, and freeze) that cannot be managed, either through on-farm risk management mechanisms or through a cooperative or mutual insurance scheme, need to be transferred to commercial insurers and reinsurers (including either local or, which is more common, international commercial reinsurers). Finally, governments may have a major role to play in the event of a major disaster, acting as a reinsurer of last resort or providing post-disaster aid. Figure 2.3 summarizes the agricultural risk-layering concept.
Figure 2.3 Agricultural risk layering
Size of the loss
Type of event:Minor Small Medium Large Catastrophic
Risk transfer
Risk pooling
Risk retentions
Government
Reinsurers
Insurancecompanies
Cooperativesans mutuals
Agriculturalproducers
Source: Mahul and Stutley 2010.
RURAL FINANCE IN LATIN AMERICA
Assessing the access of the agricultural sector to rural finance is important in designing an agricultural insurance strategy. Agricultural insurance and rural finance are intrinsically linked. Experience shows that the demand for agricultural insurance is usually low or even nonexistent where formal credit is not available for agriculture. In contrast, agricultural producers who borrow from formal financial institutions have more incentives to purchase agricultural insurance, either because the banks require their loans to be protected against climatic risks or because these products allow them to access credit at better terms.
Agricultural producers in LAC use different sources of finance for investments in agricultural production. The main source of formal credit for those farmers who can meet lending conditions are the commercial banks or national rural and agricultural development banks. In addition, input suppliers and grain traders provide crop production credit in many LAC countries. If the agricultural producers do not qualify for formal credit, some get finance from microfinance institutions (MFIs) or family remittances. Their decision about which source of financing to use depends on the availability of different sources, their ability to qualify for rural credit, and the terms and conditions of the credit.
The penetration of rural credit in LAC is very low. On average, only 8 percent of the total credit lent by the financial system in the region during 2004–05 was to the agricultural sector (Trivelli and Venero 2007). With the exception of Paraguay and Nicaragua, the ratio of agricultural credit to total credit is always lower than the contribution of the agricultural sector to the economy. Figure 2.4 compares the ratio of agricultural sector GDP to total GDP and the ratio of agricultural sector loans to total loans.
24 ] Agricultural Insurance in Latin America
Figure 2.4 Ratio of agricultural sector GDP to total GDP and agricultural sector loans to total loans
ParaguayNicaraguaHonduras
BoliviaGuatemalaArgentina
BrazilEcuador
Costa RicaChile
ColombiaDominican Republic
Panamá El Salvador
PeruMéxico
0% 5% 10% 15% 20% 25% 30%
Agriculture GDP / GDP
Agricultural Credit / Total Credit
Agriculture Sector's to the Country GDP and Loans to the Agriculture Sector related to total Loans
Source: Trivelli and Venero 2007.
Development financial institutions (DFIs) are the main source of financing for the agricultural sector.5 Currently, 32 DFIs are managing US$23 billion of total credits to the agricultural sector in LAC (34 percent of total agricultural lending in the region). Several heterogeneities in the share of DFIs to total agricultural lending are evident, For instance, the DFI share of total agricultural lending is above 60 percent in Uruguay, but below 5 percent in Peru. Figure 2.5 shows the share of DFI lending to total agricultural credit.
5 Development financial institutions are institutions that carry on any activity, whether for profit or otherwise, with or with-out government funding, with the purpose of promoting development in the industrial, agricultural, commercial, or other economic sector, including the provision of capital or other credit facility.
Figure 2.5 Development financial institution share of total agricultural credit
PeruHonduras
Venezuela, R.BNicaraguaParaguay
GuatemalaChile
PanamáEcuadorMéxicoBolivia
El SalvadorArgentina
Dominican RepublicBrazil
ColombiaCosta Rica
Uruguay
0% 10% 20% 30% 40% 50% 70%60%
Development Financial Institutions share on agriculturak credit
Source: Trivelli and Venero 2007.
Commercial credit is an important source of rural finance in the commodity net-exporting countries in the region. Input suppliers and traders have an active role in financing the rural sector in Brazil, Argentina, Paraguay, and Bolivia. Brazilian farmers obtain up to 40 percent of their agricultural financing needs from the traders who purchase their harvest. Commodity trading companies like Archer Daniels Midland and Cargill are important players, financing commercial soybean farmers in Brazil, Paraguay, and Bolivia. Since the financial crisis in Argentina, bank credit has been substituted by innovative financial solutions such as the use of warrants, fiduciary funds, and equity funds.
Microfinance institutions are still not a major source of finance for agriculture in the region. MFI activities have been growing rapidly in LAC during the last decade. The MFI credit portfolio in LAC grew from US$4.4 billion in 2006 to US$6.3 billion in 2007. However, only a few MFIs have been successful in lending to the rural sector. Despite the lower than expected expansion of their rural portfolios in the region, MFIs—in general—have been growing faster than other financial institutions, particularly in countries where the share of the rural population is high. In nine countries where the microfinance sector is highly developed, rural credit accounts for only 37 percent of the total credit portfolio; however, only 20.6 percent of the MFI total credit portfolio is agricultural credit. Figure 2.6 shows the volume in U.S. dollars of MFI lending to the rural population in select LAC countries in 2007.
26 ] Agricultural Insurance in Latin America
Figure 2.6 MFI lending to the rural population in select countries of LAC, 2007
Peru
Honduras
Nicaragua
Guatemala
Panamá
Ecuador
Bolivia
El Salvador
Costa Rica
0 50 100 150 200 250
MFIs lending to rural population in select countries of LAC
US$ millons
Source: Soto Baquero 2009.
Access to agricultural finance depends on the farmers’ characteristics. Commercial farmers are financed mostly through financial institutions and commercial credit. Commercial banks satisfy approximately 70 percent of commercial farmers’ credit needs. In addition to commercial banks, commercial farmers have arrangements in place to get finance from traders, industry, exporters, and private investors. Semi-commercial or emerging commercial farmers who are integrated into supply chains are financed mainly through commercial credit provided by supermarkets, agro-industry, exporters, input suppliers, or other supply chain agents. Cooperatives and MFIs also have an important role in financing these types of farmers in some countries. The main source of financing for traditional subsistence farmers is informal credit. Several studies document that only 15 to 20 percent of these farmers or households have access to formal credit; thus more than 80 percent of the farmers or households belonging to this group use informal channels in order to get finance (Soto Baquero 2009). Traditional subsistence farmers who are living in extreme poverty have, for the most part, no access to formal credit and rely almost exclusively on public sector support and sources of nonfarm income.
3. Status of agricultural insurance
Agricultural insurance has a long history in some countries in the Latin American and Caribbean (LAC) region. The origins of agricultural insurance in Latin America can be traced back to the late nineteenth century in Argentina, where the first foray into agricultural insurance was undertaken by the Sociedad Cooperativa de Seguros Agrícolas y Anexos Ltda. (called El Progreso Agrícola). This cooperative was founded in 1898 by French settlers with the main objective of creating a mutual fund to protect their crops against hail. Cooperatives and mutuals providing crop insurance for hail spread over Argentina and Uruguay in the late nineteenth century and early twentieth century. Immigration from Europe to countries like Argentina, Uruguay, and southern Brazil helped to develop agricultural insurance in the Southern Cone region. European immigrants brought the cooperative and insurance culture with them from their homelands.
Agricultural insurance was provided in many LAC countries by public sector insurance companies from the 1950s up to the end of the 1980s. In this period, public sector MPCI (multi-peril crop insurance; see box 3.1 for further information) proliferated in Latin America, often linked to small-farmer seasonal production credit programs (for example, Mexico, Costa Rica, República Bolivariana de Venezuela, Ecuador, and Brazil). Most of these public sector programs performed very poorly, with high operating costs and very high loss ratios, which were exacerbated by very low premium rates and poor management.
Most public sector programs were terminated by 1990 on account of their poor results. Table 3.1 presents an analysis of the performance in the 1980s of major public sector MPCI programs in LAC, conducted by Hazell, Pomareda, and Valdes (1992). The results show “producer” combined ratios of between 2.80 for Costa Rica and 4.57 for Brazil. In other words, for every US$1 in premiums, net of subsidies, collected from the producer, the indemnity payouts and administrative costs in these programs amounted to between US$2.80 and US$4.57. A “producer” combined ratio greater than 1.0 indicates that a program, in the absence of any type of government support, would operate at an underwriting loss.
28 ] Agricultural Insurance in Latin America
Table 3.1 Financial performance of public sector MPCI in select LAC countries
Country PeriodLP (ratio of losses
to gross net premium income)
A/P (ratio of administrative
cost to gross net premium income)
(L+A)/P (ratio of losses +
administrative cost to gross net premium income)
Brazil (Proagro) 1975–81 4.29 0.28 4.57Costa Rica 1970–89 2.26 0.54 2.80
Mexico (Anagsa) 1980–89 3.18 0.47 3.65
Source: Hazell, Pomareda, and Valdes 1992.
The provision of agricultural insurance through the private sector and public-private partnerships is the current trend in the region. Since the 1990s, governments have promoted agricultural insurance through private commercial insurers, often backed by government financial support, commonly referred to as public-private partnerships (PPPs). In Latin America, new private commercial agricultural insurance was introduced in Ecuador, Brazil, Paraguay, Peru, and Chile during the last decade. Some governments, such as those in Mexico and Peru, are in the process of replacing ad hoc natural disaster compensation programs with ex ante formal crop and livestock insurance programs implemented by the private insurance sector and promoted and supported by government through the provision of premium subsidies or reinsurance protection. Others, however, continue to provide public sector disaster relief (particularly to small and medium enterprises) in addition to subsidized crop insurance (for example, Brazil and Mexico).
Agricultural insurance is available in most LAC countries. Agricultural insurance is offered in 18 (72 percent) of 25 countries with an agricultural base within the region. Four groups of countries can be distinguished according to their experience with agricultural insurance. Argentina, Uruguay, and Mexico are the first group, owing to their extensive experience in agricultural insurance. The second group of countries—Chile, the Windward Islands, Brazil, Colombia, Panama, Ecuador, Cuba, and República Bolivariana de Venezuela—have some experience in agricultural insurance. A third group comprises countries that have started their agricultural insurance programs in recent years. This group includes the Dominican Republic, Peru, Paraguay, and most of the Central American countries. The last group consists of countries where agricultural insurance is not currently available, including Belize, Guyana, Suriname, Haiti, Jamaica, and most of the Caribbean Islands.
The insurance industry is very active in marketing agricultural insurance products in LAC. Agricultural insurance products are being offered by more than 75 companies in the region (see figure 3.1). The number of insurance companies offering agricultural insurance products varies from country to country. Argentina, with more than 27 insurance companies offering agricultural insurance, is the market leader. A second group comprises Brazil and Mexico, with six and five insurance companies offering agricultural insurance, respectively.
A third group comprises Uruguay, Paraguay, and Chile, each with four insurance companies offering agricultural insurance. The fourth group comprises the República Bolivariana de Venezuela, Panama, and Honduras, each with three insurance companies offering agricultural insurance. A fifth group consists of Peru, Nicaragua, El Salvador, Colombia, Ecuador, and Bolivia, each with two insurance companies offering agricultural insurance products. The last group of countries—Costa Rica, the Dominican Republic, Guatemala, and the West Indies—has a single insurance company offering agricultural insurance in each country.
Figure 3.1 Insurance companies offering agricultural insurance in LAC
ArgentinaBrazil
MexicoUruguayParaguay
ChileVenezuela
PanamaHonduras
PeruNicaragua
El SalvadorBolivia
EcuadorColombia
West IndiesGuatemala
Dominican Rep.Costa Rica
0 5 10 15 20 25 30
Number of insurance companies offering agricultural insurance
Source: Authors.
SIzE OF AGRICULTURAL INSURANCE MARkETS AND PREMIUM vOLUMES IN LAC
Agricultural insurance in LAC is relatively well developed in comparison with other regions such as Africa and many Asian countries. Total direct agricultural insurance premiums written in LAC during 2009 amounted to US$780 million. The region accounts for 4.0 percent of the total agricultural insurance premiums written worldwide, behind the United States and Canada (accounting for 55.0 percent), Europe (20.1 percent), and Asia (19.5 percent). Map 3.1 shows the regional distribution of agricultural insurance premiums and the position of LAC countries in the global picture.
30 ] Agricultural Insurance in Latin America
Map 3.1 Regional distribution of agricultural insurance direct premiums
USA & CanadaUS$ 10,700 Million (55.0%)
EuropeUS$ 3,900 Million (20.1%)
AsiaUS$ 3,800 Million (19.5%)
AfricaUS$ 90 Million (0.5%)
Latin AmericaUS$ 780 Million (4.0%)
OceanaUS$ 170 Million (0.9%)
Source: Authors’ compilation from data provided by Swiss Re, Hannover Re, Novae Re, and Mahul and Stutley 2010.
Agricultural insurance premiums in the region have been growing exponentially in recent years. Direct premiums written for this type of insurance have grown rapidly—from US$311 million in 2003 to an estimated US$780 million in 2009—an increase of more than 250 percent. The increase in total direct premiums is consistent with the global trend. Global direct agricultural insurance premiums grew 220 percent, from US$8.9 billion in 2005 to an estimated US$19.4 billion in 2009. Three main factors have contributed to this growth. The first is the increase in the underlying value of agricultural production, which has been translated directly into higher sum insured values and larger volume of premiums. The second is the increase in the value of agricultural assets, which has also increased the sensitivity of participants in the agricultural value chain to loss and raised their demand for insurance. The third factor is the development of new markets for agricultural insurance and the increase of public sector support, both of which have contributed to an increase in demand and supply. Figure 3.2 shows the evolution of agricultural insurance direct premiums worldwide and in the LAC region for the period from 2005 up to and including 2009.
Figure 3.2 Agricultural insurance direct premiums written, 2005–09
800
700
600
500
400
300
200
100
0
25
20
15
10
5
0
Agricultural Insurance Direct Premiums
Prem
ium
s LA
C (
US$
mill
ion
s)
LAC
2005 2006 2007 2008 2009
Global
Glo
bal
Pre
miu
ms
(US$
bill
ion
s)
Source: Authors’ compilation from data provided by Swiss Re, Hannover Re, and Mahul and Stutley 2010.
Agricultural insurance premiums are distributed unevenly among the different agricultural insurance business sublines in the region. Individual-farmer MPCI and named-peril insurance—accounting for almost 76 percent of total premiums written in 2009—are the most developed business sublines of agricultural insurance in the region. Crop and livestock catastrophic insurance—a special business subline of agricultural insurance, which is usually provided by governments—is next, accounting for 13.6 percent of the total agricultural insurance premiums. Livestock insurance accounts for 5 percent of the total volume of premiums; aquaculture and forestry insurance account for 2.9 and 2.6 percent, respectively. Bloodstock and greenhouse insurance are less well-developed business sublines. The distribution of agricultural insurance premiums per business subline is shown in figure 3.3 for 2009.
32 ] Agricultural Insurance in Latin America
Figure 3.3 Distribution of agricultural insurance premiums per business subline in LAC, 2009
Agricultural Insurance premium distribution per subline of insurance(2009 figures)
Livestock,catastrophic
2.0%
Aquaculture2.9%
Forestry2.6%
Greenhouses0.0%
Crop, MPCI39.4%
Crop, MPCI,catastrophic
11.6%
Crop, named-peril
36.4%
Livestock5.0%
Source: Authors’ compilation from data provided by Swiss Re, Hannover Re, and Mahul and Stutley 2010.
Agricultural insurance premiums are distributed unevenly among countries of the region. The three largest agricultural markets (Brazil, Argentina, and Mexico) are also the largest agricultural insurance markets, accounting for 85 percent of total premiums written in the region in 2009. Chile, Paraguay, and Uruguay together account for 10 percent of total premiums written. The remaining 5 percent is distributed among the Andean countries (3 percent), Central American countries (1.4 percent), and the Caribbean countries (0.6 percent). Map 3.2 shows the distribution of the volume of premiums among the LAC countries. In relative terms, agricultural crop, livestock, forestry, and aquaculture insurance were very poorly developed in the Caribbean Islands in 2009.
AvAILABILITy OF AGRICULTURAL INSURANCE PRODUCTS
The supply of agricultural insurance products in the LAC region is relatively evolved in comparison with other regions. The insurance market is very innovative in developing products to meet the demand. This section describes the main types of agricultural insurance products offered. For a detailed description of the main features of products in each LAC country where agricultural insurance is established, see the annex to this report.
Map 3.2 Distribution of agricultural insurance direct premiums in LAC
US$ 222 Million
US$ 1 Million
US$ 1.8 MillionUS$ 0.2 Million
US$ 0.05 Million
US$ 0.5 MillionUS$ 4.5 Million
US$ 1.25 Million
US$ 7.5 Million
US$ 0.90 Million
US$ 3.4 Million
US$ 0.4 Million
US$ 255 MillionUS$ 13.6 Million
US$ 0.02 Million
US$ 9.5 Million
US$ 43.2 MillionUS$ 188 Million US$ 24.5 Million
Source: Authors’ compilation from data provided by Swiss Re, Hannover Re, and Mahul and Stutley 2010.
Crop insurance products
Crop insurance is the most developed agricultural insurance business subline in LAC. Crop insurance accounted for 84 percent of the agricultural insurance premiums written in the region in 2009. Crop insurance products can be classified into three major groups: (a) traditional indemnity-based crop insurance products, (b) index-based crop insurance products, and (c) crop revenue insurance products. Key features of these three product lines are summarized in box 3.1.
34 ] Agricultural Insurance in Latin America
Box 3.1 Crop insurance products: Indemnity-based and index-based covers
Traditional indemnity-based crop insurance products
Damage-based indemnity insurance (named-peril crop insurance). Damage-based indemnity insurance is crop insurance where the insurance claim is calculated by measuring the percentage damage in the field, soon after the damage occurs. The percentage damage measured in the field, less a deductible expressed as a percentage, is applied to the agreed sum insured. The sum insured may be based on production costs or on expected crop revenue. Where damage cannot be measured accurately immediately after the loss, the assessment may be deferred until later in the crop season. Damage-based indemnity insurance is best known for hail, but is also used for other named perils (such as frost, excessive rainfall, and wind).
Yield-based crop insurance (MPCI). Yield-based crop insurance is insurance where an insured yield (such as tons per hectare) is established as a percentage of the historical average yield of the insured farmer. The insured yield is typically between 50 and 70 percent of the average yield on the farm. If the realized yield is less than the insured yield, an indemnity is paid equal to the difference between the actual yield and the insured yield, multiplied by an agreed value of sum insured per unit of yield. Yield-based crop insurance typically protects against multiple perils, meaning that it covers many different causes of yield loss.
Index-based crop insurance
Area-yield index insurance. With area-yield index insurance, the indemnity is based on the realized (harvested) average yield of an area such as a county or district. The insured yield is established as a percentage of the average yield for the area and typically ranges from 50 percent to a maximum of 90 percent of the average yield for the area. An indemnity is paid if the realized average yield for the area is less than the insured yield regardless of the actual yield on a policyholder’s farm. This type of index insurance requires historical data on area yield as a basis for establishing the normal average yield and the insured yield.
Weather index insurance. Weather index insurance is insurance where the indemnity is based on realizations of a specific weather parameter measured over a specified period of time at a particular weather station. The insurance can be structured to protect against index realizations that are either so high or so low that they are expected to cause crop losses. For example, the insurance can be structured to protect against either too much or too little rainfall. An indemnity is paid whenever the realized value of the index exceeds a specified threshold (for example, when protecting against too much rainfall) or when the index is less than the threshold (for example, when protecting against too little rainfall). The indemnity is calculated based on an agreed sum insured per unit of the index (for example, U.S. dollars per millimeter of rainfall).
Crop revenue insurance
Under crop revenue insurance, the insurer guarantees the policyholder a certain level of revenue to be obtained from the insured crop. This insurance coverage protects the policyholder from eventual shortfalls in the yield of insured crops and also from adverse movements in their price. Under crop revenue insurance, the guaranteed yield can be determined, either as a percentage of the producer’s past production or as a percentage of the average yield of the region where the insured farm is located. The guaranteed price can be either the future market price for the crop for the month of harvest or the strike price of a base price option. If the actual revenue received by the producer, which is given by the product of the actual yield and the spot market price at the time of harvest, is less than the guaranteed amount, the insurer will pay the difference.
Source: Authors.
Indemnity-based crop insurance products
The main feature of indemnity-based crop insurance products is that payouts are based on the actual loss incurred by the policyholder. Traditional indemnity-based insurance products include (a) damage-based indemnity policies, which include, in their simplest form, single-peril hail insurance and named-peril crop insurance, and (b) loss-of-yield indemnity policies, including MPCI cover for a yield shortfall.
Yield-based MPCI is the most common type of crop insurance marketed in the LAC region. Yield-based MPCI products accounted for 39.4 percent of total agricultural insurance premiums written in the LAC region in 2009. With the exception of Nicaragua and the Windward Islands, yield-based MPCI products are offered in all countries in the region where agricultural insurance is available. Brazil and Mexico are among the countries where MPCI has reached the most advanced levels of development. The area insured under MPCI is approximately 6.4 million and 1.9 million hectares for Brazil and Mexico, respectively. Other countries with relatively high development of MPCI are Chile, República Bolivariana de Venezuela, Panama, and Paraguay. MPCI has yet to be adopted widely in many Central American countries. In Argentina and Uruguay yield-based MPCI is not popular among farmers, and this insurance product is purchased almost exclusively by big agribusiness firms, usually on an aggregate basis for all the crops and locations in which they have interests.
Aggregate yield-shortfall MPCI is specifically designed to be tailored at the meso level or macro level. An interesting variation of yield-based MPCI policies that is quite popular in some LAC countries is the aggregate yield-shortfall MPCI policy known in Spanish as seguro catastrófico con ajuste de rendimientos. Aggregate yield-shortfall MPCI policies are purchased by state or local governments to get funding to assist farmers, in case one or more events severely affect crop production in the region where they occur. Aggregate yield-shortfall MPCI policies share a feature with area-yield index-based insurance in that the insured unit is a geographic area rather than the individual farm. However, aggregate yield-shortfall MPCI policies are not considered index insurance because they involve in-field loss adjustment (on a sampling basis) in order to determine the eventual yield shortfalls. Aggregate yield-shortfall MPCI policies are popular in Mexico, where approximately 8 million hectares of crops are insured under this modality. In Peru almost 100 percent of the total insured area in the country (approximately 500,000 hectares) is insured under aggregate yield-shortfall MPCI policies. Colombia has recently implemented an aggregate yield-shortfall MPCI scheme to protect banana production in the Department of Quindio.
Global portfolio MPCI is designed specifically for well-diversified large-size agribusiness firms. Global portfolio MPCI has the same principles and operation as the traditional yield-based MPCI coverage. However, global MPCI coverage has several particular
36 ] Agricultural Insurance in Latin America
features. First, the insured unit in a global MPCI portfolio, rather than being defined for crop and location, as traditional yield-based MPCI, covers all the crops and locations where the insured has an interest. Second, global portfolio MPCI, rather than insuring individual crop yields, insures a monetary amount usually linked to the investment cost incurred by the insured in the locations and crops in which it has an interest. Third, the indemnity condition is defined as the revenue obtained by the insured (value at agreed prices for each insured crop at the inception of the insurance policy) from all the crops and locations defined in the insured unit falling short of the insured monetary amount. Fourth, if the indemnity condition applies, the insured receives from the insurance company an indemnity equal to the amount by which the actual revenue obtained on the insured unit falls short of the insured monetary amount. The main advantage of the global portfolio MPCI is that it recognizes the risk diversification of agricultural producers. The main drawback is that it is resource intensive for insurers, which have to perform income appraisals in the insured units. The insured units in a global portfolio MPCI usually comprise several locations (in some cases more than 50 locations) distributed throughout a country. The producer’s income is determined by the aggregate yields of the insured crops in numerous locations. The insurer indemnifies the insured for the shortfall in aggregate income and must visit, if not all, a representative number of locations to estimate the yields. Owing to the resources that insurance companies have to deploy in order to manage global portfolio MPCI, the transaction costs involved in its operation are high. For this reason, insurance companies tend to offer global portfolio MPCI exclusively to large operations that involve large-scale and well-diversified agribusiness firms. Global portfolio MPCI is very popular among firms in Argentina, Uruguay, Paraguay, and Brazil.
Individual-grower named-peril damage-based crop insurance is the second most popular type of crop insurance in the region. Named-peril crop insurance products accounted for 36.4 percent of total agricultural insurance premiums written in the region in 2009. This type of crop insurance policy adopts a percentage damage basis of insurance and indemnity and is marketed mainly in Argentina, Uruguay, and southern Brazil, where, owing to the temperate climate, agricultural production faces appreciable hail and frost exposures, which are suited to named-peril insurance. In these countries, the insurance industry has a long tradition of offering individual-grower named-peril crop insurance for annual crops (mainly wheat, barley, soybeans, maize, and sunflower) and fruit production. Hail insurance is the main type of agricultural insurance in Argentina and Uruguay, accounting for more than 95 percent of total written premiums; in southern Brazil, it is the main type of insurance for fruit production, where it accounts for approximately one-third of total premiums written in Rio Grande do Sul, Santa Catarina, Paraná, and São Paulo states. The basic and most popular coverage within individual-grower named-peril crop insurance is hail plus fire. In addition to basic coverage, other perils such as freeze, excess rain, and excess wind are also offered on a select basis, depending on the insured crop and the location of the farm.
Index-based crop insurance products
Index-based crop insurance products are promising for LAC. Rather than basing payouts on actual crop losses suffered by the insured as consequence of an event (or events) covered under the insurance contract, index-based crop insurance products base payouts on the measurements of an underlying variable selected as an index during a certain period of time under certain agreed preconditions. Crop index insurance includes three main types of product: area-yield index insurance, crop weather index insurance, and NDVI (normalized dry vegetative index)/satellite index insurance, which has been applied to pasture in a few countries.
Index-based crop insurance is not a new product in LAC. The introduction of index-based crop insurance in Latin America dates back to the late 1990s. Area-yield index-based crop insurance for the main annual crops in the Pampas region and weather index crop insurance to cover frost in the production of apples and pears were introduced in Argentina in the late 1990s. Both programs were discontinued in the early 2000s due to lack of demand. Almost simultaneous with the introduction of index-based insurance in Argentina, area-yield index-based crop insurance was introduced in Brazil to protect maize farmers in the southern state of Rio Grande do Sul. This program was renewed until 2009 and subsequently discontinued.
Since 2000, several attempts have been made to introduce weather index-based crop insurance products in the LAC region.6 Unfortunately, most of these attempts never came to fruition, and most of the policies written were discontinued after a few renewals. Currently there are few examples of index-based crop insurance in the region, and most of them have not reached sufficient volumes. The only example of successful implementation of weather index-based insurance is in Mexico, where it has been written to protect a government catastrophic fund to assist farmers affected by natural calamities (Program to Assist Climatologic Contingencies, PACC, formerly known as the Fund for Agricultural Calamities, FAPRAC) since 2003. In addition to the introduction of weather index-based crop insurance, an NDVI crop insurance scheme was introduced in 2006. As of 2009, approximately 2.3 million hectares were insured under the weather index-based crop insurance program, and 3.5 million livestock equivalent units were insured under the NDVI insurance program in Mexico.
6 Argentina (2003 and 2005), Chile (2003), Uruguay (2003), Bolivia (2006 and 2007), Peru (2005 and 2008), Nicaragua (2005), and Mexico (2003 and 2006).
38 ] Agricultural Insurance in Latin America
Crop revenue insurance products
Crop revenue insurance represents the most recent innovation in agricultural insurance. This insurance coverage protects the policyholder from shortfalls in yield of the insured crop (MPCI) and also from adverse movements in the price of the insured crop. Currently, no crop revenue insurance programs are in place in the region. However, the industry is undertaking several activities in the field of product research and development for this type of coverage in Argentina and Mexico. According to consultations with the insurance and reinsurance industry, the main challenge facing the implementation of crop revenue insurance in LAC is the lack of local commodity futures markets with enough open interest for the forward positions that would have to be taken by the insurance industry to implement this type of product.
Livestock insurance products
Livestock insurance is a very small segment of the market in LAC. Livestock insurance provides products to cover horses, mares, colts, fillies, and foals; bulls, cows, and heifers; swine; sheep; goats; dogs; and occasionally wild animals. The market accounted for 7 percent of total agricultural insurance premiums written in LAC during 2009. There are three basic types of livestock insurance products: (a) traditional animal accident and mortality cover; (b) epidemic disease cover; and (c) livestock index mortality products (see box 3.2).
Box 3.2 Types of livestock insurance products
Traditional livestock insurance
Named-peril accident and mortality insurance for individual animals is the basic traditional product for insuring livestock. The cover includes death against natural perils such as fire, flood, lightning, and electrocution, but normally excludes diseases and specifically epidemic diseases. Premiums are set based on normal mortality rates within the permitted age range, plus risk and administrative margins, and are generally quite expensive. Furthermore, mortality is, to a considerable extent, influenced by management, and the product suffers from adverse selection by the highest-risk farmers. Herd insurance is a variation on individual animal mortality cover for larger herds. A deductible is introduced, where a certain number of animals, or a percentage of the total number of animals, must be lost before an indemnity is paid.
All-risk mortality insurance including diseases is provided in some countries to large commercial farms that can demonstrate high levels of animal husbandry and control over animal diseases. Such covers are normally offered for high-value bloodstock or for herd insurance.
Epidemic disease insurance is offered in only a few countries, notably Germany. Insurance of government-ordered slaughter or quarantine is normally excluded. Epidemic disease insurance carries major and infrequent exposure to catastrophic claims necessitating a high reliance on reinsurance for risk transfer. Due to the difficulties of modeling the spread of epidemic disease and financial exposures, it is difficult to develop this type of insurance and to obtain support from international reinsurers.
Index livestock insurance
Area-yield index insurance for livestock has been applied for mortality risk in Mongolia (under an area-mortality index scheme), where livestock losses are highly correlated with an extreme weather event (dzud) for which a weather index could not be built (combination of low temperature, dry conditions, snowfall, and so forth).
NDVI and satellite insurance are constructed using time-series remote-sensing imagery—for example, applications of false color infrared waveband to pasture index insurance—where the payout is based on a normalized dry vegetative index that relates moisture deficit to pasture degradation.
Source: Authors.
Livestock insurance is offered by the private insurance industry in several countries of the region. Named-peril accident and mortality insurance is available in Argentina, Uruguay, Brazil, Peru, Ecuador, Colombia, República Bolivariana de Venezuela, Panama, Costa Rica, Honduras, El Salvador, Guatemala, and Mexico. In some of these countries, basic accident and mortality coverage is complemented with coverage for specific diseases, theft, inland transportation, and acts of terrorism on a very limited basis. The supply of insurance coverage for epidemic diseases is very limited. Epidemic disease insurance provides coverage only in excess of the livestock health prevention plans sold in the country. So far the regional experience with epidemic disease insurance is limited to Mexico and Argentina. Mexico used to have classical swine fever (CSF) livestock insurance coverage, which was purchased for 9.1 million head of swine. The CSF policy indemnified against mortality and compulsory slaughter ordered by the Ministry of Agriculture in the event of a CSF outbreak. The policy
40 ] Agricultural Insurance in Latin America
was only offered in states that were declared free of CSF. In Argentina, the National Service of Animal Health (SENASA) used to have an insurance program that covered this institution against the cost it would have to assume as a result of ordering the compulsory slaughter of cattle due to the occurrence of an outbreak of foot and mouth disease.
Aquaculture insurance products
Aquaculture insurance, including off-shore marine and on-shore freshwater aquaculture insurance for fish stock, crustaceans, and shellfish, is an important business subline of agricultural insurance in some countries of the region. Aquaculture insurance premiums accounted for 2.9 percent of total agricultural insurance premiums written in the region in 2009. Aquaculture insurance is offered in Mexico, Chile, Brazil, Colombia, Peru, Ecuador, Panama, Costa Rica, and Honduras. The main markets for aquaculture insurance are Chile and Mexico. Aquaculture insurance has been offered in Chile since the mid-1990s, accompanying the boom of the salmon industry, which is dominated by medium to extremely large multinational companies with investments in fish farming worth hundreds of millions of U.S. dollars. Aquaculture insurance policies in Chile provide very broad named-peril cover against the loss of installations (fish cages and nets), equipment, and fish stock. Insured perils include storms, tidal waves, strong currents, red tides (algae), diseases, attacks by predators, and theft, among others. For several years Mexico has operated an integrated loss-of-investment-cost policy with final adjustment according to harvested yield for shrimp and tilapia production. The Mexican policy provides comprehensive protection against loss of biomass due to climatic risks, biological risks (diseases), and risks related to environmental contamination and chemical pollution.
Forestry insurance products
Forestry insurance provides traditional named-peril indemnity insurance against fire and allied perils affecting standing timber production. Forestry insurance products are targeted at commercial forestry plantations. The product is not available in the market for noncommercial forestry, and natural forestry is covered on a very restricted basis. Typical perils covered under forestry and standing timber policies are fire, civil commotion, riot, and allied perils including wind, flood, volcanic eruption, avalanche, frost, snow, and tsunami. In a few countries, such as Brazil, forestry insurance also covers drought, hail, and heat wave. The valuation of standing timber for insurance purposes is often based on the investment and maintenance costs up to the point where the trees can be harvested for timber, following which the valuation is based on the commercial value of the standing timber. Due to problems arising from moral hazard issues, coverage is subject to the application of insurance deductibles per event, which are normally equivalent to 10 percent of the loss subject to a minimum monetary amount on each and every loss. Owing to issues
arising from risk accumulation, forestry insurance policies typically carry limits on first-loss annual aggregate indemnity.7
Forestry insurance is a well-developed agricultural insurance business subline in the Southern Cone countries. Forestry insurance, which accounts for 2.9 percent of the total agricultural insurance premiums in LAC, is available in Chile, Uruguay, Argentina, Brazil, Costa Rica, Mexico, Ecuador, and Colombia. In Chile and Uruguay more than 80 percent of the commercial forest area is insured. Brazil and Argentina have significant potential to develop this business subline.
Bloodstock insurance products
Bloodstock insurance is an agricultural insurance business subline that provides cover for high-value animals, mainly horses. Bloodstock insurance is a minor agricultural insurance business subline in the region, accounting for less than 1 percent of agricultural premiums written. The main markets for bloodstock insurance are Brazil and Mexico, but coverage is also offered in Argentina, Uruguay, Chile, Ecuador, Colombia, and República Bolivariana de Venezuela. Under a bloodstock insurance policy, the animals are insured either on an individual basis or collectively, such as a stable of horses. The insured events include mortality, disability, infertility, medical treatment, and surgery. The sum insured is based on the market value of the animal. The market value is determined by the prizes that the animal has won or the present value of the future prizes that it could potentially win. Any matter that adversely affects the animal’s capacity to win prizes will affect its market value and can result in excess insurance. To deal with the potential source of moral hazard, it is common practice among bloodstock insurers to insure high-value animals for only a portion of their market value. The geographic distribution of the availability of agricultural insurance products in each of the LAC countries is represented in the map 3.3.
7 Indemnity limit is a contract provision used in insurance to limit the amount that can be paid in the policy period. An ag-gregate limit is the maximum dollar amount an insurer will pay to settle claims. Often the limit is referred to as an annual aggregate limit, which is the total amount the insurer will pay in a single year.
42 ] Agricultural Insurance in Latin America
Map 3.3 Agricultural insurance products in LAC
Named-Peril Crop Insurance
Multiple-Peril Crop Insurance (MPCI)
Livestock Insurance
Aquaculture Insurance
Forestry Insurance
Weather Index-based Crop Insurance
NDvI Index-based Insurance
Area-yield Index-based Crop Insurance
Source: Authors.
MODELS AND CHANNELS OF DELIvERy
The most traditional channel for delivering agricultural insurance to farmers in the region consists of insurance brokers. Insurance companies rely on insurance brokers because they usually do not have a network in the countryside for marketing agricultural insurance. In some countries such as Argentina, Chile, Mexico, and Brazil insurance brokers have reached a high degree of specialization in delivering agricultural insurance. In countries like Argentina, a single specialized agricultural insurance broker can manage portfolios of up to US$15 million in premiums. In Chile, insurance brokers have reached high degrees of specialization in forestry and aquaculture insurance. Sales agents are also an important
delivery channel, in particular, when agricultural insurance is provided by cooperatives or state-owned insurance companies, which usually have a well-established branch network of sales agents in the countryside. The delivery of agricultural insurance through financial institutions is also very important in some countries of the region. In Brazil, Alliança do Brasil—an insurance company linked to Banco do Brasil—has the single largest agricultural insurance portfolio in LAC (approximately US$150 million in premiums), which is linked to rural credit and is delivered to farmers solely through Banco do Brasil branches.
COST OF AGRICULTURAL INSURANCE PROvISION IN LAC
The provision of agricultural insurance in LAC countries is expensive in comparison with other regions. According to a sample of 11 LAC countries extracted from the survey performed by Mahul and Stutley (2010), average total expenses incurred by the insurance sector in the provision of agricultural insurance in LAC in 2007 accounted for approximately 29 percent of the total original gross agricultural insurance premiums. The total expenses for the provision of agricultural insurance in LAC are estimated to be 11 percent higher than average expenses in other regions for the same year: 26 percent of the original gross agricultural insurance premiums. Total expenses for the provision of agricultural insurance can be divided into three categories: marketing and acquisition costs (including commissions paid to agents and brokers); insurers’ administrative and operating (A&O) expenses; and, where appropriate, the expense load added to cover loss adjustment expenses (LAE). In LAC countries A&O expenses are divided as follows: 8.4 percent for marketing and acquisition costs; 12.4 percent for administration; and 8 percent for LAE. Average expenses of about 25 percent of the original gross premiums for agricultural insurance are not considered excessive, and these conform to the ceding commission levels that reinsurers are usually prepared to grant on quota share treaty business. Figure 3.4 summarizes the costs of providing agricultural insurance in 11 LAC countries in 2007.
44 ] Agricultural Insurance in Latin America
Figure 3.4 Crop insurance acquisition expenses, A&O expenses, and LAE in LAC countries, 2007
Costa RicaChile
EcuadorVenezuela, RB
AverageMexico
Dominican RepublicNicaraguaArgentinaHonduras
BrazilWindward Islands
0% 10% 20% 30% 40% 50% 60%
Percentage of the original gross premiums
Total Expenses prior to Taxes as % of OGP
Source: Mahul and Stutley 2010.
AGRICULTURAL REINSURANCE IN LAC
Agriculture reinsurers play an active role in LAC agricultural insurance markets. Approximately 65 percent of the total direct written premiums for agricultural insurance in the region are ceded to the reinsurance market. The agricultural reinsurance market is dominated by a small group of reinsurers, which have units that specialize in agricultural reinsurance. Munich Re, Swiss Re, Hannover Re, SCOR, Aspen Re, Mapfre Re, Partner Re, XL Re, and some Lloyd’s syndicates (among others, Catlin Re and Novae Re) participate actively in reinsuring agricultural business. Public sector reinsurers play a very important role in the provision of agricultural reinsurance in some LAC countries, such as in Brazil (Brazilian Reinsurance Institute) and Mexico (Agroasemex).
Agricultural risks in the region are ceded to reinsurers using different types of reinsurance agreements and different forms of reinsurance cession. The most common agreement for agricultural reinsurance in the region, accounting for 85 percent of the ceded premium, is the automatic reinsurance treaties.8 Facultative agreements9—accounting for 15 percent of total premiums—are also popular, in particular, for start-
8 Automatic reinsurance is an automatic reinsurance treaty specifying that the ceding company is contractually obligated to cede risks to a reinsurer on specified blocks of policies where the risks meet the ceding company’s underwriting criteria and provisions of the reinsurance agreement.
9 Facultative reinsurance is optional (not a contractual obligation) and allows a reinsurer the opportunity to analyze and separately underwrite a risk before agreeing to accept it.
up operations or in the reinsurance of aquaculture and forestry insurance. Quota share reinsurance cessions10 and stop-loss reinsurance protections,11 accounting for more than 95 percent of total agricultural reinsurance cessions, are the most common forms of reinsurance. For aquaculture and forestry reinsurance, surplus share cessions and catastrophic excess-of-loss protections are common.
The magnitude of agricultural reinsurance cessions varies from country to country. The level of agricultural insurance cessions to the reinsurance market in any particular country depends on the type of agricultural risks written and the financial strength of the insurance market. The types of agricultural risks written by the insurance companies have a great influence on their reinsurance strategy. Agricultural insurance portfolios that are exposed to systemic risks show higher cession rates than those that are exposed to non systemic risk. For instance, in countries such as Brazil or Paraguay, where agricultural insurance portfolios are composed mainly of MPCI policies, reinsurance cessions for agricultural insurance can be as high as 80 percent. In other countries, such as Argentina and Uruguay, where the main agricultural peril written by the insurance companies is hail, levels of reinsurance cessions are below 50 percent. The market level of expertise in agricultural insurance also has a huge influence on the reinsurance strategies of insurance companies. The financial strength of the local insurance market has a significant influence on the level of agricultural insurance risk cessions to reinsurance. In countries where the insurance market is relatively weak, the use of insurance fronting is a common practice;12 however, agricultural reinsurers are reluctant to provide reinsurance capacity to fronting insurance companies and do so only for very particular cases and under facultative agreements where they can control the underwriting and loss adjustment process.
Reinsurance capacity, as long as the insurance proposals are technically sound, is widely available in the LAC region. Crop hail and named-peril crop insurance programs have adequate reinsurance capacity because this business is not subject to catastrophic losses. On the contrary, since the reinsurers are trying hard to reinsure crop hail named-peril portfolios and insurance companies want to retain more of this type of business, the market enjoys overcapacity, which is reflected in the high commissions that reinsurers have to pay to get named-peril quota share treaties. Accessing reinsurance capacity is not as simple for MPCI business, although it is available, as it is for crop hail named-peril business. Many international reinsurers operating in LAC are averse to underwriting MPCI for individual growers because
10 Quota share reinsurance is an agreement whereby the ceding company is bound to cede and the reinsurer is bound to ac-cept a fixed proportion of every risk accepted by the ceding company. The reinsurer shares proportionally in all losses and receives the same proportion of all premiums as the insurer, less commission.
11 Stop-loss reinsurance protection is a non proportional type of reinsurance, where the reinsurer agrees to pay the reinsured for losses that exceed a specified limit, arising from any risk or any one event.
12 In insurance fronting, a local insurer typically insures the risk in its own name and then reinsures anything up to 100 percent of its liability with a reinsurance company. The contract remains with the local insurer, although, in practice, the settlement of claims is controlled by the reinsurers.
46 ] Agricultural Insurance in Latin America
the exposure to systemic risks, such as drought and flood, can accumulate over wide regions, resulting in catastrophic losses. The reinsurers writing MPCI business in the region are deeply involved in defining the terms and conditions of coverage and the conditions for rating, underwriting procedures, loss adjustment, and risk accumulation controls. In order to access reinsurance capacity for MPCI, an insurance company must meet, at least, the following conditions: (a) have a minimum net retention, which is usually not less than 10 percent of total liability; (b) have an in-house agricultural insurance underwriter with a professional background in agriculture sciences and proven experience in agricultural insurance; and (c) have well-defined criteria for MPCI underwriting and loss adjustment, including the corresponding procedural manuals. Accessing basic animal mortality reinsurance capacity in LAC is not a serious issue for the insurance companies. However, if reinsurance capacity is needed for nontraditional livestock coverage such as diseases, theft, terrorism, or epidemic diseases, the lack of reinsurance capacity to cover such perils may be a serious issue. Access to reinsurance capacity for aquaculture and livestock, although available, is very limited and subject to strict terms and conditions.
The role of agricultural reinsurers in the region is not limited to providing reinsurance capacity for insurance companies. In the context of the agricultural insurance market in Latin America, the reinsurance industry requires services that go beyond the provision of financial capacity. Reinsurers involved in agricultural reinsurance in the region usually assist insurance companies by providing advisory services in risk assessment, risk modeling, pricing, and risk structuring as well as in the design of loss adjustment and operational manuals, risk rating and risk accumulation control software, and the wording of insurance contracts.
PUBLIC SECTOR SUPPORT TO AGRICULTURAL INSURANCE IN LAC
The public sector has an active role in supporting agricultural insurance in the region. In most of the LAC countries in which agricultural insurance products are available, there is some form of public sector support for agricultural insurance. Out of the 18 countries where agricultural insurance is currently available, 16 (89 percent of the total) have some form of public sector support for agricultural insurance, including government-financed premium subsidies. In 2009 the fiscal cost of support—government premium subsidies and government purchase of catastrophic coverage—amounted to US$326 million, accounting for 42 percent of the total agricultural insurance premiums written that year. Brazil and Mexico have the highest levels of public sector support. Total government expenditures on support for agricultural insurance in these two countries amounted to US$294 million, accounting
for 90 percent of total central government expenditures on support for agricultural insurance in LAC.
The reasons for public sector involvement in agricultural insurance markets are varied. In this regard, the public sector often justifies its intervention in agricultural insurance by pointing to (a) the absence of insurance infrastructure in rural areas and the absence of private sector agricultural insurance services; (b) the prohibitively high start-up costs in developing agricultural insurance products; (c) the constraints on the capacity of reinsurance to underwrite the systemic risk in agricultural production; (d) the high administrative costs of underwriting agricultural insurance; and (e) farmers’ affordability issues, which arise out of the often high costs of agricultural insurance premiums.
The range of institutional models for the provision of agricultural insurance is wide in LAC countries. The pure market-based model, under which private sector commercial insurers, normally backed by private reinsurers, compete for underwriting agricultural insurance with low or no assistance from government, is observed in Argentina, Uruguay, Paraguay, and República Bolivariana de Venezuela. Different forms of public-private partnership arrangements for the provision of agricultural insurance are observed in the LAC region. A comprehensive PPP model for agricultural insurance is an arrangement under which the private sector commercial insurers have to comply with strict criteria in the design of insurance policies and rating in order to qualify for public sector support. In most of the agricultural insurance PPPs implemented in the LAC region, the public sector supports agricultural insurance policies based on nonstandardized rating and loss adjustment criteria. In Chile a national entity, the Comité de Seguro Agrícola (COMSA), is in charge of approving the insurance policies and the rates eligible for government-subsidized agricultural insurance premiums. Fully intervened models, under which a national or parastatal insurance company has the monopoly or a special regulatory framework exists for the provision of agricultural insurance, have almost disappeared from the region. Notwithstanding, national or parastatal insurance companies provide agricultural insurance in several countries (Nicaragua, Uruguay, Costa Rica, Panama, and the Dominican Republic); these insurance companies are providing agricultural insurance under the same conditions as private insurance companies. The only fully intervened models in the region, although they are pseudo-insurance programs, are PROAGRO (Brazilian Guarantee Program) and SEAF (Insurance for Family Agriculture) in Brazil. Box 3.3 presents a simplified representation of the various models for the provision of agricultural insurance.
48 ] Agricultural Insurance in Latin America
Box 3.3 Models of government support to agricultural insurance
LEV
EL O
F G
OV
ERN
MEN
T IN
TERV
ENTI
ON
NUMBER OF PLAYERS & PRODUCT DIVERSIFICATION
Public–PrivatePartnership
FullyIntervened
System
Pure MarketBased
Normally High Penetration (compulsory) Well Diversified Portfolios Social over Technical criteria Monopoly. Issues with the service Government assumes full liability High Fiscal Cost
High Penetration Well Diversified Portfolios Technical over commercial criteria Competition for service Government adds stability to the system Private Sector adds know how Reasonable Fiscal Cost
Low to moderate penetration Low risk diversification Commercial over technical criteria Competition for price No fiscal cost
Source: Iturrioz 2009.
The public sector mechanisms to support the development of agricultural insurance vary among the LAC countries. The type of public sector support for agricultural insurance adopted across the region depends on the objectives for the agricultural sector, the type of risks faced in agricultural production, the type of farmers, the degree of development of the local insurance industry, and the fiscal constraints of the country. Basically, five main mechanisms of public sector support for agricultural insurance are present in LAC countries: (a) funding of premium subsidies, enabling the policy and regulatory framework for the development of agricultural insurance, (b) research and development of agricultural insurance products, (c) provision of agricultural insurance and reinsurance, (d) direct purchase of agricultural insurance by governments, and (e) the setup of specific agricultural insurance programs targeted to small and marginal farmers. These mechanisms are not mutually exclusive, and several countries have introduced a combination of them. Map 3.4 shows a synoptic representation of the current status of government support.
Map 3.4 Current status of government support for agricultural insurance in LAC
US$ 145Million
US$ 4 Million
US$1.3 Million
US$163Million
US$ 5.4 Million
US$ 2.3 Million
US$ 13.5 Million
US$ 3.5 Million
US$ 5 Million
US$ 2 Million
Note: Figures include Federal Government support and State/Provincia Government Support
Research & Development
Legal & Regulatory Framework
Premium subsidies and insurance
Public sector participation as reinsurer
Source: Authors.
Public sector agricultural insurance technical support units are present in several LAC countries. Technical support units promote and assist the development of agricultural insurance markets. They perform diverse activities, such as gathering the basic information needed to develop agricultural insurance, assessing the risks for different agricultural activities in different areas of the country, developing products to assist farmers and the industry in risk management, and developing agricultural insurance products (such as crop and/or weather risk maps). They are also involved in gathering and processing information, conducting agricultural risk assessments, developing agricultural insurance products, and creating farmer awareness education and training. Public sector technical support units are
50 ] Agricultural Insurance in Latin America
established in Uruguay, Argentina, Chile, Brazil, Paraguay, Peru, Ecuador, Panama, Nicaragua, Honduras, Mexico, and the Dominican Republic.
Premium subsidies are a common mechanism used by the public sector in the LAC region to support the development of agricultural insurance. Brazil, Mexico, Chile, Peru, Colombia, Costa Rica, Ecuador, and the Dominican Republic have agricultural insurance premium subsidies in place, albeit with different levels of support. Argentina and Uruguay provide premium subsidies for specific crop insurance programs. Several countries, including Brazil and Chile, cap the amount of premium subsidies that any one farmer can receive. This measure is designed to prevent large farmers from capturing a disproportionate share of the budget for premium subsidies available each year. Other countries, such as Costa Rica, offer higher premium subsidies to small and marginal farmers than to larger farmers. The total amount of agricultural insurance premium subsidies in LAC, including subsidies provided by local state governments, amounted to US$228 million in 2009, accounting for 29.4 percent of total direct premiums written. The premium subsidies are not distributed evenly across the various types of products. While crop insurance receives more than 92 percent of total premium subsidies in LAC, livestock insurance receives only 7 percent. The participation of other business sublines of agricultural insurance in total subsidies is minimal. Only a few countries (Brazil, Mexico, and Peru) subsidize livestock insurance, while only Brazil subsidizes forestry insurance.
The public sector in many LAC countries has an active role in enabling the legal and regulatory framework to promote agricultural insurance. With the exception of Bolivia and the Windward Islands, none of the LAC countries has enacted a specific law for agricultural insurance. However, many LAC countries have enacted specific laws directed toward creating mechanisms and supporting agricultural insurance. These countries include Chile, Colombia, Panama, Mexico, Costa Rica, Nicaragua, and the Dominican Republic.
Direct intervention of the public sector in the provision of agricultural insurance is rare in LAC. The provision of agricultural insurance through state-owned insurance companies is observed only in Uruguay, Panama, Costa Rica, Nicaragua, and the Dominican Republic (the latter is a joint venture with the private sector). With the exception of AGRODOSA (Aseguradora Agropecuaria Dominicana) in the Dominican Republic, an institution that was created exclusively for the provision of agricultural insurance, most of the public sector insurance companies in LAC do not exclusively provide agricultural insurance. The trend is that public sector direct interventions in agricultural insurance markets are disappearing. Currently, the state-owned insurance and reinsurance companies in the region compete on equal terms and are subject to the same legal framework as the privately owned insurance and reinsurance companies.
Public sector participation in the reinsurance of agricultural insurance portfolios is rare in the region. Public sector participation in reinsuring agricultural insurance portfolios is observed in Mexico, Costa Rica, and Brazil. In Mexico the public sector provides agricultural reinsurance through Agroasemex, the state-owned insurance and reinsurance company. The role of Agroasemex has changed over time. Originally active in the provision of agricultural insurance, Agroasemex now provides reinsurance for private insurance companies, the small farmer mutual crop and livestock insurance schemes (fondos de aseguramiento rural), and the state governments under the PACC program, which involves a series of macro- or state-level parametric and nonparametric insurance schemes as well as the development of new agricultural insurance products. In Brazil, until 2007, the Brazilian Reinsurance Institute (IRB) had monopoly control over all reinsurance in Brazil; it provided quota share protection to local insurers and retroceded the greater share to specialist international reinsurers. Finally, in Costa Rica, INS (Instituto Nacional de Seguros, the public insurance company) used to have private reinsurance, but is currently not being reinsured, and thus the public sector acts as reinsurer of last resort.
The creation of PPPs for the provision of risk financing for catastrophic agricultural risk is a new trend in the region. The Brazilian government has just enacted a law creating the Fundo de Catastrofe Rural (FCR). The FCR is a public-private partnership that includes the government of Brazil, the private insurance sector, local and international reinsurers, agro-industries, and cooperatives. Its objective is to create mechanisms to cap the potential losses faced by insurers due to their agricultural insurance portfolio. This measure aims to increase the confidence of the insurance and reinsurance industries and encourage them to write agricultural business in risky geographic areas and for risky crops not included in their agricultural insurance portfolios. The FCR’s budget is estimated initially at US$2.3 billion.
The public sector has an important role in purchasing agricultural insurance to transfer catastrophic agricultural risks from traditional subsistence and semi-commercial agricultural producers to external markets. Several state governments in the region used to purchase macro- or state-level insurance coverage—catastrophic agricultural insurance (seguro agropecuario catastrófico)—in order to use the insurance payouts to assist small and marginal farmers affected by catastrophic events. Catastrophic agricultural insurance is offered as both a traditional and an indexed agricultural insurance product. Currently, more than 8.5 million hectares and 4.5 million animal units13 in the region are insured under catastrophic insurance policies purchased by governments. Total direct agricultural insurance premiums due to catastrophic insurance amount to US$111 million (14.2 percent of total direct agricultural insurance premiums in the region).
13 Animal units are as follows: 1 cattle unit = 1 equine unit, 5 ovine units, 6 goat units, 4 swine units, 100 poultry units, or 5 hive units.
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Subnational governments have an active role in purchasing agricultural insurance in Mexico, Peru, Argentina, and Colombia. Mexico is leading the way in implementing macro-level market-based insurance in the region. Catastrophic insurance coverage has been offered to state governments since 2003. The federal and state governments assume the cost of catastrophic agricultural insurance. In risk-prone areas, the federal government bears 90 percent of the cost of the premium, while the state government bears 10 percent. In medium- or low-risk areas, the federal government bears 70 percent of the cost of the premium, while the state government bears the remaining 30 percent. In 2009 the government of Mexico, through the Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (SAGARPA), spent US$96.9 million on purchasing catastrophic agricultural insurance to assist small and marginal farmers in the country. In Peru, macro-level catastrophic crop insurance products are implemented in five departments. The government of Peru is spending approximately S/.40 million (Peruvian nuevo soles, US$13.6 million) annually on catastrophic crop insurance products to assist small and semi-commercial farmers. Colombia is in the initial stages of developing catastrophic crop insurance products for banana producers in Quindio Department. The government of Mendoza Province in Argentina, which is situated in a hail risk-prone area, has been purchasing named-peril hail crop insurance since 2004 in an effort to substitute ex post ad hoc disaster relief assistance to fruit and vineyard farmers with an ex ante and objective financial mechanism to transfer hail risk. The main features of this program are summarized in box 3.4.
Box 3.4 Named-peril hail crop insurance program in Mendoza Province, Argentina
Type: Catastrophic named-peril crop insurance with nondeductible franchise of 50 percent of the loss
Insured perils: Hail and late seasonal frost
Insured crops: (a) hail: vineyards, olive, fruits, and vegetables; (b) frost: only vegetables in crop areas smaller than 10 hectares
Sum insured: US$480 per hectare for farms up to 5 hectares and a decreasing sum insured per hectare after that, according to an area stratification scale
Premiums: US$4.5 million paid in full by the provincial government
Loss ratio: 70 percent
Insurers: Coinsurance pool comprising six insurance companies
Beneficiaries: 16,205 farmers
Insured area: 240,000 hectares
Other features of the program: Private insurers offer optional additional coverage to individual farmers on a voluntary basis. This additional coverage tops up the basic protection provided by the government.
The insurance program complements risk management measures implemented by the government of Mendoza, such as the Active Hail Defense Program (hailstorm monitoring systems and hailstorm combat systems) and credit lines to finance the purchase of hail nets.
Source: Authors’ compilation from Ochiuzzi 2010.
Some countries in the region have developed special agricultural insurance programs targeting small and marginal farmers. Such is the case of Chile, Argentina, Brazil, and Mexico. In Chile, the Small Farmer Lending Bank (INDAP) has developed an online crop insurance system in conjunction with the insurance sector that permits any recipient of credit for seasonal crop production to be covered automatically under the small farmer insurance facility. In Peru, the government is supporting a program called Agro Protégé, which is targeted at small and marginal farmers. In Argentina, several agricultural insurance schemes, such as the hail insurance program implemented in Mendoza Province and the MPCI program for cotton farmers implemented by Chaco Province, were developed by state governments with assistance from the federal government in order to help small farmers to manage risk. In Mexico, Agroasemex has for nearly two decades been associated with the fondos (crop and livestock mutual insurance funds). In Brazil the federal government has two special pseudo-crop insurance programs for small and marginal farmers: PROAGRO and SEAF (see box 3.5).
54 ] Agricultural Insurance in Latin America
Box 3.5 SEAF crop-credit insurance guarantee program of the federal government of Brazil
SEAF is a compulsory crop-credit insurance program of the federal government for smallholder farmers who access seasonal production credit from PRONAF (the National Program for the Strengthening of Family Agriculture, Programa Nacional de Fortalecimento da Agricultura Familiar).
Nature of cover: Automatic cover for beneficiaries of PRONAF seasonal credit
Type of policy: Multi-peril yield-shortfall policy, which indemnifies growers by the amount that actual crop revenue falls short of the sum insured (see below for definition of sum insured)
Insured crops: A wide range of crops identified under the agricultural zoning program (zoneamento agricola), including rain-fed and irrigated cereals, legumes, oilseeds, fiber crops, root crops (cassava), grapes, and tree fruits (40 crops)
Insured perils: Drought, excess rain, frost, hail, excess variation in temperatures, strong winds, cold winds, crop pests, and diseases that cannot be controlled either technically or economically
Basis of sum insured: The sum insured is based on the amount of seasonal production credit loaned to the farmer, plus the interest due on the principal, plus up to 65 percent of the estimated net revenue of the crop, subject to a maximum of US$3,000 per farmer per year. The estimated gross and net revenue is determined by the bank and the crop inspector at the time of policy issuance.
Beneficiaries: 2.8 million farmers
Premium rate: 2 percent fixed rate paid by the insured for each insured crop
Premium subsidy: Government pays a 75 percent premium subsidy on the SEAF program.
Basis of indemnity: Losses must exceed 30 percent of the expected gross revenue for the crop in order to qualify for indemnity.
Estimated premiums: US$427 million (US$95 million paid by the farmers; US$332 million paid by SEAF)
Reinsurance: The program is not reinsured. All the liabilities arising out of the program are retained by the government of Brazil.
Source: Authors’ compilation from information provided by the Ministerio de Desenvolvimento Agrario do Brasil 2010; Mahul and Stutley 2010.
The public sector has increased its support for agricultural insurance in the region during recent years. Total government expenditures toward supporting agricultural insurance in the region have increased from US$33 million in 2003 to US$326 million in 2009. Several governments have assumed an active role in supporting agricultural insurance. While in 2003, public sector expenditures in supporting agricultural insurance accounted for 12 percent of total agricultural insurance premiums, in 2009 they accounted for 44 percent. Brazil and Mexico have been leading this process. For instance, agricultural insurance premium subsidies were introduced in Brazil in 2005 and increased from US$1.7 million in 2005 to approximately US$163 million in 2009.14 The situation is similar in Mexico, where the government has increased its budget for the purchase of catastrophic agricultural insurance coverage from US$18.1 million in 2007 to US$96.9 million in 2009.
14 Including state agricultural insurance premium subsidies.
The exponential growth of agricultural insurance premiums in the region is explained largely by the increase in public sector expenditures to support this type of risk transfer product. The coefficient of regression (R2) between total public sector expenditures in agricultural insurance and direct agricultural insurance at the regional level is 0.97, which is extremely high. While direct agricultural insurance premiums in the region grew 285 percent, from US$272 million in 2004 to US$780 million in 2009, during the same period public sector expenditures in agricultural insurance grew 991 percent, from US$33 million in 2004 to US$339 in 2009. Private sector expenditures in agricultural insurance grew only 185 percent during the same period, from US$239.5 million in 2004 to US$438 in 2009.
The challenge for LAC countries is sustaining the current levels of government support for agricultural insurance. As noted, LAC agricultural insurance markets have been growing in recent years, fueled mainly by public sector support, both through agricultural insurance premium subsidies and also through the direct purchase of catastrophic agricultural insurance for small farmers. Governments in the region have been able, so far, to afford the current levels of financial support for agricultural insurance. However, the question is whether they will be able to sustain that level of support if the agricultural insurance market continues to grow at the current rate. Figure 3.5 shows the evolution of total agricultural insurance premiums and total government expenditures to support agricultural insurance in the region.
Figure 3.5 Premiums and fiscal expenditures on agricultural insurance in LAC, 2004–09
Private Sector
Premium Subsidies
Catastrophic Insurance Premiums
Public Sector/Premiums
800
700
600
500
400
300
200
100
0
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%2004 2005 2006 2007 2008 2009
LAC countries: Evolution of Agricultural Insurance Premiums and Fiscal expenditures in Agricultural Insurance (US$ millions)
Source: Authors.
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AGRICULTURAL INSURANCE PENETRATION IN LAC
Agricultural insurance has reached reasonable penetration rates in the region. Currently, approximately 29 million hectares of crops (17 percent of the total crop area) are insured under crop insurance policies, 2.3 million hectares of commercial forest (19 percent of the total commercially forested area) are insured under forestry insurance policies, and 350,000 tons of aquaculture biomass (28 percent of the total aquaculture biomass) are insured under aquaculture insurance. Livestock insurance lags behind, with only 4.5 million head of cattle insured out of a population of almost 400 million.
The LAC region, however, still lags, on average, behind other regions in the development of agricultural insurance. In 2009 agricultural insurance premiums accounted for only 0.37 percent of agricultural GDP in LAC, which is considerably lower than in many other regions of the world. For instance, in the United States and Canada, agricultural insurance premiums account for almost 6 percent of total agricultural GDP. In European countries, they account for almost 1 percent of total agricultural GDP. In Asia, agricultural insurance premiums account for 0.47 percent of agricultural GDP. Africa, with 0.079 percent of agricultural GDP, is the only region where the penetration of agricultural insurance is lower than in the LAC region.
The penetration of agricultural insurance is not homogeneous among LAC countries. Uruguay, where named-peril crop insurance is highly developed, has the highest agricultural insurance rate in the region. Agricultural insurance premiums account for 1.05 percent of agricultural GDP in Uruguay, followed by Chile and Mexico, with 0.60 percent. In Brazil, Panama, the Windward Islands, and Paraguay, penetration rates are around 0.35 percent. The remaining countries, mainly the Andean and Central American countries, have agricultural insurance penetration rates lower than 0.1 percent of agricultural GDP. Figure 3.6 compares penetration rates across LAC countries as well as between LAC and other regions in the world.
Figure 3.6 Agricultural insurance penetration in LAC
UruguayArgentina
ChileMexico
Paraguay
Windward Islands
BrazilPanama
PeruNicaragua
Dom. Rep.
Honduras
EcuadorColombia
Guatemala
Costa Rica
venezuela, RB
El Salvador
Bolivia
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
Agricultural Insurance Penetration in LAC(Agricultural insurance premiums / Agricultural GDP)
Europe
Australia & Nz
Asia
Africa
LAC
Source: Authors’ compilation from Mahul and Stutley 2010.
The penetration of agricultural insurance is not homogeneous even across different geographic areas within the same country. In a given country, the zones with the most dynamic agricultural production also have the most agricultural insurance, while the agricultural production zones that are less dynamic are left behind. For instance, while the Pampas region in Argentina—the main agricultural production area—has agricultural insurance penetration rates of above 50 percent of the cultivated area, other areas have very low penetration rates or no agricultural insurance at all. The same situation is observed in Brazil and Mexico. In Brazil, the southeastern and central-southern areas show much higher levels of agricultural insurance penetration than the northeastern states. In Mexico, the northern states show much more development (50 percent of the cultivated area is insured) than the southern states. A detailed analysis of the reasons for these differences is presented in chapter 4.
Crop insurance, the most popular type of agricultural insurance in the region, shows uneven levels of penetration across countries. Uruguay and Argentina have high insurance penetration rates of above 60 and 50 percent of the total crop area, respectively. In Mexico and the Windward Islands, between 35 and 40 percent of the cropped areas is currently insured. Paraguay has a moderately high rate of agricultural insurance penetration: 23 percent of the cropped area. Brazil and Peru, with agricultural insurance programs that were implemented only a few years ago, have agricultural insurance penetration rates of 10 percent of the cropped area. In the remaining LAC countries, the penetration of crop insurance is still low. Chile, Colombia, Costa Rica, Honduras, the Dominican Republic, Ecuador,
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and Panama have penetration rates between 1 and 5 percent of the total cropped area. In El Salvador, Guatemala, Nicaragua, and República Bolivariana de Venezuela penetration rates are very low, with less than 1 percent of the crop area insured.
Forestry insurance has reached very high levels of penetration in Chile and Uruguay, but not in other countries in the region. Chile and Uruguay have very high rates of forestry insurance penetration, with more than 80 percent of the commercial forest area insured. Argentina has a moderate level of penetration, with approximately 10 percent of the commercial forest area insured. In Brazil, forestry insurance is very new and, in spite of its potential for development and the premium subsidies provided by the government, only covers an estimated 5 percent of the commercial forest area. The remaining countries in the region in which forestry insurance is available (Paraguay, Ecuador, Central American countries, and Mexico) have low penetration rates.
Aquaculture insurance, with the exception of salmon farming insurance in Chile and shrimp farming insurance in Mexico, has not reached high levels of penetration in the region. Approximately 50 percent of the salmon farming centers in Chile are insured under aquaculture insurance policies. However, given the outbreak of infectious salmon anemia in 2008, both biomass and the number of aquaculture centers in production are expected to decline in the near future. In Mexico, approximately 10,000 out of 70,000 hectares under shrimp farming production are currently insured.
Despite the importance of the livestock sector in the region, livestock insurance has minimal penetration levels outside Mexico. Livestock insurance lags behind other covers in terms of insurance penetration in the region, reaching an acceptable penetration rate only in Mexico, where approximately 17 percent of the cattle herd is insured. Colombia is believed to have approximately 250,000 head of cattle insured against terrorism and theft. Penetration rates for livestock insurance are minimal in important cattle-producing countries in the region, such as in Brazil and in Argentina. Map 3.5 shows the penetration rates for crop, livestock, aquaculture, and forestry insurance in LAC region.
GAPS IN THE PROvISION OF AGRICULTURAL INSURANCE IN LAC
There are several gaps in the provision of agricultural insurance in LAC countries. Although the region has made solid advances in the development of agricultural insurance, it still has a long way to go to develop this market. The development of agricultural insurance in LAC countries is heterogeneous, both spatially and among different business sublines. This section identifies the gaps in the provision of agricultural insurance in the region.
Agricultural insurance product gaps
Crop insurance in LAC still needs further development. Although the provision of crop insurance has reached good levels of development in some geographic areas (such as Argentina, Uruguay, southern Brazil, Paraguay, and Chile), levels are very low in other areas. Crop insurance penetration in the region is only 17 percent of the total cropped area: approximately 138 million hectares out of 167 million cropped hectares are not insured. The reasons for this gap are many and vary from country to country. First, in countries where the majority of agricultural producers are semi-commercial or traditional subsistence farmers, farmers are not familiar with risk management tools and crop insurance is not affordable, which are serious drawbacks to the development of crop insurance. This is observed in the Andean, Caribbean, and Central American countries. Second, in countries where agricultural production is exposed to the risk of catastrophic windstorms and excess rain or flood, as in some Central American and Caribbean countries, the insurance industry does not have the appetite to write agricultural risks and farmers do not demand coverage because they expect governments to intervene in an ex post fashion. Third, in countries producing specialty crops, such as Chile and Peru, the lack of appropriate insurance products to transfer the production and quality risks constrains the development of crop insurance.
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Map 3.5 Agricultural insurance penetration in LAC
> 80%
70% - 79.9%
60% - 69.9%
50% - 59.9%
40% - 49.9%
30% - 39.9%
20% - 29.9%
10% - 19.9%
1% - 9.9%
0.1% - 0.9%
Crop Insurance (% crop area)
Forestry Insurance (% commercial forest area)
Livestock Insurance (% heads)
Aquaculture Insurance (% biomass)
Penetration ratio
Source: Authors.
Forestry insurance is only developed in Chile and Uruguay. Currently, only 2.3 million hectares out of 12 million hectares of standing timber forestry plantations are insured in the region. Out of the 2.3 million hectares insured, 2.1 million hectares (90 percent) are situated in Chile and Uruguay. However, in other countries with considerable standing timber stocks, such as Brazil and Argentina, the penetration of forestry insurance is minimal. There are two possible reasons for these gaps in forestry insurance. The first is the existence of different risk perceptions across the countries. For instance, in Chile, one of the countries in the world most prone to forest fires, forestry producers are willing to purchase forestry insurance because they perceive that their plantations are at risk. Conversely, in Brazil, where fire risk is relatively low, the willingness of producers to purchase forestry insurance is low. A second
possible reason for the existence of gaps in forestry insurance outside Chile and Uruguay is the forestry producers’ lack of awareness of forestry insurance and the potential advantages of this risk transfer tool. Chile and Uruguay have a long tradition of forestry insurance. Forestry producers in these countries are aware of the existence of forestry insurance and understand the advantages and limitations of this product. In other countries, forestry insurance is a relatively new product, many forestry farmers (particularly small farmers) are not aware of its existence, and, when they are aware, they have no clear understanding of its potential uses. A third possible reason for these gaps is that many forestry farmers do not comply with the minimum risk management practices that are required to be eligible for forestry insurance, such as the existence of resource plans and protocols for fire prevention and fire suppression. In many forestry plantations in the region, mainly small plantations, the minimum risk management preconditions for forestry insurance are not being met.
Despite the importance of aquaculture in the region, the development of aquaculture insurance is limited to Chile and Mexico. Currently, only 350,000 tons out of a total fish stock of 1.75 million tons in the LAC region are insured. From the 350,000 tons of insured fish stock, 100 percent is located in two countries—Chile and Mexico. Aquaculture insurance, including off-shore marine and on-shore freshwater aquaculture insurance for fish stock and equipment, is widely offered to the salmon industry in Chile, where almost 50 percent of the salmon production centers are insured. On-shore aquaculture insurance is offered in Mexico for shrimp production, where 10 percent of the shrimp farming area is insured. However, aquaculture insurance has almost no penetration in most of the shrimp and tilapia production areas of the Central American countries, Peru, Ecuador, Colombia, República Bolivariana de Venezuela, Guyana, and northeastern Brazil. The main reason for the underdevelopment of aquaculture insurance in these important production areas is the lack of expertise and technical capacity of the insurance sector to underwrite this type of complex risk. One of the preconditions for underwriting aquaculture is the existence of qualified risk surveyors and loss adjusters, who are usually designated by the reinsurers. The technical capacity to underwrite and to perform the surveys, follow-up, and loss assessment needed in aquaculture insurance has been developed only in Chile and Mexico. In other LAC countries, insurance companies that want to write aquaculture insurance need to bring in expertise from overseas. This makes the transaction costs of aquaculture insurance too high for small and medium-size businesses and only marginally attractive for large-size farms.
Livestock insurance is very underdeveloped in most of the LAC region. Livestock insurance products are available in most countries. However, the demand for and uptake of this product are extremely low. Currently, in spite of the importance of the livestock sector in LAC, only 4.7 million head of cattle out of an estimated total of 395 million are insured. From the 4.7 million head of cattle insured in the region, 4.4 million are located in Mexico. The main drawback to the expansion of livestock insurance is the existence of market failures in
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the provision of this insurance product. Livestock producers are not willing to purchase basic livestock accident and mortality insurance at current market prices because they perceive the product as too expensive given the restricted coverage provided. The insurance industry is not willing to offer comprehensive (all risks including diseases) livestock insurance owing to (a) the potential moral hazard associated with comprehensive policies and (b) animal mortality due to health issues, which has a large management component. Factors under human control are as important as, if not more important than, natural factors in determining mortality rates in livestock production, which depend heavily on herd management, fodder management, and animal husbandry practices. For the insurance sector to follow up and control herd management practices implemented by the insured is key to avoiding moral hazard in livestock insurance programs.
The asymmetries of information in livestock production are the main cause of market failures in livestock insurance. The insurance companies in the region do not have the infrastructure or the human resources to implement the monitoring of insured animals or the loss adjustment procedures needed to provide comprehensive coverage. In addition, other factors also contribute to market failures. The first factor consists of deficient systems for tagging and tracing animals. The existence of proper animal-tagging systems is a precondition for the development of comprehensive livestock insurance, as an efficient system allows the industry to perform close follow-up of the insured herds. The second factor is the existence of gaps in the systems for preventing animal disease in some countries. The provision of comprehensive livestock insurance involves the industry covering animal diseases and, in some cases, epizootic (epidemic) diseases. Given the potential catastrophic exposure that insurance companies would face from epidemic diseases, the industry is not willing to offer cover unless proper policies are in place to prevent disease and control animal health. As livestock insurance coverage becomes more comprehensive, the sophistication of management factors becomes more important. Unless the insurance industry in the region feels confident in its ability to monitor and control the potential sources of moral hazard in livestock insurance, it will continue to provide only basic accidental mortality coverage.
Figure 3.7 summarizes the current level of agricultural insurance penetration as well as the gaps in the provision of agricultural insurance in the region.
Figure 3.7 Agricultural insurance gaps in LAC, by type of insurance
Aquaculture
Livestock
Forestry
Crops
Insured Not insured
0% 20% 40% 60% 80% 100%
Percentage of the crop area, cattle heads, forestry area, biomass
Latin America: Agricultural Insurance gaps pero type of insurance
350,000 tons.
4.5 million cattle heads
2.3 million hes.
29 million hes.
930,000 tons.
395 million cattle heads
9.7 million hes.
138 million hes.
Source: Authors from own agricultural insurance survey and FAO 2009.
Agricultural insurance penetration gaps
The development of agricultural insurance is uneven among different geographic areas in the region. The development of agricultural insurance follows the boundaries of the agroecological areas with different agricultural production systems, not national boundaries. The general pattern is that agricultural insurance is more developed in geographic areas where agricultural production is more dynamic. In this regard, it is possible to distinguish among five geographic areas in terms of agricultural insurance development: (a) where agricultural insurance is consolidated; (b) where agricultural insurance is in the process of consolidation; (c) where agricultural insurance is not consolidated; (d) where agricultural insurance is not available yet, but has the potential for development; and (e) where agricultural insurance is not available yet and has low potential for development. Map 3.6 presents the geographic distribution of agricultural insurance development in the region.
The geographic areas where agricultural insurance is consolidated are also the most dynamic in terms of agricultural production in the region. These areas comprise the Pampas region and Mesopotamia region in Argentina, the whole territory of Uruguay, eastern departments of Paraguay, southeastern and central-southern states in Brazil, southern regions in Chile, and northern states in Mexico. These geographic areas are among the areas with the most dynamic agricultural production in the LAC region. Agricultural production in these areas is dominated by medium-size and large market-oriented professional agricultural enterprises. The agribusiness value chain in these geographic areas is highly developed, and farmers have full access to agricultural services. Access to finance, which is available from
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rural development banks, commercial banks, input suppliers, and trading companies, is not a constraint for most farmers.
Map 3.6 Degree of development of agricultural insurance in LAC
Agricultural Insurance consolidated areas
Agricultural Insurance areas in consolidation
Agricultural Insurance not consolidates areas
Agricultural Insurance not available but with potencial fot development
Agricultural Insurance not available and with low potencial for development
Areas not considered for analysis
Source: Authors.
The level of development of agricultural insurance in the areas where agricultural insurance is consolidated is comparable to the levels of agricultural insurance development in high-income countries. Total agricultural insurance premiums written in consolidated geographic areas amount to US$600 million (77 percent of total agricultural insurance premiums written in the region). Approximately 24.5 million hectares of crops are insured across consolidated areas, accounting for 80 percent of total insured area in the
region. The level of crop insurance penetration in these areas is between 40 and 50 percent of the total cropped area. Crop insurance is well developed in Argentina, Uruguay, Brazil, and Paraguay; however, it is not as well developed in Chile. Named-peril hail insurance policies for annual crops and fruits are the main type of crop insurance written in Argentina, Uruguay, and the southern areas of Brazil. MCPI policies are the main type of crop insurance written in Paraguay, Brazil, Chile, and the northern states of Mexico. Forestry insurance, with 36 percent of the forested area insured, shows acceptable levels of penetration in geographic areas where agricultural insurance is consolidated. In Chile and Uruguay, forestry insurance is well developed in geographic areas where agricultural insurance is consolidated, but in Brazil, Argentina, and Paraguay, it is not, as approximately 6 million hectares of forestry are not yet insured. Aquaculture insurance is well developed in areas of Chile and reasonably developed in northern states of Mexico where agricultural insurance is consolidated. Livestock insurance, with the exception of Mexico where approximately 15 percent of the national herd is insured, is not developed either in the areas with consolidated agricultural insurance or at the regional level.
The geographic areas where agricultural insurance is in the process of consolidation in the region comprise areas that were turned over to agricultural production in the 1990s. These areas include Mato Grosso, Minas Gerais, Goias, Tocantins, Maranhao, and Bahia federative states in Brazil; the western departments in Paraguay; the Department of Santa Cruz de la Sierra in Bolivia; and the geographic area comprising the provinces of Salta (eastern areas), Tucumán, San Luis, Santiago del Estero, Córdoba (western and northern areas), La Pampa (western counties), and Formosa in Argentina. Owing to improvements in crop production technology and the low cost of land, these geographic areas underwent an extraordinary transformation during the 1990s, when investors, attracted by promising returns, purchased large tracts of arable land. Currently, these geographic areas are among the most dynamic for agricultural production in the region. The main feature of agricultural production in these areas is the coexistence of large-scale commercial agricultural enterprises with small- and medium-size semi-commercial and commercial farms. Although the agribusiness value chain in these geographic areas is not well developed, the large agricultural enterprises, with economies of scale associated with their size, have developed their own infrastructure to receive services and commercialize their production. The largest agricultural businesses satisfy their financial needs by negotiating loans directly with local or international bank headquarters and multinational input suppliers or, in some cases, by issuing shares on the stock markets.
The demand from large-scale agriculture for agricultural insurance products in the areas that are consolidating is rising quickly. The total agricultural insurance premiums written in these areas amounts to US$79 million (12 percent of the total agricultural insurance premiums written in the region). Currently, more than 4 million
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hectares are insured (8 percent of the crop area) in these areas. Crop insurance, which was introduced in the early 2000s, has accompanied the development of large-scale agricultural enterprises. The demand for crop insurance is exclusively for MPCI, mainly for soybeans, maize, and oilseed crops. However, the demand for crop insurance from medium- and small-size agricultural enterprises in these areas is minimal. The causes of the low demand include (a) the existence of a large universe of small subsistence agricultural enterprises that cannot afford to pay the high premiums of traditional MPCI and (b) the low profits obtained by the medium- and small-scale farmers due to the high transport costs (these regions are located a significant distance away from markets). Crop insurance products are expensive in these areas for two reasons. First, farmers face high pure risk premiums because these geographic areas are situated in the crop production frontier, and thus data uncertainties and perceptions of catastrophic risks increase loadings on premiums. Second, transaction costs (including acquisition costs, inspections, and loss adjustment costs) are high. Thus crop insurance is only offered to large-scale agricultural enterprises for which the transaction costs involved in the insurance operation can be spread over a large volume of premiums. The level of development of forestry insurance in the geographic areas where agricultural insurance is in the process of consolidation is still minimal. Forestry insurance penetration is limited to a few forestry insurance policies sold in the states of Bahia and Minas Gerais in Brazil and in the province of Córdoba in Argentina. Insurance companies operating in these areas are reluctant to offer forestry insurance given the climatic characteristics (semiarid zones) and the low implementation of risk management practices in forestry production. The provision of livestock insurance is nonexistent. Owing to the extensive livestock production, the lack of efficient animal-tagging mechanisms, and the lack of livestock veterinary and health services for livestock insurance certification purposes, this type of agricultural insurance product is unlikely to be developed significantly in the short term in these areas.
There are several geographic areas in the region where agricultural insurance, although available for many years, is not yet consolidated. These areas include the coastal areas of Chile, Peru, Ecuador, and Colombia; the llanos region in República Bolivariana de Venezuela and Colombia; Central American countries; southwestern departments of Mexico; and the Dominican Republic and Jamaica. Agricultural production in these areas is characterized by the coexistence of large-scale commercial farming export-oriented ventures with small-scale semi-commercial or familial farming.
The level of development of agricultural insurance in the geographic areas where agricultural insurance is not consolidated is low. Currently, approximately 4 million hectares of crops are insured, accounting for less than 4 percent of the total crop area. However, it is important to consider that, of the 4 million hectares insured, 2.7 million are
insured with catastrophic agricultural insurance purchased by the governments. Agricultural insurance direct premiums written in geographic areas where agricultural insurance is not consolidated amount to US$100 million, from which US$39 million is paid for catastrophic agricultural insurance cover purchased by governments. In summary, considering only the voluntary uptake of private agricultural insurance in these areas, total agricultural insurance premiums are US$61 million, and the total insured area of 1.3 million hectares is equivalent to only 2 percent of the cropped area. There are several possible reasons why agricultural insurance has not been consolidated in these areas. The main factor is the existence of a huge population of sparsely distributed traditional subsistence and semi-commercial farmers who have no access to rural services and no financial capacity to afford premiums. The second is the high cost of providing agricultural insurance. These geographic areas are important areas for forestry production; however, the penetration of forestry insurance is minimal. Although more than 2 million hectares of forestry plantations are located in these areas, less than 30,000 hectares are insured. Aquaculture production is an important agricultural activity in the northern areas of Peru, Ecuador, Colombia, and all Central American countries; nevertheless, the provision of aquaculture insurance in these countries is, currently, nonexistent. Livestock insurance has reached some level of development in Colombia and Panama, where 200,000 and 70,000 head of cattle, respectively, are insured, but penetration of this insurance product is still very low.
There are many agricultural production areas in LAC where agricultural insurance is still not available. The total cultivated area in the geographic zone in which crop insurance is not yet available is approximately 50 million hectares (27 percent of total cropped area in the LAC region). While in some of these geographic areas crop insurance can be developed in the relatively short term, in others it will be very difficult to develop crop insurance without government intervention.
The geographic areas where agricultural insurance is not yet available but has the potential for development are characterized by the coexistence of well-developed market-oriented agriculture firms with traditional subsistence or semi-commercial farming. These geographic areas include (a) the high-altitude valleys of the Andean region of Colombia, República Bolivariana de Venezuela, and Ecuador, (b) the coastal areas of northeastern South America, and (c) most of the countries of the Caribbean region. In the intermountain valleys and lower slopes of the northern Andean mountains—the heartland of Andean coffee and horticultural production—farmers are mostly commercial and market oriented; thus there is potential to introduce suitable crop insurance products. However, in the highlands and upper valleys where temperate crops, maize, and pigs predominate, traditional indigenous subsistence farming systems are strongly established, and insurance products would be very difficult to develop. In the coastal areas of northeastern South America and most of the countries of the Caribbean region, large-scale plantations of
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tropical fruits, typically export oriented and often internationally owned, coexist with small-scale family farms with mixed agriculture. The insurance industry has been making efforts to develop agricultural insurance products for large-scale agribusiness firms; however, so far, it has not been successful. Large agribusiness producers of specialty crops, most of them multinationals, have very well diversified crop portfolios and are only marginally interested in insuring their crops.
The geographic areas where agricultural insurance is not yet available and that have low potential for development are characterized by the predominance of a vast population of small and marginal or semi-commercial farmers who produce for self-consumption and, eventually, for the market. These farmers are not the subject of commercial agricultural insurance, and their need for agricultural risk transfer should be met by social or safety net programs. These geographic areas include (a) the high-altitude mixed-farming systems of the central Andes (step valleys of the Andean mountains along Peru and the altiplano in Peru, Bolivia, Chile, and Argentina); (b) the dry-land mixed-farming systems in northeastern Brazil and the Yucatán peninsula in Mexico; and (c) the staple crop, small-scale farming systems in Central America and the Caribbean. The segment of small-scale farmers has not been targeted to date by the insurance industry.
4. OPPORTUNITIES AND CHALLENGES FOR AGRICULTURAL INSURANCE
Agricultural insurance has enormous room for growth in Latin American and Caribbean (LAC) countries. Not currently insured in the region are 138 million hectares of crops (83 percent of cropped land), 9.7 million of standing timber plantations (79 percent of the total area of standing timber plantations), 395 million head of cattle (98 percent of total head of cattle), and 930,000 metric tons of annual fish stocks (80 percent of annual fish stocks). The gap in penetration of agricultural insurance represents a tremendous opportunity for the insurance industry. Assuming the current terms and conditions of insurance policies, the total agricultural insurance premiums in the region would increase US$65.3 million for each percentage point increase in insurance penetration across all types of agricultural insurance.
Although agricultural insurance is relatively well developed in the region, it still faces several challenges. As noted in the previous chapter, the level of development of agricultural insurance in the region is uneven, both in terms of product development as well as in terms of penetration between countries and within the same country. The reasons for such discrepancies are diverse; therefore, the strategies to address future development are also diverse.
The development of agricultural insurance requires a long-term public-private partnership (PPP) effort. International experience shows that it takes a long time to develop sustainable agricultural insurance products that are attractive to farmers. The process of promoting and enhancing agricultural insurance in LAC countries will require significant efforts both from the insurance industry and from governments. It is not realistic to expect to reach high levels of penetration in the short term, although the growth rate to date has been promising.
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OPPORTUNITIES FOR THE DEvELOPMENT OF AGRICULTURAL INSURANCE
Crop insurance
Crop insurance has a great potential for development in the region. Approximately 138 million hectares of crops (83 percent of cultivated land) are currently not insured. The possible strategies for expanding the use of crop insurance will depend on the social and economic importance of the agricultural sector, the degree of development of crop insurance, the type of risks faced by crop producers, the dominant type of farmer, and the local capacity for offering agricultural insurance. In order to analyze the opportunities for development in LAC, it is relevant to split the region into the same five geographic areas used in chapter 3 to explain the current development of agricultural insurance in LAC based on the level of consolidation and the potential for development in the area.
Geographic areas where agricultural insurance is consolidated
Opportunities to increase the current levels of crop insurance in these geographic areas will come, mainly, from the development of more complex and sophisticated types of products. The insurance industry in these geographic areas is enhancing its current portfolio of crop insurance products to cover more perils and activities. For instance, the insurance industry is analyzing the feasibility of introducing revenue crop insurance for soybeans and corn in Brazil, Mexico, and Argentina. In Brazil, the insurance industry is starting to provide coverage for diseases affecting crop production, such as citrus canker and greening in orange production. In Chile, the industry is starting to offer insurance for high-value crops (table grapes, avocado, and berries) that, until now, were not included in the portfolio of insurable crops due to their high values at risk and the insurance industry’s inability to manage risk accumulations. The insurance industry is also adopting an agribusiness value chain approach in order to deliver crop insurance products. The insurance industry in these consolidated markets is shifting its focus from providing individual farmers with simple named-peril insurance and multiple-peril crop insurance (MPCI) policies to providing other players in the broader agribusiness value chain with financial transfer solutions. The players in the agribusiness value chain have varied insured interests. For instance, an input supplier or a financial institution may be interested in protecting its sales revenues or the reimbursement of its sales credits due to the occurrence of a weather event affecting crop production. A grain elevator or a fruit exporter may be interested in protecting the procurement of enough grains or fruits in the respective catchment areas to reach the break-even volumes needed to cover fixed operating costs or to comply with a forward contract. Figure 4.1 shows a simplified representation of the insured interests of different players in the agribusiness value chain.
Figure 4.1 Agribusiness value chain and insurable interest
Input Supplier
Insurable InterestGovernments
Distributor
Farmer
Storage/Traders
Finantial Institutions: Credit risk protection
Governments: Fiscal Balance Social Balance
Food Processor/Exporter
Sales guarantee Credit repayment Product added value
Sales guarantee Credit repayment Product add value
Production guarantee Quality guarantee Income guarantee
Volume guarantee Quality guarantee Business interruption
Minimum supply of raw materials Export agreement guarantee Business interruption
Finantial Institution
Source: Iturrioz 2009.
Geographic areas where agricultural insurance is in process of consolidation
The uptake of crop insurance is expected to continue growing in these areas. This expectation is based on two reasons: (a) the increase in the demand for crop insurance by large-scale agribusiness firms and (b) the expected improvement in the profit margins obtained by small- and medium-scale farmers. Large-scale agribusiness firms operating in these areas will continue to demand customized insurance solutions. Production in these areas is usually marginal and faces several production risks. The business model implemented by these firms is characterized by low land prices and technology-intensive production. The firms manage their production risks by diversifying their activities in terms of both product and location and by purchasing crop insurance to transfer the risk that they are unable to manage. These firms include crop insurance as a cost of production in their business model. In order to meet the demand of enterprises for risk transfer, the industry should be ready to tailor solutions to the enterprises’ capacity to diversify risks. In that regard, insurance products, such as global MPCI portfolio coverage, probably in combination with crop revenue insurance, could meet the need for risk transfer. In addition to the expected increase in demand from agribusiness firms, it is also expected that the small- and medium-scale farmers will increase their demand for crop insurance as their profitability rises as a
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result of improvements in the technical and financial services provided to them. The advent of large-scale agribusiness firms to these geographic areas has been accompanied by the development of services and infrastructure for crop production originally targeted to meet the needs of big farmers.
Geographic areas where agricultural insurance is not consolidated
The geographic areas where agricultural insurance is available, but still not consolidated, offer an enormous potential for development of crop insurance. Although crop insurance has been available for many years in most countries in these areas, it has never been consolidated, as evidenced by an average penetration rate of 2 percent. The main opportunity for expansion is through tailoring products to meet the risk transfer needs of export-oriented large-scale agribusiness enterprises. There is a well-developed export-oriented specialty-crop industry along the Pacific coast of South and Central America. Chile has a well-positioned commercial farming sector producing table grapes, avocados, and berries for the Asian and U.S. markets. Peru, which has a booming asparagus production sector, is becoming an important player in this specialty crop. Multinational large-scale agribusiness firms specializing in tropical fruit are found throughout the region from Ecuador to Mexico. The large-scale agribusiness enterprises that produce specialty crops for export operate in a very competitive market characterized by rigorous standards, in terms of both volume and quality, and demand highly sophisticated insurance products. Their risk transfer needs encompass not only production risks, but also the quality of their production and business interruption; in some cases, they also require coverage for inland, marine, cargo, and product recall embedded in a single insurance policy. The provision of such comprehensive insurance coverage is very challenging for the insurance sector, for several reasons: (a) the existence of complex production systems makes the monitoring and the loss adjustment process very difficult and onerous; (b) the accumulation of significant risk in relatively small areas is problematic, as the production of specialty crops is restricted to specific valleys or microclimates; and (c) the insurance industry lacks expertise in underwriting these complex risks and performing the complex loss adjustment involved in insuring specialty crops.
Geographic areas where agricultural insurance is not available yet, but has potential for development
In many of the geographic areas where crop insurance is not yet available, there are opportunities to develop agricultural insurance for commercial and semi-commercial farmers. Some commercial farms situated in the high-altitude valleys of the Andean region of Colombia, República Bolivariana de Venezuela, and Ecuador, in the coastal areas of northeastern South America, and in the countries of the Caribbean region present opportunities. The common feature of crop production in these geographic areas is the
coexistence of well-developed market-oriented agriculture firms with traditional subsistence or semi-commercial farms. While the risk transfer needs of market-oriented commercial agriculture firms can be met by the private insurance industry, the risk transfer needs of semi-commercial and traditional subsistence farmers should be met by market-based risk transfer mechanisms promoted by the public sector through public-private partnerships. In that regard, government catastrophic coverage is one option for providing crop insurance to these segments of farmers. Additionally, in the case of semi-commercial farmers and certain types of idiosyncratic risks, governments could promote the establishment of insurance mutuals in order to pool risks among a group of farmers.
Geographic areas where agricultural insurance is not available yet and has low potential for development
In other geographic areas where crop insurance is not yet available and rural poverty is high, the potential for crop insurance is likely to be very limited. These geographic areas comprise the high-altitude mixed-farming systems of central Andes (step valleys of the Andean mountains in Peru and the altiplano in Peru, Bolivia, Chile, and Argentina), the dry-land mixed-farming systems in northeastern Brazil and Yucatán peninsula in Mexico, and the maize-beans farming system in Central America. These areas share common features that pose serious difficulties for the development of crop insurance. First, the environment for the provision of crop insurance is too complex. Second, these areas are characterized by a large population of traditional subsistence and semi-commercial farmers whose farms are distributed on a scattered basis. Third, there is a lack of information, including crop production statistics, historical weather records, and records of events that have affected production in the past. Under these circumstances, developing a reliable crop insurance program becomes very challenging, and the private insurance industry may not be willing to do so on its own. The government provision of catastrophic insurance products, either index based or traditional, has been shown to provide suitable cover for small farmers in LAC. Catastrophic crop insurance provides macro-level coverage to governments at the state or federal level. Under catastrophic crop coverage, the government is the policyholder. The government pays the insurance premium and receives the payouts from the insurance company in case of a claim. The government sets out the payment rules for farmers who are benefiting from the catastrophic fund. Crop insurance funds have been successfully running for almost a decade in Mexico. In 2008, the government of Peru implemented crop catastrophic insurance in five departments of the country. As of 2010, more than 8.5 million hectares of crops are insured under crop catastrophic insurance in Mexico and Peru.
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Livestock insurance
There are opportunities to develop livestock insurance in the region. LAC is an important region for the production of cattle, poultry, pigs, and sheep. Cattle stocks in LAC amount to 392 million head, which is almost one-third of global cattle stocks. Poultry production is also very important, and poultry stocks in the region amount to 2.55 billion head, 15 percent of global stocks. The region also has important pig and sheep stocks. Pig stocks amount to 76 million head, 8.4 percent of global stocks. Sheep stocks amount to 84 million head, 7.6 percent of global stocks.
Growth in the provision of livestock insurance will be accompanied by the design of better products. The supply of comprehensive livestock insurance in some countries is expected to grow in the short term, as the factors responsible for the failure of livestock insurance markets are expected to be resolved. Many governments are introducing policies to enforce compliance with the requirements of their export markets that aim to enhance the development of livestock insurance. In that regard, governments are implementing animal-tracing policies and strengthening their animal health and control systems to maintain their share of and access to beef export markets. It is expected that the adoption of these policies will boost the demand for livestock insurance. The implementation of animal-tracing policies will solve part of the market failures in livestock insurance markets. Microchip technology is expected to overcome many animal identification problems, to detect preexisting problems with animals, and to ease the monitoring of some livestock management practices. The strengthening of animal health care and prevention policies will result in better mandatory control of animal husbandry practices implemented by herders, including vaccination programs. Therefore, the insurance industry should feel more confident of the animal health and husbandry practices implemented by farmers and be willing to offer comprehensive livestock coverage. By implementing such mechanisms, governments are assuming liability in connection with the forced slaughter of animals in case of an outbreak of epizootic disease. In addition to the cost of forced slaughter, governments are facing a huge exposure due to the eventual business interruption caused by the closing of markets (ban on exports) following an outbreak of epizootic disease. In countries where proven animal health care and prevention protocols are in place, both situations represent an opportunity for the insurance sector. Several countries are implementing animal health care and prevention protocols to control epizootic diseases. Chile, Argentina, Mexico, Uruguay, and Brazil are ahead in the implementation of these protocols.
Poultry and swine insurance also offer a promising opportunity in LAC. Insurance products for these classes of animals are not developed. There are a few exceptions, including tailored swine insurance in Mexico to cover classical swine fever. Poultry production is generally not covered, although there is some evidence that some property insurance
policies are covering poultry production as contents of insured buildings. The development of tailored insurance coverage for intensive poultry production is challenging. However, given the potential opportunities, it would be worthwhile for the industry to explore the possibilities of developing an insurance product for poultry production at least.
Forestry insurance
LAC region offers several opportunities to develop forestry insurance. The region has a significant potential for forestry insurance, targeting both standing timber plantations and natural forest. Traditionally, forestry insurance has been offered exclusively for commercial plantations of standing timber. Forestry insurance for commercial plantations of standing timber has reached significant levels of penetration in the region. Almost 19 percent of plantations are currently insured, but, out of the 12 million hectares of commercial forestry in the region, 9.7 million hectares (or 80 percent of total commercial forest area) are not insured.
The expected improvement in product design for plantations of standing timber will enhance the uptake of forestry insurance. Forestry insurance is mostly well developed for covering fire and wind perils in pines and eucalyptus commercial plantations in temperate climate areas. Although the level of coverage is good, these areas provide opportunities for further development. For instance, in Brazil and Argentina more than 5 million hectares of commercial forestry plantations are not currently insured. In contrast to the significant penetration of forestry insurance in temperate climate areas, forestry insurance is almost nonexistent in tropical areas. To date, the insurance industry has been unable to develop suitable forestry insurance products to cover the risks faced in tropical areas, such as tropical storms, floods, and diseases. More than 4 million hectares of commercial plantations in tropical areas are not insured in LAC. The development of suitable forestry insurance coverage for these plantations will certainly expand the uptake.
The development of suitable forestry insurance products to be used as collateral for reducing carbon dioxide emissions from deforestation and degradation (REDD) credits is an opportunity for forestry insurance. REDD credits are being considered as a way for countries, companies, and individuals to offset their emissions by preventing deforestation and the release of stored carbon dioxide. Brazil, Peru, and Mexico are leading the development of REDD projects in the region. In order to offer risk transfer solutions for REDD projects, the insurance industry still has to address the following issues related to product development: (a) how to value the sum insured and (b) how to match the period of insurance with the maturity of the bond.
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Aquaculture insurance
There are several opportunities to develop aquaculture insurance in the region. Many LAC countries have developed professional aquaculture sectors that produce for very demanding markets using international best practices. Aquaculture production is a significant economic activity in Chile (one of the main salmon-exporting markets in the world), northeastern Brazil, northern Peru, Ecuador, Colombia, República Bolivariana de Venezuela, Central American countries, and Mexico. However, so far, aquaculture insurance has been scaled up only in Chile and Mexico. Currently, more than 930,000 tons of fish stocks are not insured in the region.
Shrimp and tilapia production offers an opportunity to develop aquaculture insurance. Shrimp production amounts to 450,000 tons a year, concentrated in Mexico, Ecuador, and Brazil. Aquaculture insurance, however, has been scaled up only in Mexico, where approximately 10,000 hectares of the 70,000 hectares of shrimp farms are insured. Tilapia production amounts to approximately 170,000 tons a year, concentrated mainly in northeastern Brazil, Honduras, Colombia, and Ecuador. Currently, the provision of aquaculture insurance for tilapia production is limited to isolated facultative insurance policies. The low penetration of aquaculture insurance for shrimp and tilapia production indicates that there is huge potential for the development of insurance products for these species.
There are still opportunities for enhancing aquaculture insurance in Chile. Aquaculture insurance in Chile focuses mainly on providing risk transfer solutions for medium- and large-scale salmon aquaculture firms. However, some niches in the Chilean aquaculture industry have not yet been fully serviced, including small-scale fish farms. In addition, the development of aquaculture insurance products for mussels and other mollusks offers considerable potential.
The development of aquaculture insurance must be accompanied by capacity building. Aquaculture insurance is a very specialized and technical agricultural insurance subline. The insurance industry in most of the countries lacks specialized underwriters and loss adjusters. Therefore, surveyors and loss adjusters have to be hired from overseas, increasing the costs of providing aquaculture insurance and limiting uptake to large-scale aquaculture firms. This situation could be reversed if the industry would invest in developing local capacity to write aquaculture risks and to perform loss adjustments.
CHALLENGES FOR THE DEvELOPMENT OF AGRICULTURAL INSURANCE IN LAC
The process of promoting and enhancing agricultural insurance in the region implies overcoming critical challenges, from both the government and the industry perspectives. These challenges, according to the World Bank agricultural risk management framework, can be classified into four categories: institutional challenges, financial challenges, technical challenges, and operational challenges. Each of the challenges facing governments and the insurance industry as well as the potential solutions to overcome them are discussed below.
Institutional challenges
The development of agricultural insurance requires an appropriate institutional framework. An appropriate institutional framework helps to correct market imperfections that could hamper the emergence of a competitive private insurance market. A wide spectrum of institutional frameworks for agricultural insurance exists in the region, from the weakest institutional frameworks in some countries in Central America and the Caribbean to the most evolved ones, such as in Brazil and Mexico. The expansion of agricultural insurance cannot rely exclusively on market mechanisms. Pure market-based agricultural insurance, as expected, focuses on the most profitable segments of agricultural production. The previous section identified a number of opportunities to develop the market. However, in order to take advantage of those opportunities, significant investments will have to be made in information, infrastructure, training, and capacity building. Investment in these activities is not affordable for the private insurance industry alone, and the support of governments will be needed. In such cases, the existence of an appropriate institutional framework in which the government provides stability and financial capacity to the system and the private sector provides know-how is a key for the development of agricultural insurance.
The development of agricultural insurance requires the promotion of an adequate legal and regulatory framework. The general principles governing the regulation and supervision of general insurance and insurance contracts apply, mutatis mutandis, to agricultural insurance. In most LAC countries, the framework regulating agricultural insurance contributes to fostering agricultural insurance. However, in a few countries, particularly those where agricultural insurance is not well developed, such as in most of the Caribbean countries, regulatory issues still hamper development. When there is a reasonable correlation between an index and a particular commercial loss, the legal and regulatory framework should allow index-based products to be classified as insurance products. Index-based insurance has been demonstrated to be a suitable tool for transferring risk, in particular, the production risks facing traditional subsistence and semi-commercial farmers, which are the dominant types of farmers in many areas where agricultural insurance is still not developed.
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In several countries, such as Argentina, the regulatory authorities do not recognize index-based products as insurance products. Recognizing index-based risk transfer products as insurance products would benefit traditional subsistence and semi-commercial farmers. Delivering agricultural insurance through channels that deliver other services to farmers has been demonstrated to reduce transaction costs. The insurance law could also allow, subject to proper supervision, cooperatives or financial institutions such as microfinance institutions to act as insurance agents.
The role of coinsurance pools in agricultural insurance may offer an opportunity for insurance companies to share the very high start-up costs of new programs. The development of agricultural insurance is complex and costly; thus access to technical and financial assistance for development is desirable. Although many countries have expanded their technical capacity, others have just started. The experience of countries that have been developing agricultural insurance is that this process is long and costly. A critical minimum mass of potential insured and economies of scale are needed for the private sector to make the necessary investments. In addition, the adaptation of any agricultural insurance scheme is, in most cases, subject to costly financial losses that can jeopardize the continuity of such programs. The insurance sector alone does not have sufficient resources to make all the investments needed for a sustainable agricultural insurance scheme. The establishment of agricultural insurance pools is often justified in such circumstances. Agricultural insurance pools, jointly with government assistance, allow the industry to share the start-up and adaptation costs and to reach the economies of scale needed to implement sustainable agricultural insurance schemes.
Agricultural insurance needs to be integrated with other products and services received by the farmers. International experience shows that it is very difficult to scale up agricultural insurance in isolation from other services the farmers are receiving. Crop producers first want to ensure that they have timely access to inputs and, often, credit with which to buy these inputs; only then will they consider purchasing crop insurance. For instance, in Brazil, in spite of the existence of premium subsidies, agricultural insurance did not scale up until the Banco do Brasil started to require commercial farmers to purchase crop insurance as a prerequisite for accessing rural credit. In Chile, a major proportion of the crop insurance sold in the country is linked to loans given either by development rural banks (for example, Banco de Chile) or by integrated agribusiness firms (for example, IANSA). Similarly, livestock mortality insurance schemes can be successfully scaled up where insurance is complemented by vaccination programs and intensive support and training in improved livestock husbandry and management, such as coverage for classical swine fever in Mexico. The integration of agricultural insurance with other products and services received by the farmers becomes critical when the objective is to provide insurance to traditional subsistence and semi-commercial farmers.
Financial challenges
The promotion of a cost-effective layering of agricultural production risks is needed. Risk layering should be seriously considered in the design of schemes. In risk layering, small and recurrent risks are often retained by farmers or groups of farmers, less frequent but more severe losses are transferred to the domestic insurance industry, and catastrophic losses are transferred to the international reinsurance market, possibly backed by governments. There are several examples in the region where groups of farmers have organized themselves to pool agricultural risks, for example, the fondos de aseguramiento in Mexico and the hail mutual funds in Uruguay, Argentina, and southern Brazil. The insurance industry also has an active role in pooling risk of the sector. In LAC, the liabilities arising out of agricultural business that are retained by the insurance industry average approximately 30 percent of total liabilities. However, these levels of retention vary from 50 percent in Argentina to less than 2 percent in some Caribbean countries. The remaining liabilities (approximately 70 percent of the total) are ceded to the reinsurance industry. Recently, in 2010, the government of Brazil enacted a law creating the Fundo de Catastrofe Rural in which the government is the reinsurer of last resort for liabilities arising out of agricultural insurance. Despite the achievements in this regard, further efforts should be made by governments and the insurance industry to spread the implementation of these practices to all LAC countries.
Domestic insurance companies should be encouraged to pool agricultural risks. Agricultural insurance coinsurance pools have many advantages. The first advantage is that they allow insurance companies to pool their individual agricultural insurance into a more diversified and better structured portfolio and to approach international reinsurance markets in a better negotiating position. A second advantage is that they could play a risk aggregator function, insulating agricultural risks from other lines of business, particularly in low-income countries where the domestic insurance industry may have limited risk capital to sustain catastrophic agricultural losses. A third advantage is that they allow insurance companies to dilute the huge cost of developing new products. In spite of the advantages and the attempts that have been made to create them in several countries of the region, such as in Chile and Colombia, few pools are currently operating in the region (Argentina). If governments and the insurance industry are interested in expanding agricultural insurance in the region, the promotion of coinsurance pools has to be considered seriously when designing agricultural insurance schemes.
Governments’ participation in risk financing on the top layers of catastrophic risk is needed to complement reinsurance markets. Governments can act as reinsurers or lenders of last resort through contingent loans. Governments can play an important role in supporting reinsurance programs. As reinsurers of last resort, governments can play a role
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in (a) providing reinsurance capacity when this capacity is not available or is too expensive, (b) reducing the cost of reinsurance by putting a ceiling on the liabilities to be assumed by the reinsurer, and (c) lowering the agricultural insurance premium rates to be paid by the farmers. In Brazil, the government recently enacted a law creating the Fundo de Catastrofe Rural, which aims to provide government-funded catastrophic stop-loss protection for local insurers writing agricultural insurance business. The participation of the government as reinsurer of last resort is potentially very important for countries exposed to catastrophic risk in their agricultural sectors, such as the Caribbean, Central American, and Andean countries, if such catastrophic risk is well managed and financed.
The role of agricultural insurance premium subsidies needs to be redefined. In several countries, these subsidy schemes, as they currently operate, are not financially sustainable either in the short term or in the medium to long term. Most of the agricultural premium subsidy schemes were designed based on “low” uptake ratios in the initial phases of development. In the initial phases of development, the fiscal budgets deployed for agricultural insurance premium subsidies were overestimated and not consumed in full. Because of this fact, several countries relaxed the conditions for accessing premium subsidies by (a) increasing the level of premium subsidies, (b) raising the ceiling on the total amount of subsidy that each individual insured (farmer) is allowed to receive, or (c) incorporating new agricultural activities as eligible for subsidies. Additionally, in some countries the subnational governments have started to complement the federal government’s agricultural insurance premium subsidies. As a result, agricultural insurance has become much more attractive to farmers, and the demand for agricultural insurance has been much higher than anticipated. Governments are realizing that the fiscal resources available for premium subsidies—at the current levels of agricultural insurance—are not sufficient to satisfy the demand and, at the same time, they are unable to cover the market at the current growth rates. Another factor is that, in many countries, the levels of premium subsidies are defined based on a single premium subsidy level. A single premium subsidy level is, however, a very blunt policy instrument if the government is trying to promote agricultural insurance to specific target groups (such as small farmers), specific crops (such as export cash crops, which small farmers can switch into to increase farm incomes), and specific geographic areas (such as disadvantaged or poor regions where farmers are in much greater need of financial support). However, in some countries such as Costa Rica, governments have developed variable premium rates for different types of farmers, crops, and regions, and it is suggested that other countries should consider modifying their premium subsidy programs along similar lines.
Technical challenges
Proper assessment of production risks, linked to ongoing product development, is a precondition for development of a sustainable agricultural insurance market.
Risk assessment that analyzes and quantifies production risks is a critical first step in trying to improve agricultural risk management. Catastrophe modeling offers new tools to assess the economic impact of extreme events affecting agricultural production. Very often, production risks and their financial impacts are underestimated or misdiagnosed, leading to insurance programs that are inappropriate and ineffective for market players. The assessment of risk exposures arising out of the agricultural sector and the development of proper agricultural risk models to determine the probable maximum loss (PML) curves for the main sectors of agricultural production is a key to enabling governments to develop adequate agricultural risk management policies and agricultural insurance. To date, the development of catastrophic risk models for agricultural activities has been somewhat weak. Many of the programs currently in place are based on good rating procedures; however, few of them have a proper way to assess PML. The implementation of proper measures to control the accumulation of risk is still a challenge for the industry and should be addressed if the objective is to expand agricultural insurance coverage.
Better agricultural and weather information services and infrastructure are needed. Proper assessment of agricultural production risks and the design of actuarially sound agricultural insurance products rely on the availability of agricultural production and weather data. In addition, the availability of reliable and timely weather and production data is essential for the development of weather and area-yield index-based products, respectively. National statistics offices have an essential role in collecting agricultural data, not only for policy purposes, but also for insurance purposes. The national weather service also plays a central role in providing weather data to the industry. A relatively dense network of tamper-proof weather stations is essential for the development of weather index insurance products. If the objective is to promote agricultural insurance in the region, governments should play an active role in providing proper agro-meteorological information to the insurance industry.
Additional support for research and development of innovative agricultural insurance products and services is needed. In most countries, there is still a severe overreliance on the use of standard MPCI cover for all crops, farmers, and regions; alternative named-peril and index-based products are needed. MPCI programs have been implemented in several developing countries with limited success. MPCI products are complex and require heavy monitoring in order to mitigate moral hazard and adverse selection. Therefore, they are not geared toward small and marginal farmers. Innovative products, such as index-based insurance, as well as alternative channels of delivery, such as rural banks and farmers groups, should be promoted. Governments in the region can assist private sector crop insurers by financing research and development into new products and programs suitable to meet the demand for risk transfer solutions that are not being met by the products available in the market today. Mexico is a good example: both Agroasemex and private insurers have made
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major investments in developing a wide range of crop (and livestock) insurance products to fit different circumstances.
Agricultural insurance products should be tailored to the targeted clients. Universal programs have proven to be inefficient: there is no “one size fits all” solution. Insurance policies should be designed with regard to the types of perils, farmers, and agricultural activities, the existing delivery channels, the availability of trained loss adjusters, and fiscal resources available to support agricultural insurance. No one product is better than the others, and different types of products are most suitable in different contexts. MPCI is efficient when the insurer can closely monitor (in a cost-effective fashion) the farming practices and when the risks to agricultural production can be minimized. These criteria are met mainly by large commercial farms that control their risk exposure. Named-peril crop insurance (such as for hail and frost) has proven to be commercially viable for sudden and unforeseen losses that are relatively easy to assess through simplified and objective systems of damage-based loss adjustment. Area-yield index crop insurance is most suited to combinations of crops and hazards in which a series of more complex perils simultaneously affect a crop in a particular region. Area-yield index crop insurance requires, however, an efficient crop-yield sampling and loss adjustment system. Weather index crop insurance offers some promise, but only for certain hazards, such as drought, wind, or frost, that have a direct and simple impact on crop-yield losses. Effective weather-based crop insurance products are difficult to design if losses are caused by a complex interaction of weather variables. Livestock insurance faces the same challenges as crop insurance. Livestock accident and mortality insurance is effective when combined with veterinary services. Epidemic diseases are more difficult to cover, as they can cause catastrophic losses.
Operational challenges
Capacity building is needed in operational procedures for designing and administering agricultural insurance. The development of operational procedures in agricultural insurance is complex and requires specific expertise. Although in many countries this expertise has been developed, in others it is lacking. The countries that lack local expertise have to rely on costly services that are sourced from overseas, so if agricultural insurance is to be promoted, governments should facilitate access to international good practice on underwriting, policy terms and conditions, and loss adjustment procedures. In countries with developed agricultural insurance markets, such as Argentina, private insurers that are concerned with the future of agricultural insurance have signed agreements with universities in order to include courses related to agricultural risk and agricultural insurance in agricultural sciences curricula.
The development of the agricultural insurance market should focus on standard products that are simple to administer. Indemnity-based insurance is viable when insurance companies can discriminate between policyholders (to avoid adverse selection) and monitor them (to avoid moral hazard). In addition, this type of insurance product pays out based on the actual loss suffered by the insured and therefore requires on-site loss assessments. In agriculture, loss assessment procedures can be complex and often crop specific. Loss adjustment procedures can be expensive and require close supervision. Indemnity-based products are suitable for well-defined perils (such as hail) and for large farms so that monitoring costs are acceptable in relation to the overall commercial premium. Index-based insurance can partly avoid informational asymmetries and does not require individual loss adjustment, but it exposes the policyholder to basis risk. Standard agricultural insurance products are needed when the objective is to provide insurance to small and semi-commercial farmers.
Agricultural insurance should be bundled with existing services or networks operating in the rural sector. Delivering and servicing agricultural insurance in rural areas, particularly to scattered small and marginal farmers, can be very expensive and can significantly affect the commercial premium. These costs can be high whatever the type of insurance offered (for example, indemnity based or index based). Governments should promote the role of intermediaries (for example, marketing groups, cooperatives, banks, and mutual groups) that can aggregate clients and risks and service the products at low costs.Cooperatives, producer associations, rural banks, and microfinance institutions should be promoted as delivery channels for agricultural insurance. These institutions can play an important and low-cost role in delivering agricultural crop and livestock insurance products to small farmers, in particular. They operate at very low overhead costs compared with private commercial insurance companies and could form the basis for future development and scaling-up of agricultural insurance provision in these and other developing countries. In the region, a leading example of the use of partnerships for delivering agricultural insurance is the partnership in Brazil between the insurance company Alliança do Brasil and Banco do Brasil.
Promoting the use of agricultural risk management technical support units (TSU) in start-up situations is needed. In start-up situations where market infrastructure is not yet developed, a TSU could be established to provide specialized services to agricultural insurance companies and other risk-pooling vehicles. This unit should have the support of the government, the insurers, and the reinsurers. The TSU could be either a stand-alone entity or hosted by an insurance provider (such as an agricultural insurance pool or a monopoly insurer). The TSU would aim to (a) create a center of expertise able to support the development and scaling up of agricultural insurance; (b) establish a core team of agricultural insurance experts to provide technical support to agricultural insurers in underwriting, product
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development, pricing, product delivery, loss adjustment, and catastrophic risk financing; (c) create and manage a centralized database of agricultural statistics (crop, livestock, forestry, aquaculture) and weather statistics, with the purpose of making this database available to agricultural insurance practitioners; and (d) promote the exchange of expertise among insurance companies and access to international best practice through training courses, operating manuals, and other means.
5. FINAL REMARKS
Agriculture is an important sector in many LAC countries, from both an economic and a social point of view. The agricultural sector contributes 5.5 percent of GDP of the economies of the region and 15.6 percent of total exports in the region. However, its contribution is much higher when considering linkages to the agribusiness and food services sectors. The agricultural sector in Latin America and the Caribbean (LAC) is also relevant from the social point of view.
Agricultural production faces a myriad of risks in the region. Owing to the occurrence of weather events, pests, and diseases, agricultural producers cannot predict with any certainty the amount of output that the production process will yield. Agricultural producers can also be hindered by adverse events during harvesting or collecting that may result in production losses. The perils faced by agricultural production in the region vary among geographic areas. Certainly, all the geographic areas in LAC face risks that can be catastrophic for agricultural production.
Agricultural insurance is just one risk management financial tool that is used by agricultural producers in the region to transfer the risks they face. Farmers and governments have devised risk management strategies to deal with agricultural production risks. These strategies can be divided into informal and formal risk management strategies. The management of agricultural production risks in the region relies on a combination of technical and, when they are available, financial tools.
Overall, agricultural insurance has reached fairly good levels of development in many LAC countries. Agricultural insurance is available in most countries in the region, and the industry offers a comprehensive range of agricultural insurance products. The level of penetration of agricultural insurance, except for livestock insurance, is reasonably high. Total direct agricultural insurance premiums written in LAC during 2009 amounted to US$780 million, accounting for 4 percent of global agricultural insurance premiums.
Governments in the LAC region are already playing an important role in supporting agricultural insurance. The main roles assumed by governments in supporting agricultural insurance is the provision of premium subsidies and the purchase of catastrophic agricultural insurance products. The total fiscal expenditures in supporting agricultural insurance in 2009 amounted to US$326 million or 42 percent of total agricultural insurance premiums written that year. Brazil and Mexico account for 90 percent of total regional government expenditures to support agricultural insurance.
86 ] Agricultural Insurance in Latin America
The region, however, still has several gaps in the provision of agricultural insurance. Although the region has made good advances in the development of agricultural insurance, it still has a long way to go to develop fully its agricultural insurance market. The size of the gap in the provision of agricultural insurance varies by geography. Where the agricultural sector is more developed, the gap in the provision of agricultural insurance is smaller.
Agricultural insurance has enormous room for growth in LAC region. The gap in penetration in agricultural insurance represents an opportunity for the insurance industry. Assuming the current terms and conditions of insurance policies, it is estimated that the total agricultural insurance premiums in the region will increase US$65.3 million for each percentage point of increase in insurance penetration rates across all types of agricultural insurance.
The region still presents several opportunities for the development of crop insurance. Several agricultural activities and geographic areas in the region are still not served by agricultural insurance. In this regard, opportunities exist to enhance the current portfolio of crop insurance products and meet the demand for agricultural insurance, to tailor products to the risk transfer needs of different participants in the agribusiness value chain, and to develop macro-level crop insurance products to meet the government’s need to transfer risk related to the implementation of disaster relief assistance programs for farmers. For instance, the insurance industry has not yet designed crop insurance products to transfer the high-risk exposures faced by producers of specialty crops in the region. Additionally, the industry (besides the provision of catastrophic insurance for governments) has not yet designed crop insurance products suited to transfer the risk faced by the vast majority of semi-commercial or traditional subsistence farmers in LAC.
The introduction of policies to enforce livestock production compliance with the requirements of export markets will enhance the development of livestock insurance in the region. This will occur for two reasons. First, as a result of the strengthening of animal health care and prevention policies in LAC countries, the insurance industry will be willing to offer comprehensive livestock coverage. Second, the LAC governments that implement such policies will assume liabilities in connection with the forced slaughter of animals in case of an outbreak of epizootic disease. In addition to the cost of forced slaughter, governments will also face a huge exposure due to the business interruption caused by the closing of markets (ban on exports) following an outbreak of epizootic disease. Both situations, in countries where proven animal health care and prevention protocols are in place, represent an opportunity for the insurance sector in the region.
LAC region offers several opportunities to develop forestry insurance. An opportunity exists to develop suitable forestry insurance products to transfer the risk faced by forestry
plantations situated in tropical climates. To date, forestry insurance in LAC has focused almost exclusively on transferring the risks (mainly, fire and wind) faced by commercial plantations of standing timber in Chile, Argentina, Uruguay, and Brazil. However, the insurance industry has been having relatively limited success in developing suitable forestry insurance products to transfer the risk faced in tropical areas by plantations of standing timber, such as tropical storms, floods, and diseases. The development of suitable forestry insurance products to be used as collateral for reducing carbon dioxide emissions from deforestation and degradation (REDD) credits is another promising area for forestry insurance.
Opportunities exist to develop aquaculture insurance in the region. Many LAC countries have developed professional aquaculture sectors that produce for demanding markets using international best practices. Aquaculture production is a significant economic activity in northeastern Brazil, northern Peru, Ecuador, Colombia, República Bolivariana de Venezuela, Central American countries, and Mexico. However, so far, aquaculture insurance has been scaled up only in Chile and Mexico.
The development of agricultural insurance in LAC will require governments and the insurance industry to overcome several challenges. In order to explore the opportunities for the development of agricultural insurance in the region, institutional, operational, technical, and financial challenges will need to be overcome. The types of challenges will be different in different countries and geographic areas in the region. There is no one-size-fit-all strategy for overcoming the challenges facing the development of agricultural insurance in LAC.
The development of agricultural insurance in LAC requires a long-term public-private partnership (PPP) effort. International experience shows that it takes a long time to develop a comprehensive series of sustainable agricultural insurance products that are attractive to farmers. The process of promoting and enhancing agricultural insurance in LAC countries will demand significant efforts both from the insurance industry and from governments. PPPs are needed, along with direct government support, to foster agricultural insurance. The private insurance industry in isolation will not be able to overcome all of the challenges facing the development of agricultural insurance in the region. This is particularly true in countries with poorly developed infrastructure for the development of agricultural insurance and agricultural insurance markets.
The institutional framework for agricultural insurance in the region should be strengthened. Fostering agricultural insurance will require the promotion of an adequate legal and regulatory framework. Although in most LAC countries, the existing regulatory framework helps to foster agricultural insurance, regulatory issues in a few countries (such as some Caribbean countries) are still hampering development of the industry. The promotion
88 ] Agricultural Insurance in Latin America
of coinsurance pools that allow the industry to share the start-up and adaptation costs and to reach economies of scale will help to foster the development of agricultural insurance. The integration of agricultural insurance with other products and services received by the farmers becomes critical when the objective is to provide insurance to traditional subsistence and semi-commercial farmers.
The implementation of appropriate risk financing strategies is critical for the development of agricultural insurance in the region. Farmers groups and insurance companies should be encouraged to pool agricultural risks. There are several examples in the region where farmers groups and insurance companies have organized themselves to pool agricultural risks. Further efforts should be made to spread the implementation of such practices to all LAC countries. Government participation in risk financing on the top layers of catastrophic risk should also be promoted to complement reinsurance markets, particularly in countries where agricultural production faces catastrophic risks.
Governments and the private insurance industry need to overcome technical challenges for the sustainable development of agricultural insurance markets in LAC. The assessment of risk exposures arising out of the agricultural sector and the development of proper agricultural risk models to determine the probable maximum loss curves for the main sectors of agricultural production are keys to enabling governments to develop adequate agricultural risk management policies and to promote the development of agricultural insurance. The implementation of proper measures for controlling the accumulation of agricultural risks is still a challenge for the industry in the region. This challenge should be addressed if the objective is to expand agricultural insurance in the region, in particular, to those agricultural activities with high risk exposures such as high-value crops, aquaculture, and forestry. The proper assessment of agricultural production risks and the design of actuarially sound agricultural insurance products rely on the availability of agricultural production and weather data. Governments should invest in better agricultural and weather information services and infrastructure. Support for research and development of innovative agricultural insurance products targeting traditional subsistence and semi-commercial farmers is needed in the region. Governments can play an important role in assisting private sector crop insurers by financing research and development into new products and programs that are suitable to meet the demands for risk transfer that are not being met by the products available in the market.
Operational challenges are still limiting the development of the agricultural insurance market in the region. The development of operational procedures in agricultural insurance is complex and requires specific expertise. Although many countries have developed this expertise, others have not. In these countries, if agricultural insurance is to be promoted, governments should facilitate access to international good practice on
underwriting, policy terms and conditions, and loss adjustment procedures. The focus should be on standard agricultural insurance products, which are simple to operate. Such products are needed if the objective is to provide insurance to small and semi-commercial farmers. Agricultural insurance should be bundled with existing services or networks operating in the rural sector in order to dilute the transaction costs involved in its provision. The creation of technical support units for agricultural insurance should be promoted.
An additional challenge for the development of agricultural insurance in the region is the fiscal capacity to sustain the current levels of government support to agricultural insurance. LAC agricultural insurance markets have been growing rapidly in recent years, fueled mainly by public sector support, both through agricultural insurance premium subsidies and through direct participation in purchasing catastrophic agricultural insurance for small farmers. Governments in the region have been able, so far, to afford the current levels of financial support. However, it is uncertain whether they will be able to maintain those levels of support if the market continues to grow at the current rates.
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Arias, D., and K. Kobarrubias. 2006. Seguros agropecuarios en Meso America: Una oportunidad para desarrollar el mercado financiero rural. Washington, DC: Inter-American Development Bank.
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Hazell, P., C. Pomareda, and A. Valdes. 1992. “The Appropriate Role of Agricultural Insurance in Lower-Income Countries.” Journal of International Development 4 (6): 567–81.
———. 1986. Crop Insurance for Agricultural Development. Baltimore, MD: Johns Hopkins University Press.
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———. 2010. “Seguro agropecuario en América Latina: Situación actual, desafíos y oportunidades.” Paper presented at the eleventh meeting of ALASA, “El seguro agrícola en América: Logros y desafíos,” Cartagena de Indias, Colombia.
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Ministerio de Desenvolvimento Agrario do Brasil. 2010. “Challenges and Opportunities: Brazilian Experience in the Field of Agricultural Insurance.” Paper presented at the ninth meeting of the GFDRR (Global Facility for Disaster Reduction and Recovery) Consultative Group, “Agricultural Insurance in Developing Countries,” Washington, DC, October 6.
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Wenner, M. 2005. Agricultural Insurance Revisited: New Developments and Perspectives in Latin America and the Caribbean. Washington, DC: Inter-American Development Bank.
———. 2005. Natural Disaster Hotspots: A Global Risk Analysis. Disaster Risk Management Series 5. Washington, DC: World Bank.
———. 2007. World Development Report 2008: Agriculture for Development. Washington, DC: World Bank.
———. 2010. World Development Indicators. Washington, DC: World Bank.
94 ] Agricultural Insurance in Latin America
Ann
ex. A
gric
ultu
ral i
nsur
ance
cou
ntry
fac
t sh
eets
Tab
le A
.1 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Arg
enti
na
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
The
agric
ultu
ral
insu
ranc
e m
arke
t is
wel
l dev
elop
ed
and
has
a lo
ng
hist
ory.
The
use
of
agr
icul
tura
l in
sura
nce
is
cons
olid
ated
in
Buen
os A
ires,
San
ta
Fe, C
órdo
ba, E
ntre
Rí
os, a
nd L
a Pa
mpa
pr
ovin
ces.
How
ever
, in
the
rem
aini
ng
prov
ince
s ag
ricul
tura
l in
sura
nce
is f
ar
from
con
solid
ated
.
Hai
l ins
uran
ce w
as
intr
oduc
ed in
189
8 an
d ha
s 95
% o
f th
e to
tal i
nsur
ed
area
and
97%
of
the
tota
l agr
icul
ture
pr
emiu
ms
writ
ten
in A
rgen
tina.
MPC
I sta
rted
to
be o
ffer
ed d
urin
g th
e la
te 1
990s
, bu
t du
e to
the
re
lativ
ely
high
cos
t an
d lo
w g
uara
ntee
s of
fere
d, t
his
prod
uct
has
not
reac
hed
sign
ifica
nt
pene
trat
ion
amon
g fa
rmer
s in
the
co
untr
y.
Fore
stry
insu
ranc
e st
arte
d to
be
offe
red
in r
ecen
t ye
ars.
How
ever
, the
su
pply
of
fore
stry
in
sura
nce
is m
ostly
to
big
Ther
e ar
e 26
in
sura
nce
com
pani
es t
hat
are
appr
oved
by
the
insu
ranc
e re
gula
tor
to o
ffer
agr
icul
tura
l in
sura
nce
prod
ucts
in
thi
s m
arke
t. O
ut
of t
hem
, 23
are
priv
ate
insu
ranc
e co
mpa
nies
, six
are
co
oper
ativ
es, a
nd
one
is a
pub
lic
insu
ranc
e co
mpa
ny.
How
ever
, out
of
the
23 c
ompa
nies
au
thor
ized
to
offe
r ag
ricul
tura
l in
sura
nce,
onl
y 10
of
fer
agric
ultu
ral
insu
ranc
e.
The
two
bigg
est
insu
rers
off
erin
g ag
ricul
tura
l in
sura
nce,
bot
h co
oper
ativ
es,
acco
unt
for
39%
of
writ
ten
prem
ium
s an
d lia
bilit
ies.
A
lmos
t al
l of
the
agric
ultu
ral
insu
ranc
e bu
sine
ss is
cu
rren
tly r
eins
ured
in
the
inte
rnat
iona
l re
insu
ranc
e m
arke
t un
der
quot
a sh
are
and
stop
-loss
tr
eatie
s.
For
hail
crop
in
sura
nce,
the
m
ost
impo
rtan
t de
liver
y ch
anne
l is
age
nt b
roke
rs
who
bel
ong
to t
he
insu
ranc
e co
mpa
ny
netw
ork
(mai
nly
coop
erat
ives
).
Priv
ate
insu
ranc
e co
mpa
nies
do
not
have
a d
evel
oped
ne
twor
k in
the
co
untr
ysid
e an
d ha
ve t
o re
ly o
n re
tail
brok
ers
in
orde
r to
rea
ch
farm
ers.
MPC
I and
for
estr
y bu
sine
ss a
re p
lace
d m
ostly
thr
ough
re
tail
brok
ers
and
coop
erat
ives
.
Curr
ently
, fed
eral
go
vern
men
t su
ppor
t to
ag
ricul
tura
l ins
uran
ce is
lim
ited
to t
he p
rovi
sion
of
tec
hnic
al a
ssis
tanc
e to
pr
ovin
ces
and
insu
ranc
e co
mpa
nies
for
the
de
velo
pmen
t of
agr
icul
tura
l in
sura
nce.
The
ass
ista
nce
prov
ided
by
the
fede
ral
gove
rnm
ent
cons
ists
of
info
rmat
ion
and
capa
city
bu
ildin
g, p
rodu
ct r
esea
rch
and
deve
lopm
ent,
and
ris
k m
appi
ng.
Gov
ernm
ent
supp
ort
to
agric
ultu
ral i
nsur
ance
is
cha
nnel
ed t
hrou
gh
the
Agr
icul
ture
Ris
k O
ffic
e (O
ficin
a de
Rie
sgo
Agr
opec
uario
) of
the
Min
istr
y of
Agr
icul
ture
, Li
vest
ock,
and
Fis
herie
s,
whi
ch is
the
agr
icul
tura
l in
sura
nce
tech
nica
l sup
port
un
it in
the
cou
ntry
.
Subn
atio
nal g
over
nmen
ts
part
icip
ate
activ
ely
in
man
agin
g ag
ricul
tura
l in
sura
nce
sche
mes
. The
pr
ovin
ces
of M
endo
za, R
ío
Neg
ro, N
euqu
én, C
hubu
t,
and
Chac
o ha
ve t
heir
own
prog
ram
s in
pla
ce. I
n 20
09
prov
inci
al g
over
nmen
ts
spen
t U
S$5.
5 m
illio
n, b
oth
in s
ubsi
dizi
ng a
gric
ultu
ral
insu
ranc
e pr
emiu
ms
and
in p
urch
asin
g ca
tast
roph
ic
insu
ranc
e co
vera
ge f
or t
he
subn
atio
nal (
prov
inci
al)
gove
rnm
ents
.
Crop
Named-peril
The
trad
ition
al n
amed
-per
il co
vera
ge
is b
asic
hai
l plu
s fir
e in
sura
nce.
In
addi
tion
to h
ail t
he f
arm
er c
an e
lect
to
cove
r w
ind,
fre
eze,
exc
ess
moi
stur
e at
ha
rves
t, a
nd e
xces
s ra
in. S
tand
ard
hail
cove
rage
has
a 6
% t
otal
sum
insu
red
fran
chis
e, b
ut s
ever
al a
ltern
ativ
es in
te
rms
of f
ranc
hise
s an
d de
duct
ible
s ar
e av
aila
ble
in t
he m
arke
t. O
rigin
al
gros
s ra
tes
for
hail
stan
dard
cov
erag
e va
ries
from
2%
in lo
w-r
isk
area
s up
to
8%
in r
isk-
pron
e ar
eas.
Alm
ost
all c
rops
can
be
insu
red
unde
r th
is
prod
uct
The
rate
s va
ry a
ccor
ding
to
the
insu
red
crop
, the
reg
ion,
and
the
se
lect
ed d
educ
tible
or
fran
chis
e le
vel.
Add
ition
al c
over
age
is o
nly
avai
labl
e fo
r w
heat
, soy
bean
s, c
orn,
bar
ley,
an
d su
nflo
wer
. Orig
inal
rat
es v
ary
depe
ndin
g on
the
cro
p, lo
catio
n, a
nd
type
of
addi
tiona
l per
il. F
or e
xam
ple,
or
igin
al g
ross
rat
es v
ary
from
1 t
o 3%
fo
r fr
eeze
and
fro
m 1
.5 t
o 2.
5% f
or
win
d. D
educ
tible
s ap
plie
d fo
r th
is k
ind
of a
dditi
onal
cov
er c
an r
each
20%
of
the
tota
l sum
insu
red.
1. C
rop
insu
ranc
e:
Hig
h pe
netr
atio
n.
137,
000
hail
insu
ranc
e po
licie
s w
ere
issu
ed (4
5%
of f
arm
s) s
prea
d ov
er 1
9 m
illio
n he
ctar
es (5
0% o
f th
e to
tal c
ultiv
ated
ar
ea).
2. L
ives
tock
in
sura
nce:
In
sign
ifica
nt
pene
trat
ion.
A
ppro
xim
atel
y 30
0 in
sura
nce
polic
ies
cove
r ab
out
2,00
0 he
ad o
f ca
ttle
out
of
an
estim
ated
st
ock
of 5
0 m
illio
n.
3. F
ores
try
insu
ranc
e:
App
roxi
mat
ely
40 in
sura
nce
polic
ies
are
issu
ed
in t
he c
ount
ry.
The
tota
l ins
ured
ar
ea a
mou
nts
to
130,
000
hect
ares
of
sta
ndin
g tim
ber,
acco
untin
g fo
r 5%
of
the
tot
al m
an-
mad
e fo
rest
ed a
rea
in A
rgen
tina.
4. R
emai
ning
line
s of
bus
ines
s: N
o pe
netr
atio
n. E
ach
line
has
less
tha
n 50
issu
ed p
olic
ies.
187,
000,
000
5,44
3,00
0,00
0
MPCI
MPC
I is
offe
red
only
to
soyb
eans
, co
rn, s
unflo
wer
, whe
at, a
nd b
arle
y cr
ops.
Gua
rant
eed
yiel
ds u
nder
thi
s co
vera
ge v
ary
from
40
to 6
5% o
f ei
ther
the
act
ual p
rodu
ctio
n hi
stor
y of
th
e zo
ne o
r th
e ex
pect
ed y
ield
as
it is
de
term
ined
by
the
insu
ranc
e co
mpa
ny
surv
eyor
. The
pro
duct
is o
ffer
ed o
n an
indi
vidu
al b
asis
or
on a
glo
bal
MPC
I por
tfol
io b
asis
(all
crop
s in
all
loca
tions
). O
rigin
al g
ross
rat
es f
or
indi
vidu
al M
PCI v
ary
from
4 t
o 7%
of
the
tota
l sum
insu
red,
dep
endi
ng o
n th
e cr
op, r
egio
n, a
nd c
over
age
leve
l. O
rigin
al g
ross
rat
es v
ary
from
1 t
o 5%
, dep
endi
ng o
n th
e cr
op, r
egio
n,
port
folio
dis
trib
utio
n, a
nd c
over
age
leve
l.
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
fore
stry
ent
erpr
ises
, an
d th
e pr
oduc
t ha
s no
t re
ache
d si
gnifi
cant
leve
ls o
f pe
netr
atio
n in
the
co
untr
y.
Des
pite
the
im
port
ance
of
catt
le p
rodu
ctio
n in
Arg
entin
a, t
he
pene
trat
ion
of
catt
le in
sura
nce
is
insi
gnifi
cant
.
At
the
time
of w
ritin
g,
the
fede
ral g
over
nmen
t ha
s pr
esen
ted
a bi
ll to
par
liam
ent
for
the
crea
tion
of t
he In
tegr
ated
A
gric
ultu
ral I
nsur
ance
Sy
stem
(SIC
AF)
. The
SIC
AF
prom
otes
the
cre
atio
n of
pu
blic
-priv
ate
part
ners
hips
fo
r ag
ricul
tura
l ins
uran
ce,
incl
udin
g (a
) the
pro
visi
on
of s
ubsi
dies
for
agr
icul
tura
l in
sura
nce
prem
ium
s;
(b) t
he p
artic
ipat
ion
of g
over
nmen
t in
the
ca
tast
roph
ic r
isk
laye
rs; a
nd
(c) i
nfor
mat
ion
and
capa
city
bu
ildin
g in
agr
icul
tura
l ris
k m
anag
emen
t. S
ICA
F’s
budg
et a
mou
nts
to U
S$75
m
illio
n.
Crop
Index-based
Des
pite
exp
erie
nces
with
bot
h ar
ea-y
ield
inde
x an
d w
eath
er in
dex
insu
ranc
e pr
oduc
ts in
the
pas
t, n
o w
eath
er in
dex
insu
ranc
e po
licie
s ar
e in
pl
ace
in t
his
mar
ket.
Are
a-yi
eld
inde
x in
sura
nce
is li
mite
d to
one
fac
ulta
tive
polic
y is
sued
to
a la
rge-
scal
e ag
ribus
ines
s fir
m.
Livestock
Animal mortality
Live
stoc
k in
sura
nce
cove
rs a
nim
al
mor
talit
y pl
us s
ome
ende
mic
dis
ease
s bu
t ex
clud
es p
ande
mic
s an
d th
eft.
O
rigin
al g
ross
rat
es a
re a
roun
d 4
to
6%.
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
, win
d, h
ail,
and
free
ze. A
dditi
onal
ris
k lik
e de
bris
re
mov
al a
nd f
ire-f
ight
ing
expe
nses
ar
e co
vere
d. V
alua
tion
crite
ria in
cas
e of
inde
mni
ties
coul
d be
for
mat
ion
cost
or
com
mer
cial
val
ue, d
epen
ding
on
the
age
of
plan
tatio
n. C
over
age
is
subj
ect
to d
educ
tible
s of
10%
of
the
loss
on
each
and
eve
ry lo
ss a
nd a
nnua
l ag
greg
ate
inde
mni
ty li
mits
. Orig
inal
gr
oss
rate
s va
ry f
rom
0.3
% u
p to
1%
of
the
tot
al s
um in
sure
d, d
epen
ding
on
the
reg
ion,
typ
e of
pla
ntat
ion,
pr
otec
tion
mea
sure
s, c
ontin
genc
y pl
ans
impl
emen
ted
by t
he in
sure
d,
and
dedu
ctib
les
and
inde
mni
ty li
mits
.
Greenhouse
Gre
enho
use
insu
ranc
e co
vers
loss
es o
n gr
eenh
ouse
str
uctu
res
and
cont
ents
(c
rops
) due
to
fire,
win
dsto
rm, h
ail,
and
flood
. Ded
uctib
les
of 1
0% o
f th
e lo
ss a
pply.
Orig
inal
gro
ss r
ates
var
y,
depe
ndin
g of
the
typ
e of
str
uctu
re
and
the
regi
on w
here
the
ris
k is
lo
cate
d, b
ut v
ary
from
2 t
o 6
per
mile
.
Bloodstock
Bloo
dsto
ck in
sura
nce
polic
ies
cove
r hi
gh-v
alue
ani
mal
s ag
ains
t ac
cide
ntal
mor
talit
y, m
orta
lity
durin
g tr
ansp
orta
tion,
loss
of
func
tion,
and
ve
terin
ary
and
surg
ical
exp
ense
s.
Ded
uctib
le a
nd a
nnua
l agg
rega
te
inde
mni
ty li
mits
app
ly, d
epen
ding
on
the
type
of
anim
al, a
ge, a
nd u
se.
96 ] Agricultural Insurance in Latin America
Tab
le A
.2 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Bo
livia
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
was
in
trod
uced
to
the
coun
try
in 2
008.
Boliv
ian
com
pani
es
have
mad
e st
rate
gic
allia
nces
w
ith A
rgen
tine
insu
ranc
e co
mpa
nies
and
br
oker
s in
ord
er t
o de
velo
p ag
ricul
tura
l in
sura
nce
for
the
mar
ket.
Few
agr
icul
tura
l in
sura
nce
mut
ual
sche
mes
pro
mot
ed
by t
he in
tern
atio
nal
dono
r co
mm
unity
ar
e cu
rren
tly in
pl
ace
in B
oliv
ia.
Two
insu
ranc
e co
mpa
nies
off
er
agric
ultu
ral
insu
ranc
e pr
oduc
ts
in B
oliv
ia.
The
agric
ultu
ral
insu
ranc
e bu
sine
ss
in B
oliv
ia is
mai
nly
rein
sure
d by
A
rgen
tine
insu
ranc
e co
mpa
nies
tha
t ac
t as
a r
eins
urer
for
th
eir
coun
terp
arts
in
Boliv
ia.
The
deliv
ery
chan
nels
for
ag
ricul
tura
l in
sura
nce
are
insu
ranc
e br
oker
s an
d a
netw
ork
of c
rop
inpu
t su
pplie
rs.
Boliv
ia m
ay b
e th
e on
ly
coun
try
that
add
ress
es
agric
ultu
ral i
nsur
ance
in it
s co
nstit
utio
n (A
rtic
le 4
07.4
).Th
e go
vern
men
t of
Bol
ivia
ha
s en
acte
d an
am
bitio
us
law
to
prom
ote
crop
in
sura
nce
in t
he c
ount
ry.
This
law
pro
mot
es a
co
mpr
ehen
sive
agr
icul
tura
l in
sura
nce
sche
me,
aim
ed
to p
rovi
de M
PCI c
over
age
for
up t
o 80
per
cent
of
the
actu
al p
rodu
ctio
n hi
stor
y (A
PH) i
n ea
ch o
f th
e de
part
men
ts.
The
law
als
o co
ntem
plat
es
the
crea
tion
of a
n in
sura
nce
fund
tha
t w
ill b
e fin
ance
d by
the
gov
ernm
ent,
the
se
ctor
s co
ncer
ned
with
ag
ricul
tura
l pro
duct
ion,
and
th
e in
tern
atio
nal c
omm
unity
. H
owev
er, t
he la
w d
oes
not
men
tion
the
amou
nt
esta
blis
hed
for
such
a f
und.
The
law
con
side
rs t
he
prov
isio
n of
cro
p in
sura
nce
prem
ium
sub
sidi
es, b
ut d
oes
not
set
the
amou
nt o
f su
ch
subs
idy.
Alth
ough
the
agr
icul
tura
l in
sura
nce
sche
me
in B
oliv
ia
aim
s to
pro
vide
insu
ranc
e co
vera
ge f
or a
ll cr
ops
and
all r
egio
ns in
the
cou
ntry
, cr
op in
sura
nce
will
initi
ally
be
off
ered
for
pot
ato,
ric
e,
corn
, whe
at, q
uino
a, a
nd
soyb
ean
crop
s.
Crop
Named-peril
Not
off
ered
Info
rmat
ion
is n
ot
avai
labl
e.20
0,00
04,
000,
000
MPCI
Initi
ally
MPC
I pol
icie
s ar
e of
fere
d ba
sica
lly t
o co
ver
soyb
ean
prod
uctio
n (s
umm
er a
nd w
inte
r cr
ops)
. Eve
ntua
lly,
the
prod
uct
will
be
offe
red
to o
ther
cr
ops.
The
gua
rant
eed
yiel
ds u
nder
th
is p
olic
y va
ry f
rom
40
to 6
0% A
PH,
depe
ndin
g on
the
cro
p, r
egio
n, a
nd
guar
ante
ed y
ield
. The
se p
rodu
cts
are
offe
red
on a
n in
divi
dual
bas
is a
nd
are
linke
d m
ainl
y to
inpu
t su
pplie
rs’
loan
s. T
he p
olic
y co
vers
all
type
s of
w
eath
er r
isks
and
fire
, but
exc
lude
s un
cont
rolla
ble
biol
ogic
al p
erils
.
Orig
inal
gro
ss r
ates
for
indi
vidu
al
MPC
I var
y fr
om 4
to
8% o
f th
e to
tal
sum
insu
red,
dep
endi
ng o
n th
e le
vel
of c
over
age,
the
insu
red
crop
, and
the
re
gion
.
Index-based
Wea
ther
inde
x-ba
sed
insu
ranc
e w
as o
ffer
ed in
the
cou
ntry
in 2
006.
H
owev
er, n
ot a
sin
gle
polic
y w
as s
old,
an
d th
e pr
oduc
t w
as d
isco
ntin
ued.
Livestock
Animal mortality
Not
off
ered
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
The
gove
rnm
ent
of B
oliv
ia
is a
dvoc
atin
g th
e re
gula
tion
of t
his
law
, and
non
e of
its
bene
fits
has
been
im
plem
ente
d ye
t.
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
and
win
d da
mag
e. A
dditi
onal
ris
ks li
ke d
ebris
re
mov
al a
nd f
ire-f
ight
ing
expe
nses
are
co
vere
d.
Valu
atio
n cr
iteria
in c
ase
of
inde
mni
ties
coul
d be
for
mat
ion
cost
or
com
mer
cial
val
ue, d
epen
ding
on
the
age
of p
lant
atio
n. C
over
age
is
subj
ect
to d
educ
tible
s of
10%
of
the
loss
on
each
and
eve
ry lo
ss a
nd a
nnua
l ag
greg
ate
inde
mni
ty li
mits
.
Des
pite
sev
eral
att
empt
s to
intr
oduc
e fo
rest
ry in
sura
nce
in t
he c
ount
ry, s
o fa
r, no
for
estr
y in
sura
nce
polic
ies
have
be
en is
sued
in B
oliv
ia.
Greenhouse
Not
off
ered
Bloodstock
Not
off
ered
98 ] Agricultural Insurance in Latin America
Tab
le A
.3 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Bra
zil
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
was
in
trod
uced
in
Braz
il in
195
5 by
th
e Co
mpa
nhia
N
acio
nal d
o Se
guro
, a p
ublic
in
sura
nce
com
pany
th
at o
pera
ted
until
th
e m
id-1
990s
. In
199
8, p
rivat
e in
sura
nce
com
pani
es s
tart
ed
to o
ffer
hai
l cro
p in
sura
nce
for
frui
ts
in s
outh
ern
Braz
il.
Then
in 2
003
the
com
pani
es
expa
nded
the
ir lin
e of
bus
ines
s to
m
ulti-
peril
cro
p in
sura
nce
(MPC
I).
This
mar
ket
is
grow
ing
rapi
dly,
th
anks
to
finan
cial
su
ppor
t fr
om t
he
fede
ral g
over
nmen
t as
wel
l as
man
y st
ate
gove
rnm
ents
. A
lthou
gh f
ar t
o re
ach
mat
urity
, th
is m
arke
t is
the
th
ird a
gric
ultu
ral
insu
ranc
e m
arke
t in
Lat
in A
mer
ica
and
has
enor
mou
s gr
owth
pot
entia
l.
Crop
insu
ranc
e is
the
mai
n ag
ricul
tura
l in
sura
nce
prod
uct
and
acco
unts
with
92
% o
f pr
emiu
ms.
Nin
e in
sura
nce
com
pani
es o
ffer
ag
ricul
tura
l in
sura
nce
prod
ucts
in
Bra
zil.
All
of
them
are
priv
ate
com
pani
es.
The
mai
n in
sura
nce
com
pany
is c
lose
ly
rela
ted
with
the
na
tiona
l ban
k an
d ac
coun
ts w
ith 5
1%
of t
otal
mar
ket
prem
ium
s.
The
othe
r fo
ur
com
pani
es c
ompe
te
for
the
rem
aini
ng
mar
ket.
Two
com
pani
es
offe
r liv
esto
ck
and
bloo
dsto
ck
insu
ranc
e.
Five
com
pani
es o
ffer
fo
rest
ry in
sura
nce.
Tw
o of
the
se w
ork
excl
usiv
ely
with
th
is p
rodu
ct o
n a
facu
ltativ
e ba
sis.
100%
of
the
agric
ultu
ral
insu
ranc
e bu
sine
ss
in B
razi
l is
rein
sure
d w
ith in
tern
atio
nal
rein
sure
rs a
nd t
he
loca
l rei
nsur
er,
the
Braz
ilian
Re
insu
ranc
e In
stitu
te (I
RB).
The
deliv
ery
chan
nels
dep
end
on t
he li
ne o
f bu
sine
ss.
For
MPC
I the
mai
n de
liver
y ch
anne
ls
are
bank
s, f
inan
cial
in
stitu
tions
, co
oper
ativ
es, a
nd
inpu
t su
pplie
rs.
In t
he c
ase
of
hail
insu
ranc
e an
d fo
rest
ry,
bloo
dsto
ck, a
nd
lives
tock
insu
ranc
e,
reta
il br
oker
s ar
e th
e m
ain
chan
nel.
The
fede
ral
gove
rnm
ent
also
sup
port
s ag
ricul
tura
l in
sura
nce
by
shar
ing
part
of
the
cata
stro
phic
ris
k fa
ced
by
agric
ultu
ral
prod
uctio
n in
a
spec
ial P
PP f
und
crea
ted
with
thi
s ob
ject
ive,
the
Ru
ral C
atas
trop
he
Fund
(Fun
do d
e Ca
tast
rofe
Rur
al).
This
fun
d pr
ovid
es
stop
-loss
cov
erag
e to
priv
ate
insu
ranc
e co
mpa
nies
off
erin
g ag
ricul
tura
l in
sura
nce.
The
fu
nd is
fin
ance
d w
ith c
ontr
ibut
ions
fr
om t
he in
sura
nce
indu
stry
, the
go
vern
men
t,
the
IRB,
and
in
tern
atio
nal
rein
sure
rs.
Sinc
e 20
05 t
he f
eder
al
gove
rnm
ent
has
been
su
bsid
izin
g ag
ricul
tura
l in
sura
nce
prem
ium
s.
Som
e su
bnat
iona
l go
vern
men
ts, l
ike
São
Paul
o,
have
sta
rted
to
com
plem
ent
fede
ral g
over
nmen
t su
bsid
ies.
Fede
ral g
over
nmen
t su
bsid
ies
rang
e fr
om 3
0 to
60%
of
the
prem
ium
, de
pend
ing
on t
he c
rop
and
stat
e of
the
fed
erat
ion.
The
fede
ral b
udge
t fo
r ag
ricul
tura
l ins
uran
ce
subs
idiz
atio
n in
200
9 w
as
US$
149
mill
ion,
whi
ch, i
n ad
ditio
n, is
com
plem
ente
d by
app
roxi
mat
ely
US$
15
mill
ion
finan
ced
by s
tate
go
vern
men
ts.
Fede
ral g
over
nmen
t m
anag
es t
his
subs
idy
sche
me
thro
ugh
the
Min
istr
y of
Agr
icul
ture
but
doe
s no
t es
tabl
ish
the
crite
ria f
or
gran
ting
subs
idie
s.
The
fede
ral g
over
nmen
t al
so s
uppo
rts
agric
ultu
ral
insu
ranc
e by
sha
ring
part
of
the
cata
stro
phic
ris
k fa
ced
by a
gric
ultu
ral p
rodu
ctio
n in
a
spec
ial P
PP f
und
crea
ted
with
thi
s ob
ject
ive,
the
Rur
al
Cata
stro
phe
Fund
(Fun
do d
e Ca
tast
rofe
Rur
al).
This
fun
d pr
ovid
es s
top-
loss
cov
erag
e to
priv
ate
insu
ranc
e co
mpa
nies
off
erin
g ag
ricul
tura
l ins
uran
ce.
The
fund
is f
inan
ced
with
co
ntrib
utio
ns f
rom
the
in
sura
nce
indu
stry
, the
go
vern
men
t, t
he IR
B, a
nd
inte
rnat
iona
l rei
nsur
ers.
Crop
Named-peril
Nam
ed-p
eril
polic
ies
are
offe
red
for
crop
s, v
iney
ards
, fru
it pl
anta
tions
, and
ve
geta
ble
crop
s in
Rio
Gra
nde
do S
ul,
Sant
a Ca
tarin
a, P
aran
á, a
nd S
ão P
aulo
st
ates
. Hai
l is
the
basi
c co
vere
d pe
ril,
but
for
som
e cr
ops
and
plan
tatio
ns,
free
ze o
r ex
cess
rai
n ca
n al
so b
e se
lect
ed. O
rigin
al g
ross
rat
es v
ary
from
6
to 9
% o
f th
e to
tal s
um in
sure
d,
depe
ndin
g on
the
ded
uctib
le le
vel,
the
type
of
crop
, and
the
reg
ion.
For
thi
s co
vera
ge, a
min
imum
ded
uctib
le o
f 20
% a
pplie
s.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion,
bu
t th
e ad
optio
n ra
te is
gro
win
g ra
pidl
y. In
200
9,
6.7
mill
ion
hect
ares
(10%
of
culti
vate
d ar
ea)
wer
e in
sure
d.
Acc
ordi
ng t
o in
form
atio
n co
llect
ed f
or t
he
stud
y, 7
2,00
0 in
sura
nce
polic
ies
wer
e is
sued
in
2009
.
2. L
ives
tock
in
sura
nce:
Low
pe
netr
atio
n. O
nly
51,0
00 h
ead
of
catt
le a
re in
sure
d,
whi
ch r
epre
sent
s le
ss t
han
1% o
f th
e na
tiona
l her
d.
3. F
ores
try
insu
ranc
e: L
ow
pene
trat
ion.
Onl
y 68
,000
hec
tare
s ou
t of
5 m
illio
n fo
rest
ed h
ecta
res
(less
tha
n 2%
) are
in
sure
d.
255,
900,
000
5,80
6,00
0,00
0
MPCI
MPC
I pol
icie
s ar
e of
fere
d fo
r so
ybea
n,
corn
, cor
n do
uble
cro
pped
, pea
nut,
su
garc
ane,
and
whe
at c
rops
in t
he
stat
es o
f Sã
o Pa
ulo,
Mat
o G
ross
o,
Mat
o G
roso
do
Sul,
Goi
as, B
ahia
, M
inas
Ger
ais,
Toc
antin
s, M
aran
hao,
Pa
raná
, San
ta C
atar
ina,
and
Fed
eral
D
istr
ict.
Gua
rant
eed
yiel
ds c
over
ed v
ary
from
50
to
70%
of
the
actu
al p
rodu
ctio
n hi
stor
y (A
PH),
depe
ndin
g on
the
cro
p,
regi
on, a
nd g
uara
ntee
d yi
eld.
The
se
prod
ucts
are
link
ed t
o ba
nk o
r in
put
supp
lier
loan
s.
Cove
red
risks
are
fire
, lig
htin
g,
drou
ght,
flo
ods,
exc
ess
rain
, fre
eze,
ex
cess
ive
heat
, and
win
d. P
ests
and
di
seas
es a
re t
otal
ly e
xclu
ded.
Orig
inal
gro
ss r
ates
for
indi
vidu
al M
PCI
vary
fro
m 2
to
8% o
f th
e to
tal s
um
insu
red
for
cove
rage
leve
ls o
f 50
% o
f A
PH a
nd f
rom
4 t
o 10
% f
or c
over
age
leve
ls o
f 70
% o
f A
PH. O
rigin
al g
ross
ra
tes
vary
, dep
endi
ng o
n th
e cr
op a
nd
the
regi
on.
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Live
stoc
k an
d bl
oods
tock
in
sura
nce
is t
he
seco
nd m
ost
impo
rtan
t pr
oduc
t,
with
3%
of
tota
l m
arke
t pr
emiu
ms.
Fore
stry
insu
ranc
e,
whi
ch s
tart
ed in
20
04, i
s th
e th
ird
mos
t im
port
ant
prod
uct,
with
2%
of
tot
al m
arke
t pr
emiu
ms.
In a
dditi
on t
o th
e co
mm
erci
al
farm
ers’
ag
ricul
tura
l in
sura
nce
publ
ic-
priv
ate
part
ners
hip
(PPP
), th
e fe
dera
l go
vern
men
t ha
s im
plem
ente
d PR
OA
GRO
(Bra
zilia
n G
uara
ntee
Pr
ogra
m) a
nd S
EAF
(Insu
ranc
e fo
r Fa
mily
Agr
icul
ture
).
Crop
Index-based
Are
a-yi
eld
inde
x-ba
sed
insu
ranc
e w
as in
trod
uced
in t
he s
tate
of
Rio
Gra
nde
do S
ul in
199
8. T
his
insu
ranc
e in
dem
nifie
s in
sure
d fa
rmer
s w
hen
the
aver
age
yiel
d as
det
erm
ined
by
the
Inst
ituto
Bra
sile
iro d
e Es
tadi
stic
as
for
the
mun
icip
ality
whe
re t
he
insu
red
farm
is lo
cate
d fa
lls s
hort
of
a gu
aran
teed
yie
ld e
quiv
alen
t to
80%
of
APH
in e
ach
mun
icip
ality
. So
far,
the
only
cro
p in
sure
d is
cor
n in
Rio
G
rand
e do
Sul
. The
min
imum
orig
inal
gr
oss
rate
for
are
a-yi
eld
inde
x-ba
sed
MPC
I is
3.54
%. I
n 20
10 a
larg
e-sc
ale
agrib
usin
ess
firm
s bo
ught
are
a-yi
eld
inde
x in
sura
nce
to p
rote
ct it
s po
rtfo
lio
of c
rops
and
far
ms.
Livestock and bloodstock
Catt
le, g
oats
, she
ep, h
orse
s, a
nd p
ork
can
be in
sure
d.
Basi
c liv
esto
ck in
sura
nce
cove
rs d
eath
ar
isin
g fr
om a
ccid
ent,
dis
ease
s,
asph
yxia
, ele
ctro
cutio
n, f
ire, l
ight
ning
, po
ison
ing,
ani
mal
bite
s, a
bort
ion,
va
ccin
e in
ocul
atio
ns, a
nd s
laug
hter
du
e to
pub
lic o
rder
or
med
ical
st
ipul
atio
n. F
or c
attle
, ins
uran
ce a
lso
cove
rs d
eath
s du
e to
ana
plas
mos
is
and
babe
sios
is, f
or a
nim
als
born
in
end
emic
zon
es. A
dditi
onal
ly
the
insu
red
can
choo
se t
o co
ver
tran
spor
tatio
n, p
reda
tion,
clin
ical
, su
rger
y, a
nd a
utop
sy, f
ertil
ity, p
enile
he
mat
oma,
pre
gnan
cy, e
xten
sion
of
inte
rnat
iona
l ter
ritor
y, a
nd h
erd
cove
r.
Orig
inal
gro
ss r
ates
var
y de
pend
ing
on
the
type
of
anim
al, a
ge, a
nd z
one.
ForestryFo
rest
ry in
sura
nce
cove
rs t
he
stan
ding
tim
ber
valu
e of
com
mer
cial
fo
rest
ry p
lant
atio
ns a
gain
st f
ire,
win
d, f
reez
e, c
old
win
d, h
ail,
and
flood
. Fire
-fig
htin
g ex
pens
es a
re a
lso
cove
red.
Val
uatio
n cr
iteria
in c
ase
of in
dem
nitie
s co
uld
be f
orm
atio
n co
st o
r co
mm
erci
al v
alue
, dep
endi
ng
on t
he a
ge o
f th
e pl
anta
tion.
The
in
sura
nce
cove
rage
is s
ubje
ct t
o a
dedu
ctib
le o
f 10
% o
f th
e lo
ss o
n ea
ch
and
ever
y lo
ss a
nd a
nnua
l agg
rega
te
inde
mni
ty li
mits
. Orig
inal
gro
ss r
ates
va
ry f
rom
3 p
er m
ile u
p to
1%
of
the
tota
l sum
insu
red,
dep
endi
ng o
n th
e re
gion
, pla
ntat
ion,
pro
tect
ion,
co
ntin
genc
y pl
ans,
ded
uctib
le, a
nd
inde
mni
ty li
mits
.
100 ] Agricultural Insurance in Latin America
Tab
le A
.4 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Ch
ile
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Chile
an a
gric
ultu
ral
insu
ranc
e, a
lthou
gh
a re
lativ
ely
new
m
arke
t, is
wel
l de
velo
ped.
The
mai
n lin
e of
bu
sine
ss is
for
estr
y in
sura
nce,
whi
ch
was
intr
oduc
ed in
19
90.
Aqu
acul
ture
in
sura
nce
(bas
ical
ly
for
the
salm
on
indu
stry
) sta
rted
in
199
9, a
nd m
ost
of t
he in
dust
ry is
in
sure
d lo
cally
or
unde
r in
tern
atio
nal
prog
ram
s.
Crop
insu
ranc
e in
Chi
le d
ates
to
1981
, whe
n th
e Co
nsor
cio
Nac
iona
l de
Seg
uros
in
trod
uced
an
indi
vidu
al-g
row
er
mul
ti-pe
ril c
rop
insu
ranc
e (M
PCI)
yiel
d-sh
ortf
all
polic
y. T
he p
rogr
am
was
dis
cont
inue
d in
19
98 d
ue t
o la
ck o
f de
man
d.
In 2
000
a po
ol
of t
hree
loca
l co
mm
erci
al
insu
ranc
e co
mpa
nies
la
unch
ed t
he
natio
nally
su
bsid
ized
MPC
I sc
hem
e. T
he p
ool
only
ope
rate
d fo
r tw
o ye
ars
befo
re
the
insu
rers
ele
cted
to
und
erw
rite
thei
r bu
sine
ss s
epar
atel
y.
Five
priv
ate
insu
ranc
e co
mpa
nies
off
er
agric
ultu
ral
insu
ranc
e pr
oduc
ts
in t
he C
hile
an
mar
ket.
Out
of
the
five,
tw
o of
fer
crop
, aq
uacu
lture
, and
fo
rest
ry in
sura
nce.
Th
e re
mai
ning
thr
ee
offe
r ex
clus
ivel
y fo
rest
ry in
sura
nce.
All
of t
he in
sura
nce
com
pani
es
part
icip
atin
g in
th
e cr
op in
sura
nce
prog
ram
are
re
insu
red
in t
he
inte
rnat
iona
l mar
ket
unde
r qu
ota
shar
e an
d st
op-lo
ss
rein
sura
nce
trea
ties.
One
sin
gle-
crop
in
sura
nce
busi
ness
is
pla
ced
on a
fa
culta
tive
basi
s in
th
e m
arke
t.
All
of t
he f
ores
try
risks
writ
ten
by
the
loca
l ins
uran
ce
indu
stry
are
re
insu
red
on a
qu
ota
shar
e ba
sis.
The
insu
ranc
e co
mpa
nies
re
insu
re a
ll of
th
eir
aqua
cultu
re
busi
ness
with
the
in
tern
atio
nal m
arke
t un
der
quot
a sh
are
and
cata
stro
phic
ex
cess
-of-
loss
fa
culta
tive
and
sem
iaut
omat
ic
trea
ties.
The
deliv
ery
chan
nels
dep
end
on t
he li
ne o
f bu
sine
ss.
For
exam
ple,
for
cr
op in
sura
nce
the
mai
n de
liver
y ch
anne
ls a
re b
anks
an
d m
icro
finan
cial
in
stitu
tions
(the
Sm
all F
arm
er
Lend
ing
Bank
and
Ba
nco
de F
omen
to)
and
agric
ultu
ral
indu
strie
s (s
uch
as
IAN
SA f
or s
ugar
be
ets)
.
Fore
stry
and
aq
uacu
lture
bu
sine
ss is
pla
ced
thro
ugh
insu
ranc
e br
oker
s.
The
Chile
an m
arke
t is
a b
roke
r’s
mar
ket.
In o
ther
w
ords
, reg
ardl
ess
of t
he d
eliv
ery
chan
nel u
sed
to
appr
oach
the
fa
rmer
s, r
etai
l br
oker
s m
anag
e th
e re
latio
n w
ith t
he b
ank,
ag
ro in
dust
ry,
or g
over
nmen
t in
stitu
tion
used
to
del
iver
the
in
sura
nce
prod
uct.
Gov
ernm
ent
supp
ort
for
agric
ultu
ral i
nsur
ance
is
limite
d to
sup
port
ing
crop
in
sura
nce,
mai
nly
for
smal
l- an
d m
ediu
m-s
ize
farm
ers.
In
sura
nce
for
fore
stry
and
aq
uacu
lture
doe
s no
t re
ceiv
e an
y ty
pe o
f su
ppor
t fr
om t
he
gove
rnm
ent.
The
gove
rnm
ent
supp
orts
cr
op in
sura
nce
in t
wo
way
s:
(a) c
rop
insu
ranc
e pr
emiu
m
subs
idie
s an
d (b
) sup
port
fo
r pr
oduc
t re
sear
ch a
nd
deve
lopm
ent
and
capa
city
bu
ildin
g.
Gov
ernm
ent
activ
ely
supp
orts
cro
p in
sura
nce
in C
hile
thr
ough
the
im
plem
enta
tion
of c
rop
insu
ranc
e pr
emiu
m
subs
idie
s. T
he C
hile
an
sche
me
targ
ets
smal
l- an
d m
ediu
m-s
ize
farm
ers.
It
is b
ased
on
a si
ngle
fix
ed
subs
idy
of a
ppro
xim
atel
y 50
% o
f th
e pr
emiu
m, w
ith
a ba
selin
e su
bsid
y pe
r po
licy
of a
ppro
xim
atel
y U
$96
and
a m
axim
um s
ubsi
dy
per
pers
on p
er y
ear
of
appr
oxim
atel
y U
$2,3
40.
The
gove
rnm
ent
bure
au in
ch
arge
of
impl
emen
tatio
n is
CO
MSA
, whi
ch is
a
subs
idia
ry o
f th
e Co
rpor
ació
n N
acio
nal d
e Fo
men
to.
Fede
ral g
over
nmen
t ex
pend
iture
s to
sup
port
cr
op in
sura
nce
amou
nted
to
US$
3.1
mill
ion
in 2
009.
Crop
MPCI
The
stan
dard
pol
icy
wor
ding
insu
res
crop
s ag
ains
t dr
ough
ts, f
lood
s, f
rost
, w
ind,
sno
w, a
nd h
ail f
or a
lmos
t al
l of
the
ann
ual c
rops
sow
n in
Chi
le
(PO
L 1
03 0
62 a
nd P
OL
1 03
050
). A
lthou
gh t
hese
pol
icie
s ex
pres
sly
nam
e th
e co
vere
d pe
rils,
the
bre
adth
of
the
per
ils c
over
ed a
nd t
he f
act
that
the
loss
app
rais
als
are
base
d on
yi
eld
mea
n th
at t
his
cove
r be
have
s in
pr
actic
e as
MPC
I cov
er.
Alm
ost
all a
nnua
l cro
ps, t
able
gra
pe
plan
tatio
ns, a
nd v
iney
ards
can
be
insu
red
unde
r th
is p
olic
y. In
sura
nce
com
pani
es, j
oint
ly w
ith C
OM
SA, h
ave
laun
ched
a c
rop
insu
ranc
e pr
oduc
t fo
r ap
ples
, avo
cado
s, a
nd b
errie
s.
The
tren
d is
to
inco
rpor
ate
spec
ialty
pr
oduc
ts in
to t
he c
rop
insu
ranc
e sc
hem
e.
Und
er C
hile
an M
PCI p
olic
ies,
if t
he
actu
al y
ield
obt
aine
d by
the
insu
red
on
a fa
rm is
bel
ow 6
6.66
% o
f th
e ac
tual
pr
oduc
tion
hist
ory
corr
espo
ndin
g to
th
e ar
ea w
here
the
far
m is
loca
ted,
th
e in
sure
r ha
s th
e rig
ht t
o re
ceiv
e an
inde
mni
ty e
quiv
alen
t to
the
pe
rcen
tage
of
the
yiel
d sh
ortf
all i
n re
spec
t of
the
gua
rant
eed
yiel
d.
Orig
inal
gro
ss r
ates
var
y fr
om 3
%up
to
9% o
f th
e to
tal s
um in
sure
d,
depe
ndin
g on
the
reg
ion,
and
typ
e of
cr
op o
r pl
anta
tion.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
11
,900
pol
icie
s w
ere
writ
ten,
to
talin
g 62
,000
he
ctar
es
(app
roxi
mat
ely
3% o
f th
e to
tal
crop
ped
area
in
the
coun
try)
.
2. F
ores
try
insu
ranc
e: H
igh
pene
trat
ion.
600
po
licie
s ha
ve b
een
issu
ed, c
over
ing
arou
nd 8
5% o
f th
e pl
ante
d fo
rest
ed
area
.
3. A
quac
ultu
re
insu
ranc
e: H
igh
pene
trat
ion.
50%
of
aqu
acul
ture
ce
nter
s ar
e in
sure
d.
46,0
00,0
003,
900,
000,
000
Livestock and bloodstock
Curr
ently
the
re a
re n
o liv
esto
ck
insu
ranc
e pr
oduc
ts in
the
mar
ket,
and
th
e pr
ovis
ion
of li
vest
ock
insu
ranc
e is
ve
ry li
mite
d fo
r ho
rses
.
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
The
Chile
an
gove
rnm
ent,
th
roug
h CO
MSA
(C
omis
ión
Nac
iona
l de
Seg
uro
Agr
ícol
a,
the
Agr
icul
tura
l In
sura
nce
Nat
iona
l Co
mm
issi
on),
assu
mes
an
activ
e ro
le in
the
en
hanc
emen
t of
cr
op in
sura
nce
in t
he c
ount
ry.
COM
SA m
anag
es
the
crop
insu
ranc
e pr
emiu
m s
ubsi
dies
an
d au
thor
izes
th
e te
rms
and
cond
ition
s of
the
in
sura
nce
polic
ies
that
will
rec
eive
thi
s be
nefit
.
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
, win
d,
wei
ght
of ic
e an
d sn
ow, v
olca
nic
erup
tion,
and
rio
ts a
nd p
opul
ar
diso
rder
. Fire
-fig
htin
g ex
pens
es a
re
cove
red.
Val
uatio
n cr
iteria
in c
ase
of
inde
mni
ties
coul
d be
for
mat
ion
cost
or
com
mer
cial
val
ue, d
epen
ding
on
the
age
of t
he p
lant
atio
n. C
over
age
is s
ubje
ct t
o a
dedu
ctib
le o
f 10
% o
f th
e lo
ss o
n ea
ch a
nd e
very
loss
, with
m
inim
um d
educ
tible
s an
d an
nual
ag
greg
ate
inde
mni
ty li
mits
. For
fo
rest
ry p
lant
atio
ns o
rigin
al g
ross
rat
es
vary
fro
m 3
per
mile
up
to 1
% o
f th
e to
tal s
um in
sure
d, d
epen
ding
on
the
regi
on, t
ype
of p
lant
atio
n, p
rote
ctio
n m
easu
res,
con
tinge
ncy
plan
s im
plem
ente
d by
the
insu
red,
and
de
duct
ible
s an
d in
dem
nity
lim
its. I
n th
e ca
se o
f la
rge
fore
stry
pla
ntat
ions
, th
ese
rate
s fa
ll to
0.5
per
mile
, with
de
duct
ible
s hi
gher
tha
n U
S$1
mill
ion
on e
ach
and
ever
y lo
ss.
Aquaculture (salmon fish farms)
Nam
ed-p
eril
polic
ies
(PO
L 1
04 0
04
and
POL
1 04
005
) cov
er f
ish
farm
ing
busi
ness
, inc
ludi
ng t
he r
earin
g of
co
ho s
alm
on, s
alar
sal
mon
, tro
ut,
scal
lops
, and
oth
er s
peci
es o
f fis
h, in
fr
esh
or s
altw
ater
as
wel
l fis
h fa
rmin
g in
stal
latio
ns o
n la
nd o
r in
wat
er. T
he
peril
s co
vere
d un
der
thes
e in
sura
nce
polic
ies
are
mor
talit
y du
e to
dis
ease
, al
gae
bloo
ms
and
phyt
opla
nkto
n,
pred
atio
n an
d th
eft,
per
ils o
f na
ture
, de
oxyg
enat
ing
and
failu
re o
f w
ater
or
ene
rgy
supp
lies,
pol
lutio
n an
d co
ntam
inat
ion,
col
lisio
n an
d im
pact
by
ves
sels
, leg
al s
trik
es, a
nd f
ire.
Ded
uctib
les
are
defin
ed p
er c
over
ed
peril
as
all i
ndiv
idua
l los
ses
caus
ed
by a
sin
gle
caus
e du
ring
a ce
rtai
n pe
riod
of t
ime:
(a) 9
0 an
d 60
co
nsec
utiv
e da
ys f
or k
now
n an
d un
know
n di
seas
es, r
espe
ctiv
ely;
(b)
30 c
onse
cutiv
e da
ys f
or a
lgae
blo
om;
(c) 7
4 co
nsec
utiv
e ho
urs
for
the
rem
aini
ng c
over
ed p
erils
. Ded
uctib
les
also
var
y de
pend
ing
on t
he c
over
ed
peril
: (a
) 20%
of
the
valu
e at
ris
k pe
r
102 ] Agricultural Insurance in Latin America
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Aquaculture (salmon fish farms)
site
for
dis
ease
s; (b
) 17.
5% o
f th
e va
lue
at r
isk
per
site
for
alg
ae b
loom
; (c
) 30%
of
the
valu
e at
ris
k pe
r ca
ge
for
thef
t an
d pr
edat
ors;
(d) 1
5% o
f th
e va
lue
at r
isk
per
site
for
nat
ural
pe
rils.
Mar
ket
aver
age
orig
inal
gro
ss r
ates
ar
e 2.
7% f
or b
iom
ass
and
1.5%
for
eq
uipm
ent.
Tab
le A
.5 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Co
lom
bia
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
insu
ranc
e w
as
initi
ated
in 1
993,
w
ith g
over
nmen
t en
actm
ent
of
crop
insu
ranc
e le
gisl
atio
n (L
aw
no. 6
9 of
199
3).
This
law
pro
vide
d a
publ
ic-p
rivat
e fr
amew
ork
for
crop
insu
ranc
e an
d au
thor
ized
th
e pr
ovis
ion
of p
rem
ium
su
bsid
ies.
A p
ilot
win
d an
d flo
od
insu
ranc
e sc
hem
e fo
r ba
nana
s w
as
impl
emen
ted
by
the
publ
ic-s
ecto
r-ow
ned
Caja
Agr
aria
in
199
8, w
hich
ha
s qu
ota
shar
e tr
eaty
rei
nsur
ance
pr
ovid
ed b
y va
rious
Eu
rope
an c
rop
rein
sure
rs. T
he
bana
na t
reat
y w
as
then
tra
nsfe
rred
to
La
Prev
isor
a (n
atio
nal r
eins
urer
) in
199
9/20
00
and
oper
ated
up
to 2
002,
whe
n pr
emiu
m s
ubsi
dies
w
ere
with
draw
n.
In 2
007,
sub
sidi
zed
crop
insu
ranc
e w
as r
elau
nche
d by
M
apfr
e Se
guro
s Co
lom
bia,
with
go
vern
men
t su
bsid
ies
of
prem
ium
s.
Live
stoc
k in
sura
nce
in C
olom
bia
star
ted
in 2
000.
Agr
icul
tura
l cro
p an
d liv
esto
ck
insu
ranc
e is
off
ered
ex
clus
ivel
y by
the
pr
ivat
e co
mm
erci
al
insu
ranc
e se
ctor
.
Map
fre
Colo
mbi
a is
the
onl
y co
mpa
ny o
ffer
ing
a co
mbi
natio
n of
cr
op a
nd li
vest
ock
insu
ranc
e.
An
addi
tiona
l co
mpa
ny, C
ompa
ñía
Sura
mer
ican
a de
Se
guro
s, is
abo
ut
to la
unch
a c
rop
insu
ranc
e pr
ogra
m.
Two
othe
r co
mpa
nies
, Li
bert
y an
d Q
BE,
unde
rwrit
e liv
esto
ck.
All
the
agric
ultu
ral
insu
ranc
e pr
ogra
ms
curr
ently
in p
lace
in
Col
ombi
a ar
e re
insu
red,
thr
ough
qu
ota
shar
e se
mia
utom
atic
and
fa
culta
tive
trea
ties,
in
the
inte
rnat
iona
l m
arke
t.
Crop
and
live
stoc
k in
sura
nce
are
deliv
ered
thr
ough
in
sura
nce
brok
ers
and
insu
ranc
e co
mpa
nies
’ ow
n ne
twor
k.
Fede
ral g
over
nmen
t su
ppor
t to
agr
icul
tura
l ins
uran
ce
take
s tw
o fo
rms:
(a)
Insu
ranc
e le
gisl
atio
n as
con
tain
ed in
the
ag
ricul
tura
l ins
uran
ce
law
no.
69
of 1
993
and
(b)
Crop
insu
ranc
e pr
emiu
m
subs
idie
s, w
hich
var
y fr
om 3
0% o
f pr
emiu
m
for
indi
vidu
al p
olic
ies
to 6
0% f
or c
olle
ctiv
e po
licie
s.
Live
stoc
k in
sura
nce
does
not
at
trac
t an
y fo
rm o
f pr
emiu
m
subs
idie
s or
oth
er f
orm
of
supp
ort
from
gov
ernm
ent.
In
201
0, t
he g
over
nmen
t of
Co
lom
bia
budg
et t
o pr
ovid
e cr
op in
sura
nce
prem
ium
su
bsid
ies
amou
nted
to
appr
oxim
atel
y U
S$10
m
illio
n. O
ut o
f th
is b
udge
t,
only
US$
4.2
mill
ion
is
effe
ctiv
ely
used
.
Seve
ral s
ubna
tiona
l go
vern
men
ts a
re a
naly
zing
th
e op
tion
to p
urch
ase
insu
ranc
e to
pro
vide
ca
tast
roph
ic p
rote
ctio
n to
sm
all a
nd m
argi
nal
farm
ers.
Suc
h is
the
cas
e of
the
gov
ernm
ent
of
Qui
ndio
Dep
artm
ent,
whi
ch
purc
hase
s ca
tast
roph
ic
cove
rage
for
sm
all b
anan
a fa
rmer
s.
Crop
Named-peril
Nam
ed-p
eril
polic
ies
are
offe
red
to
insu
re b
anan
a an
d pl
anta
in c
rops
ag
ains
t flo
od, e
xces
s m
oist
ure,
an
d w
ind.
Cov
erag
e is
bas
ed o
n th
e nu
mbe
r of
pla
nts
dead
due
to
any
cove
red
peril
. The
geo
grap
hic
scop
e of
the
pro
gram
is li
mite
d to
th
e de
part
men
ts o
f M
agda
lena
and
U
raba
.
Ded
uctib
les
for
this
cov
erag
e ar
e va
riabl
e an
d de
pend
on
the
size
of
the
far
m. D
educ
tible
s va
ry f
rom
10
% f
or f
arm
s sm
alle
r th
an 2
0 he
ctar
es t
o 5%
for
far
ms
larg
er t
han
150
hect
ares
.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
9,
000
polic
ies
have
bee
n w
ritte
n, c
over
ing
49,6
00 h
ecta
res
(app
roxi
mat
ely
1% o
f th
e to
tal
crop
ped
area
in
the
coun
try)
.
2. F
ores
try
insu
ranc
e: L
ow
pene
trat
ion.
Li
mite
d to
a f
ew
polic
ies.
3. A
quac
ultu
re
insu
ranc
e:
Non
exis
tent
.
4. L
ives
tock
in
sura
nce:
Low
pe
netr
atio
n.
250,
000
head
of
catt
le a
re in
sure
d,
acco
untin
g fo
r 2%
of
the
catt
le
popu
latio
n in
the
co
untr
y.
7,10
0,00
014
3,00
0,00
0
MPCI
Sinc
e 20
07 M
apfr
e Co
lom
bia
has
unde
rwrit
ten
a m
ulti-
peril
“l
oss-
of-in
vest
men
t-co
sts”
pol
icy
(seg
uro
a la
inve
rsió
n), w
hich
can
be
writ
ten
eith
er a
s a
loss
-of-
yiel
d in
dem
nity
pol
icy
(yie
ld g
uara
ntee
co
ver)
or
as a
dam
age-
base
d in
dem
nity
pol
icy
(dire
ct d
amag
e to
pl
ant
cove
r).
Thi
s pr
oduc
t is
bei
ng
offe
red
for
a w
ide
rang
e of
ann
ual
crop
s, in
clud
ing
rice,
mai
ze, c
otto
n,
sorg
hum
, and
tob
acco
.
Aggregate MPCI crop insurance at the departmental level “catastrophic product”
This
pro
duct
giv
es s
mal
l-siz
e pl
anta
in f
arm
ers
acce
ss t
o in
sura
nce-
back
ed d
isas
ter
relie
f as
sist
ance
fro
m t
he g
over
nmen
t.
The
insu
red
peril
s un
der
this
co
vera
ge a
re d
roug
ht, e
xces
s m
oist
ure,
hai
l, w
ind,
land
slid
e,
aval
anch
e, f
reez
e, a
nd f
lood
.
The
sum
insu
red,
rat
her
than
bei
ng
defin
ed a
s a
func
tion
of t
he v
alue
of
the
cro
ps, i
s de
fined
as
a su
m
agre
ed b
etw
een
the
insu
red
and
the
insu
ranc
e co
mpa
ny. T
his
agre
ed
valu
e fo
r th
e su
m in
sure
d is
, usu
ally,
eq
uiva
lent
to
the
estim
ated
bud
get
for
gove
rnm
ent
disa
ster
rel
ief
assi
stan
ce.
The
cove
rage
trig
gers
whe
n th
e av
erag
e yi
eld
of p
lant
ain
prod
uctio
n in
the
dep
artm
ent
falls
bel
ow 4
0 pe
rcen
t of
the
act
ual p
rodu
ctio
n
104 ] Agricultural Insurance in Latin America
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
Aggregate MPCI crop insurance at the departmental level “catastrophic product”
hist
ory
(APH
) for
the
dep
artm
ent.
In
suc
h ca
se, t
he in
sura
nce
polic
y in
dem
nifie
s th
e de
part
men
tal
gove
rnm
ent
for
the
amou
nt
equi
vale
nt t
o th
e pr
opor
tion
of
the
yiel
d sh
ortf
all t
imes
the
sum
in
sure
d.
The
cost
of
cove
rage
is f
ully
as
sum
ed b
y th
e de
part
men
tal
gove
rnm
ent.
The
fed
eral
go
vern
men
t on
ly in
terv
enes
by
prov
idin
g su
bsid
ies
for
the
prem
ium
up
to
60%
.
Index based
A p
rodu
ct b
ased
on
a do
uble
tr
igge
r be
twee
n ra
infa
lls u
sed
to b
e m
easu
red
at a
bas
ket
of
wea
ther
sta
tions
use
d as
ref
eren
ce
for
the
cove
r an
d th
e ac
tual
yie
ld
obta
ined
by
the
farm
ers;
thi
s w
as
in p
lace
in t
he C
olom
bian
mar
ket
for
cott
on a
nd r
ice
crop
s du
ring
2006
and
200
7. T
he p
rodu
ct w
as
disc
ontin
ued
in 2
007.
Livestock and bloodstock
This
cov
erag
e w
as d
esig
ned
for
bond
sec
uriti
zatio
n fo
r tit
les
back
ed
by li
vest
ock
prod
uctio
n tr
aded
on
the
Bols
a A
grop
ecua
ria in
Bog
otá.
Th
e co
vere
d pe
ril is
the
ft, i
nclu
ding
th
eft
caus
ed b
y te
rror
ist
grou
ps.
Seve
ral c
ondi
tions
with
reg
ard
to
prev
entio
n m
easu
res
are
nece
ssar
y to
be
elig
ible
for
the
insu
ranc
e.
Ded
uctib
les
are
10%
on
each
and
ev
ery
loss
with
a m
inim
um o
f fo
ur
head
of
catt
le. O
rigin
al g
ross
rat
e is
0.
74%
of
the
tota
l sum
insu
red.
Forestry
Fore
stry
insu
ranc
e co
vers
th
e st
andi
ng t
imbe
r va
lue
of
com
mer
cial
for
estr
y pl
anta
tions
ag
ains
t fir
e, w
ind,
and
oth
er p
erils
. Th
e va
luat
ion
crite
ria c
ould
be
the
form
atio
n co
st o
r th
e co
mm
erci
al
valu
e, d
epen
ding
on
the
age
of
the
plan
tatio
n. C
over
age
is s
ubje
ct
to a
ded
uctib
le o
f 10
% o
f th
e lo
ss
on e
ach
and
ever
y lo
ss a
nd a
nnua
l ag
greg
ate
inde
mni
ty li
mits
.
Tab
le A
.6 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Co
sta
Ric
a
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
insu
ranc
e w
as
first
intr
oduc
ed in
Co
sta
Rica
in 1
970.
Tw
o ye
ars
late
r, in
19
72, a
live
stoc
k in
sura
nce
prod
uct
was
rel
ease
d on
the
m
arke
t.
Cost
a Ri
ca’s
in
sura
nce
mar
ket
was
con
trol
led
by a
sta
te-
owne
d in
sura
nce
mon
opol
y, In
stitu
to
Nac
iona
l de
Segu
ros
(INS)
unt
il 20
08, w
hen
the
insu
ranc
e m
arke
t w
as o
pene
d up
to
com
petit
ion.
This
mar
ket
offe
rs
a di
vers
e m
ix
of a
gric
ultu
ral
insu
ranc
e pr
oduc
ts.
Prod
ucts
like
m
ulti-
peril
cro
p in
sura
nce
(MPC
I),
lives
tock
insu
ranc
e,
and
aqua
cultu
re
insu
ranc
e ar
e of
fere
d. D
espi
te
the
high
deg
ree
of p
rodu
ct
dive
rsifi
catio
n,
pene
trat
ion
is v
ery
low
.
Cost
a Ri
ca h
ad a
n in
sura
nce
mon
opol
y un
til 2
008.
Alth
ough
the
m
arke
t is
ope
n to
com
petit
ion,
on
ly t
he IN
S is
of
ferin
g ag
ricul
tura
l in
sura
nce.
All
agric
ultu
ral
insu
ranc
e pr
ogra
ms
oper
ated
by
the
INS
are
100%
ret
aine
d by
the
insu
ranc
e co
mpa
ny.
The
mos
t im
port
ant
deliv
ery
chan
nels
are
the
co
oper
ativ
es,
farm
ers
asso
ciat
ions
, an
d fin
anci
al
inst
itutio
ns.
The
Min
istr
y of
A
gric
ultu
re u
sed
to d
eliv
er c
rop
insu
ranc
e pr
oduc
ts
to f
arm
ers.
Ret
ail
brok
ers
now
pla
y an
impo
rtan
t ro
le
in t
he d
eliv
ery
of
lives
tock
insu
ranc
e.
Crop
insu
ranc
e in
Cos
ta
Rica
is r
egul
ated
by
the
Inte
gral
Law
of
the
Insu
ranc
e of
Cro
ps, w
hich
was
pr
omul
gate
d in
196
9.
The
gove
rnm
ent
of C
osta
Ri
ca, t
hrou
gh t
he IN
S,
supp
orte
d cr
op in
sura
nce
thro
ugh
prem
ium
sub
sidi
es
for
rice,
bea
n, o
nion
, pot
ato,
pl
anta
in, a
nd c
orn
crop
s.
The
aver
age
crop
insu
ranc
e pr
emiu
m s
ubsi
dy is
49%
fo
r cr
ops
invo
lved
in t
he
sche
me.
The
pre
miu
m
subs
idie
s re
ceiv
ed b
y th
e fa
rmer
s de
pend
on
the
crop
an
d si
ze o
f fa
rm. B
ean
crop
s re
ceiv
e a
50%
pre
miu
m
subs
idy,
and
cor
n cr
ops
rece
ive
a 65
% p
rem
ium
su
bsid
y. F
or r
ice,
pre
miu
m
subs
idie
s de
pend
on
the
farm
siz
e: s
mal
l far
mer
s re
ceiv
e a
subs
idy
of 6
5%;
med
ium
far
mer
s, 5
5%; a
nd
big
farm
ers,
40%
.
The
gove
rnm
ent
has
enac
ted
a la
w c
reat
ing
a fu
nd t
o pr
ovid
e ag
ricul
tura
l in
sura
nce
prem
ium
su
bsid
ies.
Thi
s fu
nd w
ill
be f
inan
ced
initi
ally
by
a co
ntrib
utio
n fr
om t
he
INS
of U
S$7.
8 m
illio
n.
In a
dditi
on t
o th
is in
itial
co
ntrib
utio
n, t
he f
und
will
al
so b
e fin
ance
d th
roug
h co
ntrib
utio
ns f
rom
the
in
sura
nce
com
pani
es
offe
ring
agric
ultu
ral
insu
ranc
e, a
grib
usin
ess
corp
orat
ions
, fin
anci
al
inst
itutio
ns, a
nd d
onor
s.
Crop
MPCI
MPC
I is
offe
red
for
rice,
ban
ana,
cor
n,
blac
k be
ans,
sug
arca
ne, p
eppe
rs,
mel
ons,
pal
m, p
otat
o, p
assi
on f
ruit,
pi
neap
ples
, wat
erm
elon
, tob
acco
, and
ca
rrot
s ag
ains
t pe
rils
such
as
exce
ss
moi
stur
e, v
olca
nic
erup
tion,
wat
er-
logg
ing
of t
he s
oil d
urin
g ha
rves
t (p
reve
ntio
n of
har
vest
), ha
il, f
ire,
flood
s, w
eeds
, dro
ught
, ear
thqu
akes
, an
d w
inds
.
The
polic
y w
ordi
ng p
rote
cts
the
insu
red
from
incu
rrin
g di
rect
cos
ts
on it
s in
sure
d un
it. T
here
fore
, the
gu
aran
teed
yie
ld is
equ
al t
o th
e di
rect
in
vest
men
t m
ade
by t
he in
sure
d,
divi
ded
by t
he a
gree
d pr
ice
for
the
insu
red
crop
at
the
begi
nnin
g of
th
e po
licy
perio
d. T
he m
axim
um
guar
ante
ed y
ield
is 7
0% o
f th
e ex
pect
ed y
ield
(bas
ed o
n av
erag
e yi
eld
in t
he c
anto
n in
whi
ch t
he
farm
is lo
cate
d); t
his
impl
ies
a 30
%
dedu
ctib
le. I
f th
e ac
tual
yie
ld is
less
th
an t
he g
uara
ntee
d yi
eld,
the
n th
e in
sure
d re
ceiv
es a
n in
dem
nity
eq
ual t
o th
e yi
eld
shor
tfal
l bel
ow t
he
guar
ante
ed y
ield
tim
es t
he a
gree
d pr
ice
at t
he b
egin
ning
of
the
polic
y pe
riod.
Orig
inal
gro
ss r
ates
var
y fr
om
3 to
8%
, dep
endi
ng o
n th
e cr
op a
nd
loca
tion.
Orig
inal
gro
ss r
ates
are
als
o di
ffer
entia
ted
by t
he s
ize
of f
arm
.
1. C
rop
insu
ranc
e:
As
of 2
008,
the
cr
op in
sura
nce
pene
trat
ion
was
ve
ry lo
w, a
nd o
nly
2.2%
of
the
tota
l cu
ltiva
ted
area
is
insu
red
(12,
000
hect
ares
).
2. L
ives
tock
in
sura
nce:
No
data
ar
e av
aila
ble.
3. F
ores
try
insu
ranc
e: N
o da
ta
are
avai
labl
e.
4. A
quac
ultu
re
insu
ranc
e: N
o da
ta
are
avai
labl
e.
480,
000
7,00
0,00
0
Livestock and bloodstock
Sinc
e 20
07 M
apfr
e Co
lom
bia
has
unde
rwrit
ten
a m
ulti-
peril
“lo
ss-o
f-in
vest
men
t-co
sts”
pol
icy
(seg
uro
a la
inve
rsió
n), w
hich
can
be
writ
ten
eith
er a
s a
loss
-of-
yiel
d in
dem
nity
po
licy
(yie
ld g
uara
ntee
cov
er) o
r as
a
dam
age-
base
d in
dem
nity
pol
icy
(dire
ct
dam
age
to p
lant
cov
er).
Thi
s pr
oduc
t is
bei
ng o
ffer
ed f
or a
wid
e ra
nge
of
annu
al c
rops
, inc
ludi
ng r
ice,
mai
ze,
cott
on, s
orgh
um, a
nd t
obac
co.
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
exc
lusi
vely
aga
inst
fir
e. V
alua
tion
crite
ria in
cas
e of
in
dem
nitie
s co
uld
be t
he in
itial
cos
ts
or t
he c
omm
erci
al v
alue
, dep
endi
ng
on t
he a
ge o
f the
pla
ntat
ion.
Cov
erag
e is
sub
ject
to
a de
duct
ible
of
15%
of
106 ] Agricultural Insurance in Latin America
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Forestry
the
loss
on
each
and
eve
ry lo
ss. F
or
norm
al f
ores
try
plan
tatio
ns, o
rigin
al
gros
s ra
tes
vary
fro
m 2
.0 t
o 3.
5%
of t
he t
otal
sum
insu
red
depe
ndin
g on
the
reg
ion,
typ
e of
pla
ntat
ion,
pr
otec
tion
mea
sure
s, c
ontin
genc
y pl
ans
impl
emen
ted
by t
he in
sure
d,
dedu
ctib
les,
and
inde
mni
ty li
mits
.
Aquaculture
Basi
c co
vera
ge is
aga
inst
bio
mas
s m
orta
lity
and
natu
ral p
erils
. Cov
erag
e al
so in
clud
es t
he f
ollo
win
g pe
rils:
ex
trem
e te
mpe
ratu
res,
exc
essi
ve r
ain,
un
cont
rolla
ble
pest
s an
d di
seas
es,
volc
anic
eru
ptio
ns, f
lood
s, a
nd
eart
hqua
kes.
For
bot
h co
vers
, the
de
duct
ible
is b
etw
een
15 a
nd 2
0% o
f th
e to
tal s
um in
sure
d.
Tab
le A
.7 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Do
min
ican
Rep
ub
lic
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
was
firs
t in
trod
uced
in 1
984
by A
segu
rado
ra
Dom
inic
ana
Agr
opec
uaria
, CA
(AD
ACA
), a
maj
ority
sta
te-
owne
d en
tity,
in
orde
r to
pro
vide
cr
op a
nd li
vest
ock
insu
ranc
e as
co
llate
ral f
or t
he
loan
s gi
ven
by
Banc
o A
gríc
ola
de la
Rep
úblic
a D
omin
ican
a to
sub
sist
ence
fa
rmer
s; m
ost
polic
ies
wer
e is
sued
on
a c
olle
ctiv
e ba
sis,
link
ed t
o gr
oup
loan
s.
AD
ACA
cea
sed
oper
atin
g in
199
7 m
ainl
y du
e to
the
w
ithdr
awal
of
supp
ort
from
the
Ba
nco
Agr
ícol
a.
In 2
002
Ase
gura
dora
A
grop
ecua
ria
Dom
inic
ana
(AG
ROD
OSA
) re
laun
ched
cro
p in
sura
nce
in
the
Dom
inic
an
Repu
blic
, sta
rtin
g w
ith r
ice.
A
GRO
DO
SA o
ffer
s a
mul
tiple
-per
il cr
op in
sura
nce
(MPC
I) lo
ss-o
f-yi
eld
polic
y fo
r ric
e,
bana
nas,
and
oth
er
crop
s. N
o liv
esto
ck
insu
ranc
e pr
oduc
t is
bei
ng o
ffer
ed a
t th
is t
ime.
AG
ROD
OSA
is t
he
only
insu
ranc
e co
mpa
ny o
ffer
ing
agric
ultu
ral c
rop
insu
ranc
e to
fa
rmer
s in
the
D
omin
ican
Rep
ublic
. Th
e co
mpa
ny is
a
priv
ate-
publ
ic
part
ners
hip,
but
it
is m
anag
ed o
n st
rictly
com
mer
cial
in
sura
nce
prin
cipl
es
and
is s
ubje
ct t
o pr
ivat
e in
sura
nce
regu
latio
ns.
Mor
e re
cent
ly, o
ther
co
mpa
nies
hav
e ex
pres
sed
inte
rest
in
offe
ring
agric
ultu
ral
insu
ranc
e in
the
D
omin
ican
Rep
ublic
, bu
t so
far
non
e of
th
em h
as d
one
so.
The
crop
in
sura
nce
prog
ram
im
plem
ente
d by
A
GRO
DO
SA is
re
insu
red
in t
he
inte
rnat
iona
l mar
ket
thro
ugh
a qu
ota
shar
e re
insu
ranc
e tr
eaty
.
The
mos
t im
port
ant
deliv
ery
chan
nel i
s th
e Ba
nco
Agr
ícol
a,
whi
ch is
the
mai
n fin
ance
inst
itutio
n fo
r th
e ru
ral s
ecto
r. Re
cent
ly o
ther
ch
anne
ls li
ke
agen
ts a
nd f
arm
ers
asso
ciat
ions
and
co
oper
ativ
es
have
gro
wn
in
impo
rtan
ce. T
he
spec
ializ
ed d
eliv
ery
chan
nel f
or s
mal
l an
d m
argi
nal
farm
ers
is B
anco
A
gríc
ola.
The
gove
rnm
ent
had
an
activ
e ro
le in
for
mul
atin
g th
e ag
ricul
tura
l ins
uran
ce
law
and
in t
he A
GRO
DO
SA
star
t-up
.
The
gove
rnm
ent
supp
orts
ag
ricul
tura
l ins
uran
ce
thro
ugh
the
prov
isio
n of
cr
op in
sura
nce
prem
ium
su
bsid
ies.
Crop
insu
ranc
e pr
emiu
m
subs
idie
s ra
nge
from
33
to 5
0% o
f cr
op in
sura
nce
prem
ium
s.
In 2
009
the
gove
rnm
ent
spen
t ap
prox
imat
ely
US$
1.25
mill
ion
on
subs
idie
s fo
r cr
op in
sura
nce
prem
ium
s.
Curr
ently
, a d
raft
agr
icul
tura
l in
sura
nce
act
is in
the
D
omin
ican
Par
liam
ent,
but
at
the
tim
e of
writ
ing,
it h
as
not
been
ena
cted
.
Crop
MPCI
MPC
I yie
ld-s
hort
fall
polic
es c
over
dr
ough
t, f
lood
s, e
xces
s ra
in, w
ind
and
cycl
one
(incl
udin
g tr
opic
al s
torm
s an
d hu
rric
anes
), ha
il, a
nd u
nkno
wn
pest
s an
d di
seas
es. R
ice
crop
s ar
e co
vere
d ag
ains
t flo
ods,
exc
ess
rain
, win
d,
hail,
cyc
lone
, and
unk
now
n pe
sts
and
dise
ases
. The
cov
erag
e is
trig
gere
d on
ce t
he a
ctua
l yie
ld o
btai
ned
by
the
insu
red
on it
s in
sure
d un
it fa
lls
belo
w t
he g
uara
ntee
d yi
eld
(whi
ch is
us
ually
set
at
a m
axim
um o
f 70
% o
f th
e no
rmal
ave
rage
yie
ld) d
eter
min
ed
for
each
cou
nty
and
crop
sea
son.
Th
e in
dem
nitie
s ar
e su
bjec
t to
the
ap
plic
atio
n of
ded
uctib
les
equi
vale
nt
to 1
0% o
f th
e to
tal s
um in
sure
d fo
r dr
ough
t an
d 5%
for
the
rem
aini
ng
cove
red
peril
s. T
he in
dem
nity
for
mul
a in
the
cas
e of
loss
is t
he p
erce
ntag
e of
yie
ld s
hort
fall
with
res
pect
to
the
guar
ante
ed y
ield
, tim
es t
he s
um
insu
red,
less
the
ded
uctib
les.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
A
s of
201
0,
23,0
00 h
ecta
res
of
crop
s w
ere
insu
red,
ac
coun
ting
for
2%
of t
he t
otal
cro
p ar
ea in
the
cou
ntry
.
3,00
0,00
049
,000
,000
Named-peril
Nam
ed-p
eril
crop
insu
ranc
e co
verin
g flo
od a
nd w
ind
peril
s du
e to
tro
pica
l st
orm
s an
d hu
rric
anes
is o
ffer
ed t
o ba
nana
and
pla
ntai
n pl
anta
tions
(t
ropi
cal s
torm
s an
d hu
rric
anes
). T
he
cove
rage
is b
ased
on
dam
age
to t
he
bana
na p
lant
s, in
clud
ing
snap
ping
, to
pplin
g, a
nd u
proo
ting
caus
ed b
y w
ind
and
rott
ing
of t
he p
lant
s du
e to
flo
od. I
n ca
se o
f lo
sses
, the
insu
red
rece
ives
an
inde
mni
ty p
ropo
rtio
nal t
o th
e pe
rcen
tage
dam
age
to t
he p
lant
po
pula
tion
on t
he in
sure
d un
it, t
imes
th
e su
m in
sure
d, le
ss 2
0% o
f th
e to
tal s
um in
sure
d as
a d
educ
tible
. No
lives
tock
insu
ranc
e pr
oduc
t is
ava
ilabl
e on
the
Dom
inic
an m
arke
t.
Greenhouse
AG
ROD
OSA
off
ers
insu
ranc
e co
vera
ge
for
gree
nhou
ses
agai
nst
win
dsto
rm.
108 ] Agricultural Insurance in Latin America
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
The
fede
ral
gove
rnm
ent
supp
orts
ag
ricul
tura
l in
sura
nce
mai
nly
by s
ubsi
dizi
ng
prem
ium
s an
d by
fin
anci
ng t
he
star
t-up
cos
ts f
or
AG
ROD
OSA
, in
whi
ch it
ow
ns a
sh
are
of 5
0%.
Tab
le A
.8 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
Ecu
ado
r
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
and
live
stoc
k in
sura
nce
was
firs
t in
trod
uced
in 1
980
unde
r CO
NA
SA
(Con
sejo
Nac
iona
l de
Sal
ud),
a fe
dera
l go
vern
men
t pu
blic
se
ctor
insu
ranc
e co
mpa
ny.
The
publ
ic s
ecto
r pr
ogra
m w
as
disc
ontin
ued
at
the
end
of t
he
1980
s. C
rop
and
lives
tock
insu
ranc
e w
as r
eint
rodu
ced
in 1
997/
98 b
y Co
loni
al d
e Se
guro
s, t
he
lead
ing
priv
ate
com
mer
cial
in
sura
nce
com
pany
.
The
gove
rnm
ent
of E
cuad
or h
as
crea
ted
a te
chni
cal
supp
ort
unit
at
the
Min
istr
y of
A
gric
ultu
re a
nd
impl
emen
ted
crop
insu
ranc
e pr
emiu
m s
ubsi
dies
an
d a
cata
stro
phic
pr
otec
tion
insu
ranc
e sc
hem
e fo
r sm
all f
arm
ers.
In 2
010
ther
e w
as
only
one
priv
ate
com
mer
cial
cro
p an
d liv
esto
ck in
sure
r in
Ecu
ador
, Col
onia
l de
Seg
uros
.
How
ever
, an
addi
tiona
l ins
uran
ce
com
pany
is a
bout
to
sta
rt o
ffer
ing
agric
ultu
ral
insu
ranc
e in
the
co
untr
y.
For
crop
s, t
he m
ost
impo
rtan
t de
liver
y ch
anne
l is
the
bank
s. C
olon
ial d
e Se
guro
s is
off
erin
g a
crop
-cre
dit
insu
ranc
e pr
oduc
t.
For
lives
tock
, m
ost
polic
ies
are
sold
thr
ough
the
co
mpa
ny’s
ow
n sa
les
agen
ts.
Colo
nial
de
Segu
ros
wor
ks
clos
ely
with
Ec
uado
r’s
smal
l fa
rmer
agr
icul
tura
l de
velo
pmen
t ba
nk t
o pr
ovid
e cr
op-c
redi
t lin
ked
insu
ranc
e.
All
of t
he
agric
ultu
ral
insu
ranc
e pr
ogra
ms
in t
he c
ount
ry
are
rein
sure
d in
th
e in
tern
atio
nal
mar
ket
thro
ugh
quot
a sh
are
rein
sura
nce
trea
ties.
Sinc
e M
ay 2
010,
the
go
vern
men
t of
Ecu
ador
th
roug
h th
e A
gric
ultu
ral
Insu
ranc
e U
nit
of t
he
Min
istr
y of
Agr
icul
ture
is
supp
ortin
g cr
op in
sura
nce
thro
ugh
a pr
emiu
m s
ubsi
dy
sche
me.
Initi
ally,
the
sch
eme
finan
ced
60%
of
the
cost
of
crop
insu
ranc
e pr
emiu
ms
for
mai
ze, p
otat
o, r
ice,
and
w
heat
cro
ps.
As
of A
ugus
t 20
10, t
he
subs
idie
s w
ere
bene
fitin
g 85
0 fa
rmer
s w
ho w
ere
crop
ping
a t
otal
are
a of
4,
713
hect
ares
.
The
crop
insu
ranc
e su
bsid
y sc
hem
e is
fin
ance
d by
a
gove
rnm
ent
cont
ribut
ion
of U
S$2.
7 m
illio
n. A
s of
A
ugus
t 20
10, g
over
nmen
t ex
pend
iture
s du
e to
the
su
bsid
izat
ion
of c
rop
insu
ranc
e pr
emiu
ms
amou
nted
to
US$
145,
000
(app
roxi
mat
ely
5% o
f th
e to
tal b
udge
t).
Crop
MPCI
Mul
tiple
-per
il cr
op in
sura
nce
(MPC
I) is
of
fere
d on
ly t
o ric
e, b
ean,
sug
arca
ne,
onio
n, s
oybe
an, c
orn,
pot
ato,
to
mat
o, o
il pa
lm, b
anan
a, w
heat
, and
ba
rley
crop
s. G
uara
ntee
d yi
elds
und
er
this
cov
erag
e va
ry f
rom
30
to 7
0% o
f th
e ac
tual
pro
duct
ion
hist
ory
(APH
) de
pend
ing
on t
he c
rop,
reg
ion,
and
se
lect
ed g
uara
ntee
d yi
eld.
The
pro
duct
is
off
ered
on
an in
divi
dual
bas
is
thro
ugh
Banc
o de
Fom
ento
bra
nche
s.
The
mar
ket
MPC
I ave
rage
orig
inal
gr
oss
rate
is a
ppro
xim
atel
y 3.
8%
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
In
und
erw
ritin
g ye
ar 2
009/
10,
abou
t 4,
200
insu
ranc
e po
licie
s w
ere
issu
ed,
tota
ling
22,3
00
hect
ares
of
annu
al
crop
s (1
% o
f to
tal
natio
nal c
ropp
ed
area
).
2.-
Live
stoc
k in
sura
nce:
As
of
2010
, onl
y 25
0 he
ad o
f ca
ttle
and
25
0 ho
rses
wer
e in
sure
d in
the
co
untr
y.
3.-
Fore
stry
in
sura
nce:
As
of 2
010,
8,4
00
hect
ares
of
fore
stry
pl
anta
tions
wer
e in
sure
d in
the
co
untr
y.
1,26
4,00
036
,000
,000
Livestock and bloodstock
Indi
vidu
al a
nim
al m
orta
lity
insu
ranc
e an
d ep
idem
ic d
isea
se in
sura
nce
are
offe
red
for
beef
cat
tle, g
oats
, she
ep,
hors
es, a
nd p
igs.
Orig
inal
gro
ss r
ates
va
ry, d
epen
ding
on
the
type
of
anim
al,
age,
and
zon
e. T
he a
vera
ge o
rigin
al
gros
s ra
te f
or t
he m
arke
t is
3.8
% o
f th
e to
tal s
um in
sure
d.
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
and
win
d pe
rils.
Val
uatio
n cr
iteria
in c
ase
of
inde
mni
ties
coul
d be
the
initi
al c
osts
or
the
com
mer
cial
val
ue, d
epen
ding
on
the
age
of
the
plan
tatio
n.
Cove
rage
is s
ubje
ct t
o a
dedu
ctib
le
of 1
0% o
f th
e lo
ss o
n ea
ch a
nd e
very
lo
ss. O
rigin
al g
ross
rat
es v
ary
from
0.
5 to
1%
of
the
tota
l sum
insu
red,
de
pend
ing
on t
he r
egio
n, t
ype
of
plan
tatio
n, a
nd r
isk
man
agem
ent
mea
sure
s im
plem
ente
d by
the
insu
red.
110 ] Agricultural Insurance in Latin America
Tab
le A
.9 A
gri
cult
ura
l in
sura
nce
co
un
try
fact
sh
eet:
El S
alva
do
r
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
insu
ranc
e w
as
first
intr
oduc
ed in
th
e co
untr
y in
200
1 af
ter
the
seve
re
loss
es c
ause
d by
H
urric
ane
Mitc
h an
d El
Niñ
o ev
ent.
Two
insu
ranc
e co
mpa
nies
, Seg
uros
e
Inve
rsio
nes
S.A
. an
d A
segu
rado
ra
Pací
fico
S.A
., ar
e of
ferin
g cr
op a
nd
lives
tock
insu
ranc
e pr
oduc
ts in
the
co
untr
y.
Crop
insu
ranc
e pr
ogra
ms
in E
l Sa
lvad
or h
ave
been
sup
port
ed
by in
tern
atio
nal
rein
sure
rs o
n a
quot
a sh
are
basi
s (1
0% r
etai
ned,
90
% c
eded
), m
ainl
y th
roug
h a
faci
lity
prov
ided
by
PRO
AG
RO, a
M
exic
an a
gric
ultu
ral
insu
rer.
Insu
ranc
e ag
ents
ar
e th
e m
ain
deliv
ery
chan
nel
for
agric
ultu
ral
insu
ranc
e.
Agr
icul
tura
l ins
uran
ce
prem
ium
s ar
e no
t su
bsid
ized
by
the
gov
ernm
ent.
Crop
MPCI
Gua
rant
eed-
yiel
d, m
ultip
le-p
eril
crop
insu
ranc
e (M
PCI)
prot
ects
a
perc
enta
ge o
f th
e ex
pect
ed in
divi
dual
cr
op y
ield
at
the
farm
leve
l. Co
vere
d pe
rils
are
wea
ther
, bio
logi
cal,
and
crop
pre
-em
erge
nce
peril
s. F
arm
ers
can
choo
se a
mon
g th
ree
leve
ls o
f gu
aran
teed
yie
ld: 7
0, 6
0, o
r 50
% o
f th
e ex
pect
ed c
rop
yiel
d. T
he in
sure
d ha
s to
ret
ain
30%
of
loss
es d
ue t
o dr
ough
t an
d 25
% d
ue t
o bi
olog
ical
pe
rils.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
In
und
erw
ritin
g ye
ar 2
006,
abo
ut
4,70
0 he
ctar
es
of a
nnua
l cro
ps
(0.5
% o
f to
tal
crop
ped
area
) wer
e in
sure
d.
2.-
Live
stoc
k in
sura
nce:
Low
pe
netr
atio
n. In
un
derw
ritin
g ye
ar
2006
, abo
ut 4
,000
he
ad o
f ca
ttle
(le
ss t
han
1% o
f th
e na
tiona
l her
d)
wer
e in
sure
d.
200,
000
2,70
0,00
0
Crop
inve
stm
ent
insu
ranc
e (s
egur
o a
la in
vers
ión)
bas
es lo
ss a
djus
tmen
t on
in
sure
d cr
op y
ield
per
form
ance
. Thi
s in
sura
nce
prod
uct
prot
ects
the
dire
ct
inve
stm
ent
mad
e by
the
insu
red
in
the
insu
red
crop
aga
inst
wea
ther
and
bi
olog
ical
per
ils a
nd a
lso
agai
nst
crop
ge
rmin
atio
n or
pre
-em
erge
nce
failu
re
(due
to
peril
s su
ch a
s so
il ca
ppin
g as
soci
ated
with
exc
ess
rain
). Th
e su
m in
sure
d is
def
ined
as
the
dire
ct
inve
stm
ents
mad
e by
the
insu
red
on
the
insu
red
crop
up
to t
he t
ime
of
the
clai
m. U
nder
thi
s co
vera
ge t
he
insu
red
has
to b
ear
part
of
the
risk
by
shar
ing
5, 3
0, a
nd 2
5% o
f th
e cl
aim
fo
r lo
sses
in r
egar
d to
wea
ther
per
ils
and
drou
ght,
pes
ts, a
nd d
isea
ses,
re
spec
tivel
y. In
the
cas
e of
a c
laim
, the
po
licy
inde
mni
fies
the
amou
nt o
f th
e in
vest
men
t m
ade
by t
he in
sure
d up
to
the
dat
e of
the
loss
, ded
uctin
g th
e re
venu
e ob
tain
ed o
n th
e in
sure
d un
it an
d th
e in
sure
d lo
ss p
artic
ipat
ion.
Named-peril
Indi
vidu
al p
lant
insu
ranc
e (a
nam
ed-
peril
, dam
age-
base
d po
licy)
pro
tect
s ag
ains
t da
mag
e to
indi
vidu
al p
lant
s ca
used
by
adve
rse
wea
ther
con
ditio
ns
and
biol
ogic
al p
erils
. The
sum
insu
red
is d
efin
ed b
y th
e va
lue
of e
ach
indi
vidu
al p
lant
tha
t co
mpo
unds
th
e in
sure
d pl
anta
tion.
A d
educ
ible
fr
om 5
to
10%
ove
r th
e su
m in
sure
d ap
plie
s. T
his
crop
insu
ranc
e pr
oduc
t is
ta
rget
ed a
t hi
gh-v
alue
cro
ps, i
nclu
ding
ba
nana
pla
ntat
ions
. In
case
of
loss
es
due
to a
ny o
f th
e co
vere
d pe
rils,
the
in
sure
d w
ill b
e in
dem
nifie
d w
ith t
he
agre
ed v
alue
est
ablis
hed
for
the
plan
t tim
es t
he n
umbe
r of
aff
ecte
d pl
ants
, ab
ove
an a
ggre
gate
ded
uctib
le.
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
Named-peril
Crop
inve
stm
ent
insu
ranc
e (s
egur
o a
la in
vers
ión)
bas
es lo
ss a
djus
tmen
t on
cro
p da
mag
e. It
pro
tect
s th
e di
rect
inve
stm
ent
(pro
duct
ion
cost
s, in
clud
ing
inpu
t co
sts,
land
pr
epar
atio
n, s
owin
g co
sts,
and
so
fort
h) in
the
insu
red
crop
aga
inst
lo
sses
due
to
fros
t, f
lood
, hai
l, fir
e, h
urric
ane,
tor
nado
, win
d, a
nd
win
dsto
rm. T
he s
um in
sure
d is
def
ined
by
the
dire
ct in
vest
men
ts in
gro
win
g th
e in
sure
d cr
op. I
n ca
se o
f a
clai
m,
the
polic
y in
dem
nifie
s th
e am
ount
of
the
inve
stm
ent
mad
e by
the
insu
red
up t
o th
e da
te o
f th
e lo
ss. D
educ
tible
s va
ry f
rom
5 t
o 15
% o
f th
e su
m
insu
red.
Livestock and
bloodstock
Such
pol
icie
s co
ver
anim
al m
orta
lity
due
to a
ccid
ents
, dis
ease
, or
slau
ghte
r or
dere
d by
the
aut
horit
ies
for
catt
le,
hogs
, she
ep, g
oats
, and
pou
ltry
unde
r in
divi
dual
, gro
up, a
nd h
erd
mod
aliti
es.
112 ] Agricultural Insurance in Latin America
Tab
le A
.10
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: G
uat
emal
a
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l cro
p in
sura
nce
was
fir
st in
trod
uced
in
the
cou
ntry
in
1998
. One
priv
ate
insu
ranc
e co
mpa
ny,
with
the
sup
port
of
the
Min
istr
y of
A
gric
ultu
re a
nd
Live
stoc
k, p
ilote
d cr
op in
sura
nce
for
corn
aga
inst
dr
ough
t, r
ain,
w
ind,
and
flo
od
peril
s on
the
so
uthe
rn c
oast
. Th
is p
rodu
ct w
as
disc
ontin
ued
due
to la
ck o
f de
man
d fr
om f
arm
ers.
In la
te 1
998,
af
ter
Hur
rican
e M
itch,
agr
icul
tura
l in
sura
nce
was
of
fere
d ag
ain
and
expa
nded
to
crop
s ot
her
than
cor
n.
Seve
ral i
nsur
ance
co
mpa
nies
pr
ovid
ed
agric
ultu
ral
insu
ranc
e w
ith
tech
nica
l sup
port
fr
om M
exic
an
insu
ranc
e co
mpa
nies
.
Curr
ently
the
re a
re
plan
s to
impl
emen
t ag
ricul
tura
l w
eath
er in
dex
insu
ranc
e in
the
co
untr
y.
Thre
e in
sura
nce
com
pani
es o
ffer
cr
op a
nd li
vest
ock
insu
ranc
e pr
oduc
ts.
Crop
insu
ranc
e pr
ogra
ms
have
be
en s
uppo
rted
by
inte
rnat
iona
l re
insu
rers
on
a qu
ota
shar
e ba
sis
(10%
ret
aine
d,
90%
ced
ed),
mai
nly
thro
ugh
a fa
cilit
y pr
ovid
ed
by P
ROA
GRO
, a
Mex
ican
agr
icul
tura
l in
sure
r.
Insu
ranc
e ag
ents
ar
e th
e m
ain
deliv
ery
chan
nel
for
agric
ultu
ral
insu
ranc
e.
The
gove
rnm
ent
of
Gua
tem
ala
does
not
pro
vide
an
y ty
pe o
f su
ppor
t fo
r ag
ricul
tura
l ins
uran
ce a
t th
is
time.
In t
he r
ecen
t pa
st, t
he
gove
rnm
ent
subs
idiz
ed
cott
on c
rop
insu
ranc
e pr
emiu
ms
thro
ugh
the
Gua
te-in
vier
te P
rogr
am.
Crop
MPCI
Gua
rant
eed-
yiel
d, m
ulti-
peril
cr
op in
sura
nce
(MPC
I) pr
otec
ts a
pe
rcen
tage
of
the
expe
cted
indi
vidu
al
crop
yie
ld a
t th
e fa
rm le
vel.
Cove
red
peril
s ar
e w
eath
er, b
iolo
gica
l, an
d cr
op p
re-e
mer
genc
e pe
rils.
Far
mer
s ca
n ch
oose
am
ong
thre
e le
vels
of
guar
ante
ed y
ield
: 70,
60,
or
50%
of
the
expe
cted
cro
p yi
eld.
The
insu
red
has
to r
etai
n 30
% o
f lo
sses
due
to
drou
ght
and
25%
of
loss
es d
ue t
o bi
olog
ical
per
ils.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
In
und
erw
ritin
g ye
ar 2
007,
abo
ut
20,0
00 h
ecta
res
of a
nnua
l cro
ps
(0.9
% o
f to
tal
crop
ped
area
) wer
e in
sure
d.
2. L
ives
tock
in
sura
nce:
Low
pe
netr
atio
n. In
un
derw
ritin
g ye
ar
2007
, abo
ut 1
,400
he
ad o
f ca
ttle
(le
ss t
han
1% o
f th
e na
tiona
l her
d)
wer
e in
sure
d.
1,70
0,00
027
,000
,000
Crop
inve
stm
ent
insu
ranc
e (s
egur
o a
la in
vers
ión)
bas
es lo
ss a
djus
tmen
t on
in
sure
d cr
op y
ield
per
form
ance
. Thi
s in
sura
nce
prod
uct
prot
ects
the
dire
ct
inve
stm
ent
mad
e by
the
insu
red
in
the
insu
red
crop
aga
inst
wea
ther
and
bi
olog
ical
per
ils a
nd a
lso
agai
nst
crop
ge
rmin
atio
n or
pre
-em
erge
nce
failu
re
(due
to
peril
s su
ch a
s so
il ca
ppin
g as
soci
ated
with
exc
ess
rain
). Th
e su
m in
sure
d is
def
ined
by
the
dire
ct
inve
stm
ents
mad
e by
the
insu
red
on
the
insu
red
crop
up
to t
he t
ime
of
the
clai
m. U
nder
thi
s co
vera
ge, t
he
insu
red
has
to b
ear
part
of
the
risk
by
shar
ing
5, 3
0, a
nd 2
5% o
f th
e cl
aim
fo
r lo
sses
in r
egar
d to
wea
ther
per
ils
and
drou
ght,
pes
ts, a
nd d
isea
ses,
re
spec
tivel
y. In
cas
e of
a c
laim
, the
po
licy
inde
mni
fies
the
amou
nt o
f th
e in
vest
men
t m
ade
by t
he in
sure
d up
to
the
dat
e of
the
loss
, ded
uctin
g th
e re
venu
e ob
tain
ed o
n th
e in
sure
d un
it an
d th
e in
sure
d lo
ss p
artic
ipat
ion.
Named-peril
Indi
vidu
al p
lant
insu
ranc
e (a
nam
ed-
peril
, dam
age-
base
d po
licy)
pro
tect
s ag
ains
t da
mag
e to
indi
vidu
al p
lant
s ca
used
by
adve
rse
wea
ther
con
ditio
ns
and
biol
ogic
al p
erils
. The
sum
in
sure
d is
def
ined
by
the
valu
e of
ea
ch in
divi
dual
pla
nt t
hat
mak
es u
p th
e in
sure
d pl
anta
tion.
A d
educ
ible
fr
om 5
to
10%
of
the
sum
insu
red
appl
ies.
Thi
s cr
op in
sura
nce
prod
uct
is
targ
eted
at
high
-val
ue c
rops
, inc
ludi
ng
bana
na p
lant
atio
ns. I
n ca
se o
f lo
sses
du
e to
any
of
the
cove
red
peril
s, t
he
insu
red
will
be
inde
mni
fied
with
the
ag
reed
val
ue e
stab
lishe
d fo
r th
e pl
ant
times
the
num
ber
of a
ffec
ted
plan
ts,
abov
e an
agg
rega
te d
educ
tible
.
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
Named-peril
Crop
inve
stm
ent
insu
ranc
e (s
egur
o a
la in
vers
ión)
bas
es lo
ss a
djus
tmen
t on
cr
op d
amag
e. T
his
prod
uct
prot
ects
th
e di
rect
inve
stm
ent
(pro
duct
ion
cost
s, in
clud
ing
inpu
t co
sts,
land
pr
epar
atio
n, a
nd s
owin
g co
sts)
in t
he
insu
red
crop
aga
inst
loss
es d
ue t
o fr
ost,
flo
odin
g, h
ail,
fire,
hur
rican
e,
torn
ado,
win
d, a
nd w
inds
torm
. Th
e su
m in
sure
d is
def
ined
by
the
dire
ct in
vest
men
ts in
gro
win
g th
e in
sure
d cr
op. I
n ca
se o
f a
clai
m, t
he
polic
y in
dem
nifie
s th
e am
ount
of
the
inve
stm
ent
mad
e by
the
insu
red
up t
o th
e da
te o
f th
e lo
ss. D
educ
tible
s va
ry
from
5 t
o 15
% o
f th
e su
m in
sure
d.
Livestock and
bloodstock
This
pro
duct
cov
ers
anim
al m
orta
lity
due
to a
ccid
ents
, dis
ease
, or
slau
ghte
r or
dere
d by
the
aut
horit
ies
for
catt
le,
hogs
, she
ep, g
oats
, and
pou
ltry
unde
r in
divi
dual
, gro
up, a
nd h
erd
mod
aliti
es.
114 ] Agricultural Insurance in Latin America
Tab
le A
.11
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: H
on
du
ras
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
has
a 10
-yea
r hi
stor
y in
H
ondu
ras.
Cro
p in
sura
nce
was
fir
st in
trod
uced
in
2000
and
live
stoc
k in
sura
nce
in 2
004.
Alth
ough
ag
ricul
tura
l in
sura
nce
is
rela
tivel
y ne
w,
seve
ral i
nsur
ance
pr
oduc
ts f
or
crop
s, li
vest
ock,
gr
eenh
ouse
s,
and
aqua
cultu
re
are
avai
labl
e on
th
e m
arke
t. C
rop
insu
ranc
e pr
oduc
ts
incl
ude
trad
ition
al
nam
ed-p
eril
crop
insu
ranc
e,
mul
ti-pe
ril c
rop
insu
ranc
e (M
PCI),
an
d w
eath
er
inde
x in
sura
nce.
Li
vest
ock
insu
ranc
e is
und
evel
oped
in
Hon
dura
s. L
ess
than
1%
of
the
natio
nal h
erd
is
insu
red.
Fede
ral g
over
nmen
t su
ppor
t fo
r ag
ricul
tura
l in
sura
nce
is r
estr
icte
d to
tec
hnic
al
assi
stan
ce, c
apac
ity
build
ing
(suc
h as
w
orks
hops
and
tr
aini
ng p
rogr
ams)
, an
d ta
x ex
empt
ions
on
agr
icul
tura
l in
sura
nce
prem
ium
s. T
he
gove
rnm
ent
does
not
fin
ance
pr
emiu
m s
ubsi
dies
at
thi
s tim
e.
Thre
e pr
ivat
e in
sura
nce
com
pani
es p
rovi
de
agric
ultu
ral
insu
ranc
e in
H
ondu
ras,
nam
ely,
In
tera
mer
ican
a,
Equi
dad,
and
A
tlant
ida.
All
of t
hese
co
mpa
nies
off
er
crop
insu
ranc
e, b
ut
only
tw
o un
derw
rite
smal
l liv
esto
ck
port
folio
s.
The
agric
ultu
ral
insu
ranc
e pr
ogra
ms
curr
ently
in p
lace
in
Hon
dura
s ha
ve
supp
ort
from
th
e in
tern
atio
nal
rein
sura
nce
mar
ket.
Ca
paci
ty is
ava
ilabl
e fo
r M
PCI a
nd
may
be
slig
htly
m
ore
diff
icul
t to
se
cure
for
live
stoc
k in
sura
nce
and
inde
x-ba
sed
crop
in
sura
nce.
Insu
ranc
e ag
ents
ar
e th
e m
ain
deliv
ery
chan
nel.
Som
e fin
anci
al
inst
itutio
ns (f
or
exam
ple,
rur
al
bank
s) a
lso
deliv
er
agric
ultu
ral
insu
ranc
e.
Ther
e ar
e no
for
ms
of
gove
rnm
ent
finan
cial
su
ppor
t fo
r ag
ricul
tura
l cro
p an
d liv
esto
ck in
sura
nce.
Oth
er f
orm
s of
gov
ernm
ent
supp
ort
are
finan
ce f
or
wor
ksho
ps o
r tr
aini
ng
prog
ram
s th
at b
uild
ca
paci
ty w
ith r
egar
d to
ag
ricul
tura
l ins
uran
ce a
nd
the
inst
rum
enta
tion
of t
ax
exem
ptio
ns f
or a
gric
ultu
ral
insu
ranc
e pr
emiu
ms.
Crop
MPCI
Gua
rant
eed-
yiel
d M
PCI p
rote
cts
a pe
rcen
tage
of
the
expe
cted
indi
vidu
al
crop
yie
ld a
t th
e fa
rm le
vel.
Cove
red
peril
s ar
e w
eath
er, b
iolo
gica
l, an
d cr
op
pre-
emer
genc
e. F
arm
ers
can
choo
se
amon
g th
ree
leve
ls o
f gu
aran
teed
yi
eld:
70,
60,
or
50%
of
the
expe
cted
cr
op y
ield
. The
insu
red
has
to r
etai
n 30
% o
f lo
sses
due
to
drou
ght
and
25%
due
to
biol
ogic
al p
erils
.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
In
und
erw
ritin
g ye
ar 2
009,
abo
ut
20,0
00 h
ecta
res
of
annu
al c
rops
(3%
of
tot
al c
ropp
ed
area
) wer
e in
sure
d.
2. L
ives
tock
in
sura
nce:
Low
pe
netr
atio
n. In
un
derw
ritin
g ye
ar
2009
, abo
ut 6
00
head
of
catt
le
(less
tha
n 1%
of
the
natio
nal h
erd)
w
ere
insu
red.
1,00
0,00
014
,000
,000
Crop
inve
stm
ent
insu
ranc
e (s
egur
o a
la in
vers
ión)
, whi
ch is
loss
ad
just
men
t ba
sed
on in
sure
d cr
op
yiel
d pe
rfor
man
ce, p
rote
cts
the
dire
ct
inve
stm
ent
mad
e by
the
insu
red
in
the
insu
red
crop
aga
inst
wea
ther
and
bi
olog
ical
per
ils a
nd a
lso
agai
nst
crop
ge
rmin
atio
n or
pre
-em
erge
nce
failu
re
(due
to
peril
s su
ch a
s so
il ca
ppin
g as
soci
ated
with
exc
ess
rain
). Th
e su
m in
sure
d is
def
ined
as
the
dire
ct
inve
stm
ent
mad
e by
the
insu
red
on
the
insu
red
crop
up
to t
he t
ime
of
the
clai
m. U
nder
thi
s co
vera
ge, t
he
insu
red
has
to b
ear
part
of
the
risk
by
shar
ing
5, 3
0, a
nd 2
5% o
f th
e cl
aim
fo
r lo
sses
in r
egar
d to
wea
ther
per
ils
and
drou
ght,
pes
ts, a
nd d
isea
ses,
re
spec
tivel
y. In
cas
e of
a c
laim
, the
po
licy
inde
mni
fies
the
amou
nt o
f in
vest
men
t m
ade
by t
he in
sure
d up
to
the
dat
e of
the
loss
, ded
uctin
g th
e re
venu
e ob
tain
ed o
n th
e in
sure
d un
it an
d th
e in
sure
d lo
ss p
artic
ipat
ion.
Named-peril
Indi
vidu
al p
lant
insu
ranc
e (a
nam
ed-
peril
, dam
age-
base
d po
licy)
pro
tect
s ag
ains
t da
mag
e to
indi
vidu
al p
lant
s ca
used
by
adve
rse
wea
ther
con
ditio
ns
and
biol
ogic
al p
erils
. The
sum
in
sure
d is
def
ined
by
the
valu
e of
ea
ch in
divi
dual
pla
nt t
hat
mak
es u
p th
e in
sure
d pl
anta
tion.
A d
educ
ible
of
5 t
o 10
% o
ver
the
sum
insu
red
appl
ies.
Thi
s cr
op in
sura
nce
prod
uct
is
targ
eted
at
high
-val
ue c
rops
, inc
ludi
ng
bana
na p
lant
atio
ns. I
n ca
se o
f lo
sses
du
e to
any
of
the
cove
red
peril
s, t
he
insu
red
will
be
inde
mni
fied
with
the
ag
reed
val
ue e
stab
lishe
d fo
r th
e pl
ant
times
the
num
ber
of a
ffec
ted
plan
ts,
abov
e an
agg
rega
te d
educ
tible
.
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
is m
ainl
y vo
lunt
ary.
How
ever
, th
e st
ate-
owne
d ba
nk, B
AN
AD
ESA
(B
anco
Nac
iona
l de
Des
arro
llo
Agr
ícol
a), r
equi
res
farm
ers
to in
sure
th
eir
agric
ultu
ral
loan
s. T
his
is t
he
mai
n re
ason
for
th
e ex
pans
ion
of a
gric
ultu
ral
insu
ranc
e in
H
ondu
ras.
H
owev
er,
BAN
AD
ESA
re
cent
ly r
educ
ed
its a
gric
ultu
ral
lend
ing,
whi
ch
has
cont
ribut
ed
to t
he s
tagn
atio
n of
agr
icul
tura
l in
sura
nce.
Crop
Named-peril
Crop
inve
stm
ent
insu
ranc
e (s
egur
o a
la in
vers
ión)
, whi
ch is
loss
adj
ustm
ent
base
d on
cro
p da
mag
e, p
rote
cts
the
dire
ct in
vest
men
t (p
rodu
ctio
n co
sts,
incl
udin
g in
put
cost
s, la
nd
prep
arat
ion,
and
sow
ing
cost
s) in
the
in
sure
d cr
op a
gain
st lo
sses
due
to
fros
t, f
lood
ing,
hai
l, fir
e, h
urric
ane,
to
rnad
o, w
ind,
and
win
dsto
rm.
The
sum
insu
red
is d
efin
ed a
s th
e di
rect
inve
stm
ents
in g
row
ing
the
insu
red
crop
. In
case
of
a cl
aim
, the
po
licy
inde
mni
fies
the
amou
nt o
f th
e in
vest
men
t m
ade
by t
he in
sure
d up
to
the
date
of
the
loss
. Ded
uctib
les
vary
fr
om 5
to
15%
of
the
sum
insu
red.
Livestock and
bloodstock
Insu
ranc
e co
vers
ani
mal
mor
talit
y du
e to
acc
iden
ts, d
isea
se, o
r sl
augh
ter
orde
red
by t
he a
utho
ritie
s fo
r ca
ttle
, ho
gs, s
heep
, goa
ts, a
nd p
oultr
y un
der
indi
vidu
al, g
roup
, and
her
d m
odal
ities
.
Aquaculture
Insu
ranc
e co
vers
bio
mas
s m
orta
lity
due
to s
torm
, dis
ease
, wat
er s
uppl
y flu
ctua
tion,
exp
osur
e to
deb
ris in
take
, an
d th
eft
on t
ilapi
a an
d sh
rimp
fish
farm
s.
116 ] Agricultural Insurance in Latin America
Tab
le A
.12
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: M
exic
o
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Mai
n Fe
atur
esPe
netr
atio
n ra
te
Prem
ium
s Li
abili
ties
Crop
insu
ranc
e in
M
exic
o da
tes
back
to
192
6.
In 1
961
the
gove
rnm
ent,
th
roug
h A
segu
rado
ra
Nac
iona
l Agr
icol
a y
Gan
ader
a S.
A.
(AN
AG
SA),
star
ted
to u
nder
writ
e a
mul
ti-pe
ril c
rop
insu
ranc
e (M
PCI)
polic
y su
ppor
ted
by
fede
ral g
over
nmen
t pr
emiu
m s
ubsi
dies
. Th
e A
NA
GSA
pr
ogra
m w
as c
rop-
cred
it co
mpu
lsor
y in
sura
nce.
AN
AG
SA
expe
rienc
ed v
ery
poor
und
erw
ritin
g re
sults
. The
refo
re,
in 1
990
the
fede
ral
gove
rnm
ent
term
inat
ed t
he
prog
ram
.
In 1
990
Agr
oase
mex
re
plac
ed A
NA
GSA
as
the
nat
iona
l pu
blic
sec
tor
crop
an
d liv
esto
ck
insu
ranc
e co
mpa
ny,
oper
atin
g al
ong
stric
tly c
omm
erci
al
insu
ranc
e pr
inci
ples
and
with
gr
eatly
impr
oved
m
anag
emen
t sy
stem
s an
d pr
oced
ures
. A
groa
sem
ex a
lso
acte
d as
a s
top-
loss
rei
nsur
er o
f th
e sm
all f
arm
er
mut
ual i
nsur
ance
fu
nds
(fon
dos)
. In
the
early
199
0s
seve
ral p
rivat
e co
mm
erci
al
insu
rers
als
o st
arte
d of
ferin
g cr
op a
nd
lives
tock
insu
ranc
e.
Mex
ico
has
a w
ell-
defin
ed p
ublic
-pr
ivat
e pa
rtne
rshi
p fo
r ag
ricul
tura
l in
sura
nce,
the
N
atio
nal S
yste
m f
or
Insu
ranc
e of
the
Ru
ral S
ecto
r, w
hich
in
volv
es t
hree
key
in
sura
nce
entit
ies:
A
groa
sem
ex, t
he
natio
nal a
gric
ultu
ral
rein
sure
r; p
rivat
e co
mm
erci
al
insu
ranc
e co
mpa
nies
; and
m
utua
l ins
uran
ce
com
pani
es,
incl
udin
g th
e fo
ndos
, U
p to
six
priv
ate
insu
ranc
e co
mpa
nies
are
au
thor
ized
to
offe
r ag
ricul
tura
l in
sura
nce
in M
exic
o.
In a
dditi
on, t
here
ar
e on
e m
utua
l in
sura
nce
soci
ety
and
abou
t 27
0 fo
ndos
.
The
agric
ultu
ral
rein
sura
nce
mar
ket
in M
exic
o is
wel
l de
velo
ped.
A
grou
p of
sev
en
inte
rnat
iona
l re
insu
rers
pro
vide
s a
com
bina
tion
of
prop
ortio
nal a
nd
nonp
ropo
rtio
nal
rein
sura
nce
supp
ort
to p
rivat
e co
mm
erci
al
rein
sure
rs.
The
priv
ate
insu
ranc
e co
mpa
nies
mar
ket
thei
r cr
op a
nd
lives
tock
insu
ranc
e pr
oduc
ts t
hrou
gh
thei
r ow
n ag
ent
netw
orks
.
The
fond
os a
nd
mut
ual c
ompa
nies
m
arke
t di
rect
ly t
o th
eir
mem
bers
.
Cata
stro
phic
cro
p an
d liv
esto
ck
insu
ranc
e pr
oduc
ts a
re
mar
kete
d th
roug
h fe
dera
l and
sta
te
gove
rnm
ents
.
Very
litt
le
agric
ultu
ral
insu
ranc
e is
sol
d th
roug
h re
tail
brok
ers.
Gov
ernm
ent
supp
ort
to
agric
ultu
ral i
nsur
ance
tak
es
the
follo
win
g fo
rms:
1. P
rem
ium
sub
sidy
sup
port
2.
Agr
icul
tura
l rei
nsur
ance
3.
Sub
sidi
es f
or t
rain
ing
and
educ
atio
n fo
r th
e fo
ndos
, suc
h as
(a)
assi
stan
ce in
pro
duct
de
sign
, rat
ing,
and
the
de
sign
of
loss
adj
ustm
ent
and
(b) c
atas
trop
hic
insu
ranc
e pr
otec
tion
for
smal
l far
mer
s un
der
the
PACC
(Pro
gram
to
Ass
ist
Clim
atol
ogic
Co
ntin
genc
ies)
, whi
ch
are
100%
sub
sidi
zed
by
gove
rnm
ent.
A g
roup
of
basi
c or
prio
rity
crop
s ca
rrie
s pr
emiu
m
subs
idy
leve
ls o
f be
twee
n 35
% a
nd a
max
imum
of
60%
, acc
ordi
ng t
o ge
ogra
phic
reg
ion
and
expo
sure
to
loss
; for
all
othe
r cr
ops
a fla
t-ra
te p
rem
ium
su
bsid
y of
35%
app
lies.
For
liv
esto
ck, p
rem
ium
sub
sidy
le
vels
ran
ge b
etw
een
20%
fo
r aq
uacu
lture
and
a
max
imum
of
50%
for
exo
tic
dise
ases
, flo
od, a
nd h
igh-
mor
talit
y in
sura
nce.
For
cata
stro
phic
inde
x in
sura
nce,
the
cos
ts o
f pr
emiu
ms
are
100%
su
bsid
ized
by
gove
rnm
ent
on t
he f
ollo
win
g ba
sis:
70
–90%
by
fede
ral
gove
rnm
ent
and
10–3
0% b
y st
ate
gove
rnm
ents
.
The
gove
rnm
ent
expe
nditu
res
in b
oth
agric
ultu
ral i
nsur
ance
pr
emiu
m s
ubsi
dies
and
the
pr
ovis
ion
of c
atas
trop
hic
insu
ranc
e fo
r sm
all a
nd
mar
gina
l far
mer
s am
ount
ed
to a
ppro
xim
atel
y U
S$14
5 m
illio
n in
200
9.Th
e vo
lum
e of
pre
miu
m s
ubsi
dies
for
the
A w
ide
rang
e of
agr
icul
tura
l (cr
op a
nd li
vest
ock)
in
sura
nce
prod
ucts
is a
vaila
ble
on t
he M
exic
an
mar
ket.
The
se a
re c
lass
ified
into
tw
o m
ajor
ca
tego
ries.
Firs
t, t
radi
tiona
l or
com
mer
cial
cro
p an
d liv
esto
ck in
sura
nce
prod
ucts
, whi
ch a
re o
ffer
ed
by p
rivat
e co
mm
erci
al in
sura
nce
com
pani
es,
mut
ual s
ocie
ties,
and
fon
dos,
are
con
vent
iona
l in
dem
nity
-bas
ed in
sura
nce
prod
ucts
tha
t ca
n be
co
ntra
cted
indi
vidu
ally
or
on a
col
lect
ive
basi
s.
For
crop
s, a
wid
e ra
nge
of p
rodu
ct t
ypes
is
avai
labl
e th
roug
h pr
ivat
e co
mpa
nies
and
th
e fo
ndos
, inc
ludi
ng (a
) sin
gle-
peril
hai
l an
d na
med
-per
il da
mag
e-ba
sed
insu
ranc
e an
d in
dem
nity
pol
icie
s (t
erm
ed “
indi
vidu
al
plan
t in
sura
nce”
), (b
) los
s-of
-inve
stm
ent-
cost
in
sura
nce
(seg
uro
a la
inve
rsió
n), m
ultip
le-p
eril
salv
age-
base
d lo
ss-o
f-yi
eld
insu
ranc
e po
licie
s,
whi
ch in
dem
nify
gro
wer
s ag
ains
t lo
ss o
f th
eir
prod
uctio
n co
sts
inve
sted
in g
row
ing
the
crop
up
to t
he t
ime
of lo
ss, a
nd (c
) tra
ditio
nal
MPC
I yie
ld-b
ased
inde
mni
ty in
sura
nce
polic
ies,
w
here
by f
arm
ers
are
prov
ided
a y
ield
gua
rant
ee
(whi
ch t
ypic
ally
ran
ges
from
50
to 7
0% o
f th
e m
axim
um e
xpec
ted
yiel
d) a
gain
st a
wid
e ra
nge
of c
limat
ic, b
iolo
gica
l (pe
sts
and
dise
ases
), an
d pr
e-em
erge
nce
peril
s (in
clud
ing
germ
inat
ion
failu
re a
nd s
oil c
appi
ng).
Gre
enho
use
mat
eria
l da
mag
e in
sura
nce
and
fore
stry
insu
ranc
e ar
e al
so a
vaila
ble.
Mex
ico
has
the
larg
est
and
mos
t de
velo
ped
lives
tock
insu
ranc
e m
arke
t in
Lat
in A
mer
ica.
Li
vest
ock
insu
ranc
e is
ava
ilabl
e fo
r a
wid
e ra
nge
of li
vest
ock,
incl
udin
g da
iry a
nd b
eef
catt
le,
pigs
(sw
ine)
, she
ep a
nd g
oats
, hor
ses,
dee
r, po
ultr
y, a
nd b
ees.
In a
dditi
on, a
quac
ultu
re
insu
ranc
e is
ava
ilabl
e fo
r sh
rimp
and
fish
spec
ies.
For
live
stoc
k, t
here
are
tw
o m
ain
cove
rs:
(a) a
ccid
ent
and
mor
talit
y in
sura
nce
and
(b)
lives
tock
epi
dem
ic d
isea
se c
over
. Tra
ditio
nally
, th
e m
ost
popu
lar
form
of
cove
r w
as in
divi
dual
an
imal
insu
ranc
e, b
ut in
200
5 pr
emiu
m s
ubsi
dy
supp
ort
was
sw
itche
d fr
om in
divi
dual
ani
mal
co
vers
to
a ne
w li
vest
ock
insu
ranc
e po
licy
for
high
-mor
talit
y ev
ents
, whi
ch is
a h
erd-
base
d po
licy
carr
ying
a n
umbe
r of
ani
mal
s pe
r ev
ent
dedu
ctib
le. T
his
polic
y in
sure
s ag
ains
t ac
cide
nts,
dis
ease
s, a
nd f
orce
d sl
augh
ter
of
inju
red
anim
als.
The
pol
icy
spec
ifica
lly e
xclu
des
gove
rnm
ent-
orde
red
slau
ghte
r, pr
eexi
stin
g di
seas
es, o
r di
seas
es f
or w
hich
vac
cine
s ar
e av
aila
ble.
The
pol
icy
char
ges
very
low
pre
miu
m
1. C
rop
insu
ranc
e:
In u
nder
writ
ing
year
200
9, a
bout
1.
8 m
illio
n he
ctar
es (3
6.5%
of
tota
l cro
pped
are
a)
wer
e in
sure
d.
2. L
ives
tock
in
sura
nce:
In
unde
rwrit
ing
year
200
9, a
bout
4.
4 m
illio
n he
ad
of c
attle
(les
s th
an 1
5% o
f th
e na
tiona
l her
d)
wer
e in
sure
d.
3. A
quac
ultu
re
insu
ranc
e: In
un
derw
ritin
g ye
ar 2
009,
abo
ut
10,0
00 h
ecta
res
of s
hrim
p po
nds
(app
roxi
mat
ely
14%
of
the
natio
nal a
rea)
wer
e in
sure
d.
4. F
ores
try
insu
ranc
e: In
un
derw
ritin
g ye
ar 2
009,
abo
ut
10,0
00 h
ecta
res
of s
hrim
p po
nds
(app
roxi
mat
ely
14%
of
the
natio
nal a
rea)
wer
e in
sure
d.
5. C
atas
trop
hic
insu
ranc
e: D
urin
g un
derw
ritin
g ye
ar
2009
, 8 m
illio
n he
ctar
es o
f cr
ops
and
4.16
mill
ion
anim
al u
nits
wer
e in
sure
d un
der
cata
stro
phic
in
sura
nce;
30
stat
es a
dher
e to
th
is p
rogr
am.
222,
000,
000
10,7
40,0
00,0
00
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Mai
n Fe
atur
esPe
netr
atio
n ra
te
Prem
ium
s Li
abili
ties
In 2
001,
th
e M
exic
an
gove
rnm
ent
rede
fined
the
rol
e of
Agr
oase
mex
in
ord
er t
o fo
cus
on it
s ne
w r
ole
as a
nat
iona
l ag
ricul
tura
l re
insu
rer,
prov
ider
of
res
earc
h an
d de
velo
pmen
t, a
nd
man
ager
of
the
fede
ral a
gric
ultu
ral
insu
ranc
e pr
emiu
m
subs
idy
sche
me.
who
le m
arke
t (t
radi
tiona
l or
com
mer
cial
insu
ranc
e an
d ca
tast
roph
ic in
dex
insu
ranc
e)
amou
nted
to
US$
51.7
m
illio
n in
200
9. T
otal
go
vern
men
t ex
pend
iture
s fo
r ca
tast
roph
ic in
sura
nce
amou
nted
to
US$
93 m
illio
n in
the
sam
e ye
ar.
rate
s. T
he s
econ
d an
d m
ost
impo
rtan
t ty
pe o
f po
licy
is e
pide
mic
dis
ease
cov
er a
gain
st c
lass
ical
sw
ine
feve
r (C
SF).
The
CSF
pol
icy
inde
mni
fies
agai
nst
mor
talit
y an
d co
mpu
lsor
y sl
augh
ter
orde
red
by t
he M
inis
try
of A
gric
ultu
re in
the
ev
ent
of a
CSF
out
brea
k. T
he p
olic
y is
onl
y of
fere
d in
sta
tes
that
are
dec
lare
d fr
ee o
f C
SF.
Seco
nd, c
atas
trop
hic
insu
ranc
e pr
oduc
ts a
re
the
seco
nd m
ajor
cat
egor
y. F
irst
intr
oduc
ed in
20
02, t
hey
incl
ude
para
met
ric (i
ndex
) pro
duct
s pr
otec
ting
agai
nst
cata
stro
phic
clim
atic
eve
nts,
w
hich
are
aim
ed a
t sm
all-s
cale
pro
duce
rs w
ho
cann
ot a
cces
s co
mm
erci
al c
rop
or li
vest
ock
insu
ranc
e. T
he c
atas
trop
hic
insu
ranc
e sc
hem
es
oper
ate
unde
r th
e re
gula
tions
of
the
Prog
ram
to
Ass
ist
Clim
atol
ogic
Con
tinge
ncie
s (P
ACC
). Th
ese
larg
e-sc
ale
insu
ranc
e pr
ogra
ms
oper
ate
at a
mac
ro le
vel (
as o
ppos
ed t
o pr
ovid
ing
cove
r to
indi
vidu
al f
arm
ers)
and
are
pur
chas
ed
by t
he f
eder
al o
r st
ate
gove
rnm
ents
thr
ough
(a
) the
priv
ate
com
mer
cial
insu
rers
(are
a-yi
eld
inde
x in
sura
nce)
and
thr
ough
Agr
oase
mex
(r
ainf
all d
efic
it in
sura
nce
and
norm
aliz
ed
dry
vege
tativ
e in
dex,
ND
VI,
insu
ranc
e). T
he
cata
stro
phic
insu
ranc
e pr
ogra
ms
are
100%
su
bsid
ized
by
fede
ral a
nd s
tate
gov
ernm
ents
. Pr
ivat
e co
mm
erci
al in
sure
rs h
ave
been
in
volv
ed f
or s
ever
al y
ears
in o
ffer
ing
area
-yie
ld
inde
x in
sura
nce
and
cata
stro
phic
live
stoc
k in
sura
nce
cove
rs o
n a
mas
sive
sca
le t
o th
e st
ate
gove
rnm
ents
.
Sinc
e 20
03 A
groa
sem
ex h
as in
sure
d a
mac
ro-
leve
l rai
nfal
l def
icit
inde
x in
sura
nce
cove
r fo
r th
e fe
dera
l gov
ernm
ent
unde
r th
e PA
CC.
The
PACC
is a
dmin
iste
red
by t
he M
inis
try
of
Agr
icul
ture
(SA
GA
RPA
) and
impl
emen
ted
eith
er
in c
onju
nctio
n w
ith t
he s
tate
gov
ernm
ents
or
dire
ctly
with
low
-inco
me
farm
ers,
def
ined
as
tho
se o
wni
ng le
ss t
han
5 he
ctar
es. I
f a
rain
fall
defic
it is
trig
gere
d at
an
insu
red
wea
ther
sta
tion,
Agr
oase
mex
inde
mni
fies
the
stat
e go
vern
men
t, w
hich
is r
espo
nsib
le
for
dist
ribut
ing
the
inde
mni
ty t
o th
e in
sure
d fa
rmer
s (b
enef
icia
ries)
. In
2007
Agr
oase
mex
al
so la
unch
ed a
pilo
t pa
stur
e sa
telli
te in
sura
nce
prog
ram
, whi
ch u
ses
ND
VI t
o m
easu
re t
he
amou
nt o
f bi
omas
s av
aila
ble
as c
attle
fod
der.
118 ] Agricultural Insurance in Latin America
Tab
le A
.13
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: N
icar
agu
a
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
A f
irst
atte
mpt
to
intr
oduc
e cr
op
insu
ranc
e on
an
inde
mni
ty b
asis
w
as m
ade
in
2004
, but
due
to
com
mer
cial
and
le
gal r
easo
ns, t
his
ende
avor
fai
led.
Aft
erw
ard,
go
vern
men
t an
d th
e In
stitu
to
Nic
arag
uens
e de
Seg
uros
y
Reas
egur
os (I
NIS
ER)
have
bee
n w
orki
ng
to d
evel
op a
w
eath
er in
dex
insu
ranc
e sc
hem
e fo
r N
icar
agua
. In
200
6 N
icar
agua
’s
Insu
ranc
e A
utho
rity
appr
oved
a
regu
latio
n fo
r w
eath
er in
dex
insu
ranc
e, a
nd
in 2
007
INIS
ER
star
ted
to m
arke
t an
d un
derw
rite
a w
eath
er in
dex
prod
uct
for
pean
uts.
The
fede
ral
gove
rnm
ent
supp
orts
the
de
velo
pmen
t of
agr
icul
tura
l in
sura
nce
by
prom
otin
g a
lega
l fr
amew
ork,
by
finan
cing
the
sta
rt-
up, a
dmin
istr
ativ
e,
and
oper
atio
nal
cost
s an
d re
sear
ch
and
deve
lopm
ent
fo
r ne
w p
rodu
cts,
an
d by
pro
vidi
ng
tax
exem
ptio
ns
for
agric
ultu
ral
insu
ranc
e.
Thre
e pr
ivat
e in
sura
nce
com
pani
es p
rovi
de
agric
ultu
ral
insu
ranc
e in
H
ondu
ras,
nam
ely,
In
tera
mer
ican
a,
Equi
dad,
and
A
tlant
ida.
All
of t
hese
co
mpa
nies
off
er
crop
insu
ranc
e, b
ut
only
tw
o un
derw
rite
smal
l liv
esto
ck
port
folio
s.
The
agric
ultu
ral
insu
ranc
e pr
ogra
ms
curr
ently
in p
lace
in
Hon
dura
s ha
ve
supp
ort
from
th
e in
tern
atio
nal
rein
sura
nce
mar
ket.
Ca
paci
ty is
ava
ilabl
e fo
r M
PCI a
nd
may
be
slig
htly
m
ore
diff
icul
t to
se
cure
for
live
stoc
k in
sura
nce
and
inde
x-ba
sed
crop
in
sura
nce.
The
mos
t im
port
ant
deliv
ery
chan
nel
for
agric
ultu
ral
insu
ranc
e is
th
e in
sura
nce
com
pany
’s
netw
ork
of a
gent
s.
How
ever
, rec
ently
ot
her
chan
nels
su
ch a
s ba
nks
and
farm
ers
asso
ciat
ions
and
co
oper
ativ
es h
ave
beco
me
mor
e pr
omin
ent
in
mar
ketin
g cr
op
insu
ranc
e pr
oduc
ts.
The
publ
ic s
ecto
r su
ppor
ts
the
deve
lopm
ent
of
agric
ultu
ral i
nsur
ance
pr
oduc
ts in
sev
eral
way
s.
Firs
t, g
over
nmen
t ha
d an
ac
tive
role
in f
orm
ulat
ing
the
regu
lato
ry f
ram
ewor
k fo
r ag
ricul
tura
l ins
uran
ce.
Seco
nd, g
over
nmen
t in
dire
ctly
sub
sidi
zes
agric
ultu
ral i
nsur
ance
de
velo
pmen
t by
fin
anci
ng
rese
arch
and
dev
elop
men
t an
d st
art-
up c
osts
of
pilo
t pr
ogra
ms
(suc
h as
th
ose
of t
he M
inis
try
for
Agr
icul
ture
) in
orde
r to
de
velo
p a
wea
ther
inde
x in
sura
nce
sche
me
for
corn
, ric
e, a
nd b
eans
tar
gete
d to
sm
all f
arm
ers.
Thi
rd,
gove
rnm
ent,
thr
ough
the
N
atio
nal W
eath
er S
ervi
ce,
inve
sts
in e
ffor
ts t
o im
prov
e th
e na
tiona
l wea
ther
sta
tion
netw
ork
and
data
col
lect
ion.
Fi
nally
, gov
ernm
ent
supp
orts
the
dev
elop
men
t of
agr
icul
tura
l ins
uran
ce
prod
ucts
by
esta
blis
hing
tax
ex
empt
ions
for
agr
icul
tura
l in
sura
nce
prem
ium
s.
The
gove
rnm
ent
does
not
su
bsid
ize
prem
ium
s.
Crop
Weather index-based insurance
Wea
ther
inde
x-ba
sed
insu
ranc
e co
vers
ex
cess
or
lack
of
rain
fall
in s
elec
t w
eath
er s
tatio
ns. T
he in
sure
d cr
op is
pe
anut
s, b
ut in
sura
nce
com
pani
es a
re
anal
yzin
g th
e fe
asib
ility
of
expa
ndin
g th
eir
port
folio
to
soyb
eans
, sor
ghum
, ric
e, b
eans
, ses
ame,
and
cor
n.
The
tota
l sum
insu
red
unde
r th
is p
olic
y is
bas
ed o
n th
e in
vest
men
t m
ade
by
the
insu
red
on t
he in
sure
d cr
op in
the
in
sure
d lo
catio
n.
The
insu
red’
s ec
onom
ic lo
ss is
def
ined
as
the
insu
red
crop
yie
ld s
hort
fall
due
to t
he o
ccur
renc
e of
an
adve
rse
wea
ther
eve
nt a
s m
easu
red
by a
n in
dex
on t
he a
gree
d w
eath
er s
tatio
n us
ed a
s re
fere
nce
for
the
area
whe
re
the
insu
red
unit
is lo
cate
d.
Ther
efor
e, if
the
und
erly
ing
wea
ther
in
dex
mea
sure
d at
the
agr
eed
wea
ther
st
atio
n is
bel
ow (c
over
for
lack
of
rain
) or
abo
ve (c
over
for
exc
ess
rain
) the
ag
reed
str
ike,
the
insu
red
will
rec
eive
an
inde
mni
ty a
ccor
ding
to
the
polic
y te
rms
and
cond
ition
s.
Acc
ordi
ng t
o 20
08 d
ata,
the
pe
netr
atio
n ra
te
for
crop
insu
ranc
e is
stil
l ver
y lo
w.
Onl
y 16
pol
icie
s w
ere
issu
ed o
n an
in
sure
d ar
ea o
f 1,
737
hect
ares
, re
pres
entin
g ar
ound
1%
of
tota
l na
tiona
l cro
pped
ar
ea.
80,0
001,
000,
000
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
No
lives
tock
in
sura
nce
prod
uct
is b
eing
off
ered
.
120 ] Agricultural Insurance in Latin America
Tab
le A
.14
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: P
anam
a
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
insu
ranc
e w
as
first
intr
oduc
ed
in 1
975
unde
r La
w n
o. 6
8,
whi
ch le
d to
the
cr
eatio
n of
the
In
stitu
to d
e Se
guro
A
grop
ecua
rio
(ISA
), a
publ
ic
sect
or c
ompa
ny, t
o pr
ovid
e ag
ricul
tura
l in
sura
nce.
Su
bseq
uent
ly,
in 1
996,
the
go
vern
men
t en
acte
d La
w n
o. 3
9 up
datin
g th
e cr
op
insu
ranc
e sc
hem
e an
d in
corp
orat
ing
lives
tock
and
fo
rest
ry in
sura
nce.
Th
e fe
dera
l go
vern
men
t do
es n
ot p
rovi
de
finan
cial
sup
port
fo
r ag
ricul
tura
l in
sura
nce.
Curr
ently
, thr
ee
insu
ranc
e co
mpa
nies
off
er
crop
, liv
esto
ck,
aqua
cultu
re, a
nd
fore
stry
insu
ranc
e pr
oduc
ts in
Pan
ama.
The
trad
ition
al
agric
ultu
ral i
nsur
er
is IS
A, w
hich
has
un
derw
ritte
n in
divi
dual
-gro
wer
m
ulti-
peril
cro
p in
sura
nce
(MPC
I) si
nce
1977
and
liv
esto
ck in
sura
nce
sinc
e 19
78;
the
othe
r tw
o co
mpa
nies
are
pr
ivat
ely
owne
d in
sure
rs.
One
of
the
priv
ate
insu
ranc
e co
mpa
nies
ope
rate
s a
crop
insu
ranc
e pr
ogra
m b
acke
d fr
om M
exic
o, a
nd
the
othe
r ac
ts a
s a
fron
t co
mpa
ny,
issu
ing
the
polic
y fo
r a
larg
e fa
culta
tive
cont
ract
for
an
agrib
usin
ess
firm
.
For
crop
s an
d liv
esto
ck in
sura
nce,
th
e m
ost
impo
rtan
t de
liver
y ch
anne
ls
are,
firs
t, in
sura
nce
brok
ers
seco
nd,
the
insu
ranc
e co
mpa
nies
’ ow
n ag
ents
.
Curr
ently
the
re
is n
o fo
rmal
pr
ovis
ion
for
spec
ial c
hann
els
to
deliv
er a
gric
ultu
ral
insu
ranc
e to
sm
all
and
mar
gina
l fa
rmer
s in
Pan
ama.
Curr
ently
, the
re a
re n
o fo
rms
of g
over
nmen
t fin
anci
al
supp
ort
to a
gric
ultu
ral c
rop
and
lives
tock
insu
ranc
e. IS
A
has
unde
rwrit
ten
agric
ultu
re
for
31 y
ears
. Tra
ditio
nally
, th
e go
vern
men
t of
Pan
ama
did
not
prov
ide
any
prem
ium
sub
sidy
sup
port
, bu
t si
nce
2008
gov
ernm
ent
repo
rted
ly h
as b
een
stud
ying
pr
opos
als
to in
trod
uce
a fla
t 50
% p
rem
ium
sub
sidy
on
agr
icul
tura
l ins
uran
ce
polic
ies.
Crop and MPCI
ISA’
s M
PCI y
ield
-loss
pol
icie
s pr
otec
t a
wid
e ra
nge
of a
nnua
l and
per
enni
al
crop
s ag
ains
t ex
cess
rai
n, f
lood
s,
drou
ght,
win
d, f
ire o
r lig
htin
g, a
nd
exot
ic p
ests
and
dis
ease
s. M
aize
and
so
rghu
m a
re t
he m
ain
insu
red
crop
s in
th
e co
untr
y. T
he IS
A M
PCI p
olic
y is
a
salv
age-
base
d lo
ss-o
f-in
vest
men
t-co
st
cove
r th
at in
sure
s ag
ains
t lo
ss o
f th
e di
rect
cos
ts o
f pr
oduc
tion
inve
sted
in
grow
ing
the
crop
; in
the
even
t of
loss
on
ly t
he d
irect
cos
ts in
curr
ed b
y th
e in
sure
d on
its
insu
red
unit
up t
o th
e m
omen
t of
the
loss
are
inde
mni
fied.
In
the
cas
e of
par
tial l
oss,
the
val
ue o
f th
e re
mai
ning
pro
duct
ion
and
yiel
d (s
alva
ge) i
s de
duct
ed f
rom
the
loss
. A
ded
uctib
le (c
oins
uran
ce) o
f 10
% o
f th
e lo
ss is
app
licab
le f
or m
aize
and
ric
e cr
ops,
whi
le a
ded
uctib
le o
f 20
%
of t
he lo
ss is
app
licab
le f
or s
orgh
um,
and
a de
duct
ible
of
betw
een
25 a
nd
30%
of
the
loss
is a
pplic
able
for
mel
on
crop
s. O
rigin
al g
ross
rat
es v
ary
from
(a
) ric
e, 4
.5%
–7%
dep
endi
ng o
n th
e lo
catio
n, (b
) mai
ze, 6
%, (
c) s
orgh
um,
7%, a
nd (d
) mel
ons,
8%
.
1. C
rop
insu
ranc
e:
Low
pen
etra
tion.
In
und
erw
ritin
g ye
ar 2
009,
abo
ut
29,0
00 h
ecta
res
of
annu
al c
rops
(4%
of
tot
al c
ropp
ed
area
) wer
e in
sure
d.
2. L
ives
tock
in
sura
nce:
Low
pe
netr
atio
n. In
un
derw
ritin
g ye
ar 2
009,
abo
ut
53,0
00 h
ead
of
catt
le (l
ess
than
1%
of
the
natio
nal
herd
) wer
e in
sure
d.
4,40
0,00
098
,000
,000
Livestock and bloodstock
ISA
off
ers
lives
tock
insu
ranc
e fo
r ca
ttle
, goa
ts, s
heep
, hor
ses,
buf
falo
es,
and
swin
e fo
r gr
assl
and
prod
uctio
n,
expo
sitio
ns, a
nd in
land
tra
nspo
rtat
ion.
Ba
sic
lives
tock
insu
ranc
e co
vers
dea
th
aris
ing
from
acc
iden
ts, a
sphy
xia,
el
ectr
ocut
ion,
fire
, lig
htni
ng,
atta
ck b
y w
ild a
nim
als,
fra
ctur
es,
abor
tion,
dea
th d
ue t
o bi
rth-
rela
ted
com
plic
atio
ns, a
nd s
laug
hter
of
an in
jure
d an
imal
if s
tipul
ated
by
a ce
rtifi
ed v
eter
inar
ian.
All
dise
ases
ar
e ex
clud
ed f
rom
cov
er. D
educ
tible
s va
ry a
ccor
ding
to
the
clas
s of
insu
red
anim
al, b
reed
, and
pro
duct
ion
syst
em.
In t
he e
vent
of
loss
, the
insu
red
is r
espo
nsib
le f
or a
coi
nsur
ance
(r
eten
tion)
of
betw
een
10%
(cat
tle
and
pigs
) and
20%
(hor
ses
and
goat
s)
of t
he v
alue
of
the
clai
m. I
SA’s
orig
inal
gr
oss
rate
s al
so v
ary,
dep
endi
ng o
n th
e ty
pe o
f an
imal
and
age
of
the
anim
al. F
or c
attle
, rat
es v
ary
for
calv
es
(7%
), ex
tens
ive
fatt
enin
g co
ws
(3%
), an
d da
iry c
attle
(2.5
%);
for
swin
e,
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
is m
ainl
y vo
lunt
ary.
How
ever
, th
e st
ate-
owne
d ba
nk, B
AN
AD
ESA
(B
anco
Nac
iona
l de
Des
arro
llo
Agr
ícol
a), r
equi
res
farm
ers
to in
sure
th
eir
agric
ultu
ral
loan
s. T
his
is t
he
mai
n re
ason
for
th
e ex
pans
ion
of a
gric
ultu
ral
insu
ranc
e in
H
ondu
ras.
H
owev
er,
BAN
AD
ESA
re
cent
ly r
educ
ed
its a
gric
ultu
ral
lend
ing,
whi
ch
has
cont
ribut
ed
to t
he s
tagn
atio
n of
agr
icul
tura
l in
sura
nce.
Livestock and
bloodstock
rate
s va
ry f
or b
oars
(4.7
5–5.
50%
), ho
gs (3
%),
and
sow
s (4
–6%
); fo
r sh
eep
and
goat
s, r
ates
var
y fr
om 2
to
3.5%
, dep
endi
ng o
n th
e pr
oduc
tion
syst
em.
Aquaculture
Insu
ranc
e co
vers
bio
mas
s m
orta
lity
due
to s
torm
, dis
ease
, wat
er s
uppl
y flu
ctua
tion,
deb
ris e
xpos
ure
inta
ke,
and
thef
t on
tila
pia
and
shrim
p fis
h fa
rms.
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
exc
lusi
vely.
Th
e su
m in
sure
d fo
r st
andi
ng t
imbe
r in
sura
nce
is t
ypic
ally
bas
ed o
n (a
) the
est
ablis
hmen
t an
d an
nual
m
aint
enan
ce c
osts
of
the
fore
st
plan
tatio
n up
to
the
age
whe
n th
e tr
ees
have
a c
omm
erci
al t
imbe
r vo
lum
e or
val
ue a
nd (b
) for
old
er
plan
tatio
n st
ands
, the
com
mer
cial
va
lue
of t
he s
tand
ing
timbe
r (v
olum
e of
tim
ber
valu
ed a
t th
e m
arke
t pr
ice
for
in-f
ield
sta
ndin
g tim
ber)
. Cov
erag
e is
sub
ject
to
coin
sura
nce
on t
he c
laim
of
20%
of
the
loss
on
each
and
eve
ry
loss
. For
nor
mal
for
estr
y pl
anta
tions
or
igin
al g
ross
rat
es v
ary
from
1 t
o 2%
of
the
tot
al s
um in
sure
d, d
epen
ding
on
the
reg
ion,
typ
e of
pla
ntat
ion,
pr
otec
tion
mea
sure
s, c
ontin
genc
y pl
ans
impl
emen
ted
by t
he in
sure
d,
and
dedu
ctib
les
and
inde
mni
ty li
mits
.
122 ] Agricultural Insurance in Latin America
Tab
le A
.15
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: P
arag
uay
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Para
guay
’s m
arke
t fo
r ag
ricul
tura
l in
sura
nce
is in
the
in
itial
sta
ge o
f de
velo
pmen
t bu
t is
gr
owin
g ra
pidl
y.
Crop
insu
ranc
e is
pr
ovid
ed b
y pr
ivat
e lo
cal i
nsur
ance
co
mpa
nies
tha
t of
fer
mul
ti-pe
ril
crop
insu
ranc
e (M
PCI)
in
part
ners
hip
with
ag
ricul
tura
l inp
ut
supp
liers
. Cur
rent
ly,
no in
sura
nce
com
pany
is o
ffer
ing
lives
tock
insu
ranc
e.
The
coun
try
does
no
t ha
ve a
ny
form
of
spec
ial
agric
ultu
ral
insu
ranc
e le
gisl
atio
n, a
nd
ther
e is
no
publ
ic
sect
or in
terv
entio
n.
Nin
e in
sura
nce
com
pani
es h
ave
agric
ultu
ral
insu
ranc
e pr
oduc
ts
appr
oved
by
the
regu
lato
r, bu
t on
ly f
our
of t
hem
w
ere
activ
ely
unde
rwrit
ing
crop
in
sura
nce
prod
ucts
in
200
9.
All
of t
he c
rop
insu
ranc
e ris
ks
writ
ten
in P
arag
uay
are
rein
sure
d in
th
e in
tern
atio
nal
rein
sura
nce
mar
ket
unde
r qu
ota
shar
e tr
eatie
s.
The
agric
ultu
ral
insu
ranc
e de
liver
y ch
anne
ls
rely
hea
vily
on
insu
ranc
e br
oker
s,
who
hav
e co
ntac
ts
with
the
net
wor
k of
agr
icul
tura
l in
put
supp
liers
.
Curr
ently
the
re
are
no s
peci
al
chan
nels
to
deliv
er a
gric
ultu
ral
insu
ranc
e to
sm
all
and
mar
gina
l fa
rmer
s in
the
co
untr
y. H
owev
er,
rein
sure
rs a
re
caut
ious
in w
ritin
g ag
ricul
tura
l bu
sine
ss in
Pa
ragu
ay.
Ther
e is
no
publ
ic s
ecto
r fin
anci
al o
r ot
her
supp
ort
for
agric
ultu
ral i
nsur
ance
in
Para
guay
.
Crop and MPCI
MPC
I is
offe
red
only
for
soy
bean
s,
corn
, sun
flow
er, w
heat
, and
bar
ley
crop
s. G
uara
ntee
d yi
elds
und
er t
his
cove
rage
var
y fr
om 5
0 to
70%
of
eith
er t
he a
ctua
l pro
duct
ion
hist
ory
(APH
) of
the
zone
or
the
expe
cted
yi
eld,
as
dete
rmin
ed b
y th
e in
sura
nce
com
pany
sur
veyo
r. Th
e pr
oduc
t is
of
fere
d on
an
indi
vidu
al b
asis
or
on a
gl
obal
MPC
I por
tfol
io b
asis
(all
crop
s in
all
loca
tions
).
Orig
inal
gro
ss r
ates
for
indi
vidu
al
MPC
I var
y fr
om 5
to
8% o
f th
e to
tal
sum
insu
red,
dep
endi
ng o
n th
e cr
op,
regi
on, a
nd c
over
age
leve
l. O
rigin
al
gros
s ra
tes
for
MPC
I por
tfol
io c
over
va
ry f
rom
1 t
o 5%
, dep
endi
ng o
n th
e cr
op, r
egio
n, p
ortf
olio
dis
trib
utio
n,
and
cove
rage
leve
l.
1. C
rop
insu
ranc
e:
950,
000
hect
ares
(1
0% o
f th
e to
tal
culti
vate
d ar
ea) a
re
insu
red.
2. F
ores
try
insu
ranc
e: P
oor
pene
trat
ion.
9,50
0,00
019
0,00
0,00
0
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
, win
d, h
ail,
and
free
ze. A
dditi
onal
ris
ks li
ke d
ebris
re
mov
al a
nd f
ire-f
ight
ing
expe
nses
ar
e co
vere
d. V
alua
tion
crite
ria in
cas
e of
inde
mni
ties
coul
d be
for
mat
ion
cost
or
com
mer
cial
val
ue, d
epen
ding
on
the
age
of
plan
tatio
n. C
over
age
is
subj
ect
to d
educ
tible
s of
10%
of
the
loss
on
each
and
eve
ry lo
ss a
nd a
nnua
l ag
greg
ate
inde
mni
ty li
mits
. Orig
inal
gr
oss
rate
s va
ry f
rom
3 p
er m
ile u
p to
1%
of
the
sum
insu
red,
dep
endi
ng
on t
he r
egio
n, t
ype
of p
lant
atio
n,
prot
ectio
n m
easu
res,
con
tinge
ncy
plan
impl
emen
ted
by t
he in
sure
d, a
nd
dedu
ctib
le a
nd in
dem
nity
lim
it.
Tab
le A
.16
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: P
eru
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Mul
tiple
-per
il cr
op
insu
ranc
e (M
PCI)
was
for
mal
ly
intr
oduc
ed in
Per
u in
199
6/97
by
five
priv
ate
insu
rers
, se
vera
l of
whi
ch
wer
e su
bsid
iarie
s of
fin
anci
al b
anki
ng
grou
ps le
ndin
g to
ag
ricul
ture
. The
pr
oduc
t ha
d hi
gh
dem
and
durin
g th
e fir
st y
ear
of
intr
oduc
tion
due
to
the
exis
tenc
e of
El
Niñ
o ph
enom
ena.
H
owev
er, i
n 19
97/9
8, f
ew o
f th
e in
sure
rs o
r th
eir
bank
s w
ere
will
ing
to li
nk c
redi
t an
d cr
op in
sura
nce
once
the
El N
iño
cond
ition
s ha
d di
ssip
ated
.
In 2
008,
aim
ing
to p
rote
ct
farm
ers’
inco
me
agai
nst
natu
ral
cata
stro
phes
, th
e go
vern
men
t of
Per
u en
acte
d a
law
(28,
939)
, cr
eatin
g a
fund
of
S/.4
0 m
illio
n (U
S$14
mill
ion)
to
dev
elop
cro
p in
sura
nce
in t
he
coun
try.
Thi
s fu
nd
is u
sed
to s
ubsi
dize
ag
ricul
tura
l in
sura
nce
prem
ium
s.
Curr
ently
, tw
o pr
ivat
e co
mm
erci
al
insu
ranc
e co
mpa
nies
are
un
derw
ritin
g ag
ricul
tura
l in
sura
nce
prod
ucts
.
All
of t
he
agric
ultu
ral
insu
ranc
e bu
sine
ss
in P
eru
is r
eins
ured
in
the
inte
rnat
iona
l m
arke
t.
The
crop
insu
ranc
e sc
hem
e is
new
, and
th
e co
mm
erci
al
chan
nels
of
deliv
ery
are
not
yet
fully
de
fined
.
How
ever
, due
to
the
char
acte
ristic
s of
the
insu
ranc
e pr
oduc
ts, p
rovi
ncia
l go
vern
men
ts a
nd
mun
icip
aliti
es
prob
ably
will
hav
e an
impo
rtan
t ro
le
to p
lay
in d
eliv
erin
g ag
ricul
tura
l in
sura
nce
to
farm
ers.
Bank
lend
ing
to
agric
ultu
re m
ay
also
be
impo
rtan
t fo
r di
strib
utin
g th
is
prod
uct
to f
arm
ers.
Th
e A
gro
Prot
égé
prog
ram
is
spec
ifica
lly t
arge
ted
at s
mal
l and
m
argi
nal f
arm
ers.
The
Peru
vian
gov
ernm
ent
enac
ted
a la
w (2
8,93
9)
crea
ting
the
Gua
rant
ee
Fund
for
Cro
p In
sura
nce
(FO
GA
SA),
with
US$
14
mill
ion
for
the
deve
lopm
ent
of c
rop
insu
ranc
e.
FOG
ASA
fun
ds w
ill b
e ap
plie
d to
agr
icul
tura
l in
sura
nce
prem
ium
su
bsid
ies.
The
gove
rnm
ent’
s ob
ject
ive
is t
o he
lp f
arm
ers
to a
cces
s ag
ricul
tura
l ins
uran
ce. T
he
prio
rity
is t
o su
ppor
t sm
all-
and
med
ium
-siz
e fa
rmer
s.Su
bsid
y le
vels
will
var
y fr
om
30%
up
to 1
00%
of
orig
inal
gr
oss
prem
ium
s, d
epen
ding
on
the
insu
ranc
e pr
oduc
t.
Crop
Group risk plan (area-yield index) “catastrophic product”
(a)
Cata
stro
phic
agg
rega
te y
ield
-sh
ortf
all c
over
for
rur
al c
omm
uniti
es
is d
esig
ned
to p
rovi
de in
sura
nce
for
smal
l- an
d m
ediu
m-s
ize
farm
ers
thro
ugh
an a
ssoc
iativ
e fr
ame.
Und
er
this
cov
erag
e, in
sure
d fa
rmer
s or
gani
zed
into
rur
al c
omm
uniti
es
are
offe
red
insu
ranc
e fo
r ric
e, c
orn,
po
tato
, and
cot
ton
crop
s ag
ains
t dr
ough
t, e
xces
s m
oist
ure,
hai
l, w
ind,
fro
st, a
nd f
lood
per
ils. R
ural
co
mm
unity
for
the
pur
pose
s of
thi
s co
ver
is d
efin
ed a
s a
grou
p of
far
mer
s w
ho d
ecid
e to
ass
ocia
te in
ord
er t
o be
insu
red,
and
thi
s de
finiti
on is
use
d to
def
ine
the
insu
red
unit.
The
refo
re,
the
actu
al y
ield
obt
aine
d by
the
in
sure
d at
the
end
of
the
polic
y pe
riod
wou
ld b
e th
e w
hole
are
a so
wn
by t
he
com
mun
ity w
ith t
he in
sure
d cr
op.
The
inde
mni
ty w
ill p
roce
ed w
hen
the
actu
al a
ggre
gate
yie
ld o
btai
ned
by t
he
com
mun
ity is
bel
ow t
he g
uara
ntee
d ag
greg
ate
yiel
d es
tabl
ishe
d on
the
po
licy,
whi
ch is
sta
ndar
dize
d at
40%
of
the
act
ual p
rodu
ctio
n hi
stor
y. T
he
orig
inal
gro
ss r
ates
are
not
kno
wn,
bu
t th
e co
st o
f th
is c
over
age
for
the
farm
er s
hall
not
exce
ed U
S$25
per
he
ctar
e. T
he f
eder
al g
over
nmen
t ca
n su
bsid
ize
prem
ium
s up
to
100%
of
the
prem
ium
cos
t.
(b) A
rea-
yiel
d in
dex
crop
insu
ranc
e is
bei
ng im
plem
ente
d on
a p
ilot
basi
s in
200
8 fo
r co
tton
pro
duce
rs
in t
he Ic
a va
lley.
Und
er t
his
cove
rage
, in
sure
d fa
rmer
s lo
cate
d w
ithin
one
m
unic
ipal
ity o
r di
stric
t co
nsid
ered
as
an in
sure
d un
it pr
otec
t th
eir
crop
s ag
ains
t th
e ad
vers
e ef
fect
s of
dro
ught
, ex
cess
rai
n, h
ail,
win
d, f
rost
, and
flo
od
peril
s. U
nder
thi
s in
sura
nce,
inde
mni
ty
is p
aid
whe
n th
e ac
tual
ave
rage
yie
ld
for
the
insu
red
crop
ove
r th
e w
hole
in
sure
d un
it (t
he m
unic
ipal
ity o
r di
stric
t w
here
the
insu
red
is lo
cate
d)
is b
elow
the
agr
eed
guar
ante
ed y
ield
. In
suc
h ca
ses,
the
insu
red
farm
ers
all r
ecei
ve a
n in
dem
nity
equ
al t
o th
e pr
opor
tion
of s
hort
fall
belo
w
the
guar
ante
ed y
ield
tim
es t
he s
um
insu
red.
Orig
inal
gro
ss r
ates
are
not
Cata
stro
phic
ag
greg
ate
yiel
d-sh
ortf
all c
over
is
pur
chas
ed in
se
ven
subn
atio
nal
regi
ons
in P
eru,
be
nefit
ing
400,
000
smal
l- an
d m
ediu
m-s
ize
farm
ers
cove
ring
5 m
illio
n he
ctar
es o
f cr
opla
nd.
The
pene
trat
ion
of
trad
ition
al M
PCI
indi
vidu
al y
ield
-sh
ortf
all
13,8
00,0
0077
,000
,000
124 ] Agricultural Insurance in Latin America
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Crop
Group risk plan (area-yield index)
“catastrophic product”
know
n, b
ut t
he c
ost
of t
his
cove
rage
fo
r th
e fa
rmer
sha
ll no
t ex
ceed
US$
25
per
hect
are.
The
fed
eral
gov
ernm
ent
can
subs
idiz
e pr
emiu
ms
up t
o 10
0%
of it
s co
st.
MPCI (traditional)
A c
onve
ntio
nal M
PCI l
oss-
of-y
ield
pr
oduc
t is
off
ered
to
com
mer
cial
fa
rmer
s on
an
indi
vidu
al b
asis
cov
erin
g dr
ough
t, e
xces
s ra
in, h
ail,
win
d,
fros
t, a
nd f
lood
per
ils in
ric
e, c
orn,
po
tato
, and
cot
ton
crop
s. In
cas
e of
a
clai
m, t
his
insu
ranc
e co
nsid
ers
the
who
le a
rea
sow
n w
ith t
he in
sure
d cr
op w
ithin
the
insu
red
farm
as
one
insu
red
unit.
Inde
mni
ty p
roce
eds
only
if
the
actu
al y
ield
obt
aine
d by
the
fa
rmer
on
its in
sure
d un
it is
bel
ow
the
guar
ante
ed y
ield
est
ablis
hed
on
the
polic
y. In
suc
h ca
ses,
the
far
mer
re
ceiv
es a
n in
dem
nity
equ
ival
ent
to t
he p
ropo
rtio
n of
its
actu
al y
ield
sh
ortf
all b
elow
the
gua
rant
eed
yiel
d tim
es t
he s
um in
sure
d. G
over
nmen
t su
bsid
ies
for
this
kin
d of
pro
duct
ar
e ca
pped
at
30%
of
orig
inal
gro
ss
prem
ium
s.
Livestock
Catt
le, g
oats
, she
ep, h
orse
s, a
nd p
ork
are
insu
red.
Bas
ic li
vest
ock
insu
ranc
e co
vers
dea
th a
risin
g fr
om a
ccid
ent,
di
seas
e, s
laug
hter
due
to
publ
ic
orde
r or
med
ical
stip
ulat
ion,
and
loss
of
fun
ctio
n. D
ue t
o its
nat
ure,
no
dedu
ctib
les
appl
y fo
r th
e ba
sic
cove
r. O
rigin
al g
ross
rat
es v
ary,
dep
endi
ng
on t
he t
ype
of a
nim
al, a
ge, a
nd z
one.
Tab
le A
.17
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: U
rug
uay
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
The
Uru
guay
an
agric
ultu
ral
insu
ranc
e m
arke
t is
hig
hly
deve
lope
d an
d ha
s a
long
hi
stor
y. C
rop
insu
ranc
e w
as
intr
oduc
ed in
191
2.
The
mos
t de
man
ded
and
mar
kete
d cr
op
insu
ranc
e pr
oduc
ts
are
hail
insu
ranc
e an
d ha
il pl
us
addi
tiona
l nam
ed
peril
s (w
ind,
fre
eze,
ex
cess
moi
stur
e). I
n re
cent
yea
rs, n
ew
insu
ranc
e pr
oduc
ts
like
mul
ti-pe
ril c
rop
insu
ranc
e (M
PCI)
have
bec
ome
popu
lar,
part
icul
arly
am
ong
larg
e fa
rmer
s.
Fore
stry
insu
ranc
e is
als
o ve
ry p
opul
ar
in U
rugu
ay.
Intr
oduc
ed in
the
19
90s,
thi
s lin
e of
bus
ines
s ha
s ex
pand
ed o
ver
time.
Live
stoc
k in
sura
nce
is m
argi
nal
Four
insu
ranc
e co
mpa
nies
off
er
agric
ultu
ral
insu
ranc
e pr
oduc
ts.
Two
of t
he f
our
are
priv
ate
insu
ranc
e co
mpa
nies
, one
is
a c
oope
rativ
e,
and
one
is a
pub
lic
com
pany
.
Agr
icul
tura
l mut
ual
insu
ranc
e is
wel
l de
velo
ped
in
Uru
guay
. Alth
ough
m
utua
ls a
re
not
cons
ider
ed
insu
ranc
e, t
hey
are
activ
e an
d ha
ve a
n im
port
ant
shar
e of
pre
miu
ms
and
insu
red
area
as
wel
l. Fo
r ex
ampl
e,
Mal
tería
Uru
guay
M
utua
l cov
ers
arou
nd 1
00,0
00
hect
ares
of
barle
y,
and
the
mut
ual
crea
ted
by t
he R
ice
Farm
er A
ssoc
iatio
n co
vers
ano
ther
30
,000
hec
tare
s.
At
leas
t fo
r th
e co
mm
only
m
arke
ted
insu
ranc
e pr
oduc
ts, i
nsur
ance
co
mpa
nies
do
not
face
spe
cific
co
nstr
aint
s on
ac
cess
to
priv
ate
rein
sura
nce.
Six
in
tern
atio
nal
rein
sure
rs a
re
supp
ortin
g cr
ops
and
fore
stry
pr
ogra
ms
in t
he
coun
try.
The
deliv
ery
chan
nel d
epen
ds
on t
he p
rodu
ct.
For
stan
dard
hai
l cr
op in
sura
nce,
ag
ent
brok
ers
who
bel
ong
to t
he
insu
ranc
e co
mpa
ny
netw
ork
are
the
mos
t co
mm
on
deliv
ery
chan
nel.
MPC
I and
for
estr
y in
sura
nce
are
mor
e of
ten
deliv
ered
th
roug
h in
sura
nce
brok
ers.
The
re is
no
pro
visi
on f
or
spec
ial c
hann
els
to
deliv
er a
gric
ultu
ral
insu
ranc
e to
sm
all
and
mar
gina
l fa
rmer
s.
Fede
ral g
over
nmen
t su
ppor
t fo
r ag
ricul
tura
l ins
uran
ce is
ve
ry a
ctiv
e in
Uru
guay
. The
m
ain
gove
rnm
ent
effo
rts
are
thro
ugh
(a) v
alue
add
ed t
ax
exem
ptio
n fo
r ag
ricul
tura
l in
sura
nce
prem
ium
s; (b
) the
de
velo
pmen
t of
info
rmat
ion
syst
ems,
cap
acity
bui
ldin
g,
and
insu
ranc
e sc
hem
es;
and
(c) p
rem
ium
sub
sidi
es
for
hort
icul
ture
and
fru
it pr
oduc
tion.
In 2
002
Cong
ress
ena
cted
a b
ill
crea
ting
the
Fond
o de
Re
cons
truc
ción
y F
omen
to
de la
Gra
nja
(Fun
d fo
r th
e D
evel
opm
ent
and
Reco
nstr
uctio
n of
Far
ms)
. U
nder
thi
s pr
ogra
m, t
he
Min
istr
y of
Liv
esto
ck,
Agr
icul
ture
, and
Fis
herie
s m
anag
es a
fun
d of
up
to
US$
2 m
illio
n th
at it
use
s to
su
bsid
ize
up t
o 50
% o
f ha
il in
sura
nce
prem
ium
s an
d fu
nd a
Clim
atic
Em
erge
ncy
Fund
for
the
hor
ticul
ture
and
fr
uit
sect
or.
Crop
Named-peril
The
trad
ition
al n
amed
-per
il co
vera
ge
is t
he s
tand
ard
hail
plus
fire
insu
ranc
e.
In a
dditi
on t
o ha
il, t
he f
arm
er c
an
elec
t to
cov
er w
ind,
fre
eze,
and
exc
ess
moi
stur
e at
har
vest
. The
sta
ndar
d ha
il co
vera
ge h
as a
6%
tot
al s
um in
sure
d fr
anch
ise,
but
sev
eral
alte
rnat
ives
in
term
s of
fra
nchi
ses
and
dedu
ctib
les
are
avai
labl
e in
the
mar
ket.
Alm
ost
all c
rops
, fru
its, a
nd v
eget
able
s gr
owin
g in
Uru
guay
are
elig
ible
for
th
is p
rodu
ct. O
rigin
al g
ross
rat
es f
or
stan
dard
cov
erag
e fo
r ha
il va
ry f
rom
2%
in lo
w-r
isk
area
s up
to
4.5%
in
ris
k-pr
one
area
s. T
he r
ates
var
y ac
cord
ing
to t
he c
rop
insu
red,
reg
ion,
an
d de
duct
ible
or
fran
chis
e le
vel.
Add
ition
al c
over
age
for
win
d, f
reez
e,
and
exce
ss m
oist
ure
at h
arve
st a
re
only
off
ered
for
whe
at, s
oybe
ans,
co
rn, b
arle
y, a
nd s
unflo
wer
. Orig
inal
ra
tes
vary
, dep
endi
ng o
n th
e cr
op a
nd
type
of
addi
tiona
l per
il. D
educ
tible
s ap
ply
for
thes
e ad
ditio
nal p
erils
and
ca
n re
ach
up t
o 20
% o
f th
e to
tal s
um
insu
red.
Ano
ther
nam
ed-p
eril
prod
uct
offe
red
in U
rugu
ay is
the
vin
eyar
d fr
eeze
dam
age
insu
ranc
e, c
over
ing
yiel
d sh
ortf
all i
n vi
neya
rds
due
to
free
ze p
erils
.
1. C
rop
insu
ranc
e:
Hig
h pe
netr
atio
n.
850,
000
hect
ares
(a
bove
60%
of
the
tota
l cul
tivat
ed
area
) are
insu
red.
2. L
ives
tock
in
sura
nce:
In
sign
ifica
nt
pene
trat
ion.
3. F
ores
try
insu
ranc
e: H
igh
pene
trat
ion.
To
tal i
nsur
ed
area
am
ount
s to
50
0,00
0 he
ctar
es
of s
tand
ing
timbe
r, ac
coun
ting
for
mor
e th
an 8
0% o
f th
e to
tal f
ores
ted
plan
tatio
ns a
rea
in
Uru
guay
.
4. G
reen
hous
e in
sura
nce:
Low
pe
netr
atio
n
24,5
00,0
001,
364,
000,
000
MPCI
MPC
I is
offe
red
on a
ver
y re
stric
ted
basi
s on
ly f
or s
oybe
ans,
cor
n,
sunf
low
er, w
heat
, and
bar
ley.
G
uara
ntee
d yi
elds
und
er t
his
cove
rage
va
ry f
rom
50
to 6
5% o
f th
e ac
tual
pr
oduc
tion
hist
ory
depe
ndin
g on
the
cr
op, r
egio
n, g
uara
ntee
d yi
eld,
and
re
com
men
datio
ns o
f th
e in
spec
tion
repo
rt. T
he p
rodu
ct is
off
ered
on
an
indi
vidu
al o
r po
rtfo
lio b
asis
(all
crop
s in
all
loca
tions
). O
rigin
al g
ross
rat
es
for
indi
vidu
al M
PCI v
ary
from
3.5
to
5.5
% o
f th
e to
tal s
um in
sure
d,
depe
ndin
g on
the
cro
p, r
egio
n, a
nd
cove
rage
leve
l. O
rigin
al g
ross
rat
es
vary
fro
m 1
to
4%, d
epen
ding
on
the
crop
, reg
ion,
por
tfol
io d
istr
ibut
ion,
an
d co
vera
ge le
vel.
Glo
bal M
PCI p
ortf
olio
cov
erag
e is
of
fere
d to
larg
e-sc
ale
farm
ers.
126 ] Agricultural Insurance in Latin America
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Forestry
Fore
stry
insu
ranc
e co
vers
the
sta
ndin
g tim
ber
valu
e of
com
mer
cial
for
estr
y pl
anta
tions
aga
inst
fire
, win
d, a
nd,
in v
ery
spec
ific
case
s, h
ail a
nd f
reez
e.
Opt
iona
l add
ition
al c
over
age
incl
udes
de
bris
rem
oval
and
fire
-fig
htin
g ex
pens
es.
This
typ
e of
insu
ranc
e is
sub
ject
to
the
appl
icat
ion
of a
ded
uctib
le p
er e
vent
and
an
ann
ual a
ggre
gate
inde
mni
ty li
mit.
O
rigin
al g
ross
rat
es v
ary
from
0.3
to
1%
of t
he t
otal
sum
insu
red,
dep
endi
ng o
n th
e re
gion
, typ
e of
pla
ntat
ion,
pro
tect
ion
mea
sure
s, c
ontin
genc
y pl
ans
impl
emen
ted
by t
he in
sure
d in
cas
e of
fire
, lev
el o
f de
duct
ible
, and
inde
mni
ty li
mit.
Greenhouse
Gre
enho
use
insu
ranc
e co
vers
loss
es o
n gr
eenh
ouse
str
uctu
res
with
an
optio
n to
cov
er c
onte
nt (c
rops
) due
to
fire,
w
inds
torm
, hai
l, an
d flo
od. A
10%
de
duct
ible
app
lies.
Orig
inal
gro
ss r
ates
va
ry, d
epen
ding
on
the
type
of
stru
ctur
e an
d th
e re
gion
in w
hich
the
ris
k is
loca
ted,
bu
t ra
nge
from
0.2
to
0.6%
.
Livestock
Acc
iden
tal a
nim
al m
orta
lity
cove
rage
is
offe
red
for
beef
cat
tle a
nd d
airy
cow
s. T
his
cove
rage
incl
udes
add
ition
al c
over
age
for
inla
nd t
rans
port
atio
n.
Tab
le A
.18
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: R
epú
blic
a B
oliv
aria
na
de
ven
ezu
ela
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
Agr
icul
tura
l in
sura
nce
was
fir
st in
trod
uced
in
Rep
úblic
a Bo
livar
iana
de
Vene
zuel
a in
199
8.
The
prod
uct
was
na
med
-per
il cr
op
insu
ranc
e co
verin
g pr
oduc
tion
cost
s m
ade
on t
he
insu
red
crop
up
to t
he t
ime
of t
he
clai
m.
In 2
003
the
prod
uct
was
m
odifi
ed t
o be
com
e tr
aditi
onal
m
ulti-
peril
cro
p in
sura
nce
(MPC
I) to
re
spon
d to
far
mer
s’
dem
and.
Live
stoc
k in
sura
nce
was
intr
oduc
ed
in 2
003
but
is s
till
very
mar
gina
l, an
d th
e de
man
d is
lim
ited
mai
nly
to h
igh-
valu
e an
imal
s. T
he
fede
ral g
over
nmen
t do
es n
ot p
rovi
de
any
supp
ort
for
agric
ultu
ral
insu
ranc
e, a
nd t
he
coun
try
does
not
ha
ve a
ny f
orm
of
spec
ial a
gric
ultu
ral
insu
ranc
e le
gisl
atio
n.
The
Vene
zuel
an
agric
ultu
ral
insu
ranc
e m
arke
t ha
s un
ique
fea
ture
s.
The
mar
ket
is
cont
rolle
d by
an
inte
rnat
iona
l re
insu
ranc
e br
oker
, w
hich
act
s, in
pr
actic
e, a
s an
un
derw
ritin
g ag
ency
fo
r lo
cal i
nsur
ance
co
mpa
nies
.
Six
priv
ate
insu
ranc
e co
mpa
nies
off
er
agric
ultu
ral
insu
ranc
e in
the
co
untr
y. T
wo
offe
r cr
op a
nd li
vest
ock
insu
ranc
e; t
he
othe
rs o
nly
offe
r cr
op in
sura
nce.
Unt
il 20
07 t
he
agric
ultu
ral
rein
sura
nce
busi
ness
was
ha
ndle
d th
roug
h a
rein
sura
nce
faci
lity
issu
ed t
o a
sing
le
rein
sura
nce
brok
er
who
act
ed a
s an
in
sura
nce
agen
t.
The
mos
t co
mm
on c
hann
els
for
deliv
erin
g ag
ricul
tura
l in
sura
nce
are
finan
cial
age
nts
(for
exa
mpl
e, r
ural
ba
nks)
or
farm
ers
asso
ciat
ions
. A
gent
bro
kers
pa
rtic
ipat
e ac
tivel
y in
del
iver
ing
the
prod
uct
to
indi
vidu
al f
arm
ers
and
brok
erin
g w
ith f
arm
ers
asso
ciat
ions
. The
re
are
no s
peci
aliz
ed
deliv
ery
chan
nels
fo
r sm
all a
nd
mar
gina
l far
mer
s.
The
gove
rnm
ent
does
not
pr
ovid
e an
y su
ppor
t fo
r ag
ricul
tura
l ins
uran
ce.
Crop
MPCI
MPC
I is
offe
red
to p
rote
ct a
wid
e sp
ectr
um o
f an
nual
and
per
enni
al
crop
s (c
orn
and
sorg
hum
are
the
m
ain
crop
s) a
gain
st e
xces
s ra
in,
flood
s, d
roug
ht, w
ind,
fire
or
light
ing,
so
cial
ris
ks, a
nd p
ests
and
dis
ease
s.
Gua
rant
eed
yiel
ds u
nder
thi
s co
vera
ge
vary
fro
m 5
0 to
65%
of
the
farm
ers’
ac
tual
pro
duct
ion
hist
ory,
dep
endi
ng
on t
he c
rop
and
the
regi
on. T
he
insu
red
unit
is t
he f
ield
sow
n. T
he
cove
rage
inde
mni
fies
prod
uctio
n co
sts.
Orig
inal
gro
ss r
ates
var
y fr
om
6.5
to 1
2.4%
, dep
endi
ng o
n th
e cr
op,
loca
tion,
and
cov
erag
e le
vel.
1. C
rop
insu
ranc
e:
Very
low
pe
netr
atio
n. O
nly
20,0
00 h
ecta
res
(less
tha
n 1%
of
the
tota
l cul
tivat
ed
area
) are
insu
red.
2. L
ives
tock
in
sura
nce:
In
sign
ifica
nt
pene
trat
ion.
1,00
0,00
016
,000
,000
Livestock
Live
stoc
k an
d bl
oods
tock
insu
ranc
e co
vers
“al
l ris
k”: a
ccid
enta
l mor
talit
y an
d no
min
ated
dis
ease
s ar
e co
vere
d,
but
epid
emic
dis
ease
s ar
e ex
clud
ed.
In t
he c
ase
of b
lood
stoc
k in
sura
nce,
co
vera
ge h
as a
n an
nual
agg
rega
te
limit
of U
S$25
,000
per
ani
mal
. The
re
are
two
optio
ns f
or t
he d
educ
tible
: 10
and
20%
of
the
tota
l sum
insu
red.
M
edic
al a
nd s
urgi
cal e
xpen
ses
are
not
cove
red.
Rat
es v
ary
from
3.7
5 to
6.
05%
. Liv
esto
ck in
sura
nce
is o
ffer
ed
only
to
catt
le h
erds
. The
cov
erag
e ha
s a
dedu
ctib
le o
f 10
% o
f th
e lo
ss, a
nd
orig
inal
gro
ss r
ates
var
y ac
cord
ing
to
the
final
ani
mal
(dai
ry, b
reed
ing,
or
fatt
enin
g) a
nd h
erd
size
. For
exa
mpl
e,
orig
inal
gro
ss r
ates
for
her
ds o
f be
twee
n 30
and
100
ani
mal
s ar
e 4%
fo
r da
iry c
attle
and
3%
for
fat
teni
ng
catt
le.
128 ] Agricultural Insurance in Latin America
Tab
le A
.19
Ag
ricu
ltu
ral i
nsu
ran
ce c
ou
ntr
y fa
ct s
hee
t: W
ind
war
d Is
lan
ds
Mar
ket
stat
usM
arke
t st
ruct
ure
Agr
icul
tura
l in
sura
nce
deliv
ery
chan
nels
Gov
ernm
ent
supp
ort
to
agr
icul
tura
l ins
uran
ce A
gric
ultu
ral i
nsur
ance
pro
duct
sM
arke
t vo
lum
e (U
S$)
Type
Feat
ures
Pene
trat
ion
rate
Pr
emiu
ms
Liab
iliti
es
The
Win
dwar
d Is
land
s,
com
pris
ing
Dom
inic
a, S
t.
Luci
a, S
t. V
ince
nt, a
nd
Gre
nada
, lie
at
the
wes
tern
fr
inge
of
the
Carib
bean
. Th
e is
land
s ar
e ex
trem
ely
expo
sed
to N
orth
Atla
ntic
an
d Ca
ribbe
an t
ropi
cal
cycl
ones
. Ban
anas
are
vu
lner
able
to
win
dsto
rm
dam
age.
Sinc
e th
e 19
50s
the
isla
nd g
over
nmen
ts a
nd
the
Bana
na G
row
ers
Ass
ocia
tions
(BG
As)
, at
var
ious
tim
es, h
ave
atte
mpt
ed t
o op
erat
e m
utua
l ins
uran
ce s
chem
es
agai
nst
win
dsto
rm in
ba
nana
s. M
ost
of t
hese
ea
rlier
mut
ual s
chem
es
faile
d du
e to
a la
ck o
f spr
ead
of r
isk
beca
use
indi
vidu
al
isla
nds
elec
ted
to in
sure
by
them
selv
es a
s op
pose
d to
po
olin
g th
eir
risk.
The
Win
dwar
d Is
land
s Cr
op
Insu
ranc
e Lt
d. (W
INCR
OP)
w
as e
stab
lishe
d un
der
the
spec
ial c
rop
insu
ranc
e le
gisl
atio
n of
the
Ban
ana
Insu
ranc
e A
ct o
f 19
88,
whi
ch m
ade
win
dsto
rm
cove
r in
ban
anas
com
puls
ory
for
all e
xpor
t ba
nana
gr
ower
s on
the
fou
r Is
land
s.
The
act
sets
out
the
bas
is o
f w
inds
torm
insu
ranc
e co
ver
prov
ided
to
farm
ers.
WIN
CRO
P is
the
onl
y in
sura
nce
com
pany
in
the
Win
dwar
d Is
land
s th
at o
ffer
s cr
op in
sura
nce.
N
o in
sura
nce
is
avai
labl
e fo
r ot
her
crop
s or
live
stoc
k.
WIN
CRO
P is
co
nstit
uted
as
a m
utua
l ins
uran
ce
com
pany
ow
ned
by
the
isla
nd B
GA
s an
d th
eir
mem
bers
.
WIN
CRO
P op
erat
es
on a
str
ictly
co
mm
erci
al b
asis
bu
t do
es n
ot p
ay
divi
dend
s to
its
shar
ehol
ders
. Tr
adin
g su
rplu
ses
are
used
to
stre
ngth
en c
laim
s re
serv
es. I
n re
cent
ye
ars
mos
t of
the
BG
As
have
bee
n pr
ivat
ized
.
WIN
CRO
P in
sura
nce
sche
me
is r
eins
ured
in
the
inte
rnat
iona
l re
insu
ranc
e m
arke
t th
roug
h a
stop
-loss
fa
culta
tive
trea
ty.
Betw
een
1988
an
d 20
02 a
ll th
e BG
As
requ
ired
thei
r ba
nana
-ex
port
ing
mem
bers
to
be
insu
red
by W
INCR
OP.
A
ny r
egis
tere
d ac
tive
mem
ber
prod
ucin
g an
d ex
port
ing
bana
nas
was
the
refo
re
auto
mat
ical
ly
insu
red
by
WIN
CRO
P, a
nd
the
prem
ium
was
de
duct
ed b
y th
e BG
As
on t
he s
ales
of
eac
h gr
ower
’s
bana
nas
and
paid
to
WIN
CRO
P.Si
nce
2002
the
BG
As
have
bee
n pr
ivat
ized
on
all
isla
nds
exce
pt S
t.
Vin
cent
. In
St.
Luci
a th
e ba
nana
ex
port
bus
ines
s ha
s be
en d
ivid
ed
up b
etw
een
five
priv
ate
com
pani
es,
and
crop
insu
ranc
e ha
s be
en m
ade
volu
ntar
y.
Und
er t
he
volu
ntar
y sc
hem
e no
w o
pera
ting
on t
his
isla
nd,
crop
insu
ranc
e is
be
ginn
ing
to b
e m
arke
ted
thro
ugh
WIN
CRO
P’s
loca
l ag
ents
, ins
uran
ce
brok
ers,
and
the
ba
nks.
In t
he e
stab
lishm
ent
phas
e of
WIN
CRO
P, g
over
nmen
t su
ppor
t w
as p
rovi
ded
in t
wo
form
s:1.
Ena
ctm
ent
of c
rop
insu
ranc
e le
gisl
atio
n (t
he
Bana
na In
sura
nce
Act
of
1988
). Th
is le
gisl
atio
n ha
s be
en v
ery
impo
rtan
t to
th
e su
cces
s of
WIN
CRO
P by
giv
ing
it a
man
date
to
pro
vide
com
puls
ory
win
dsto
rm in
sura
nce
in e
xpor
t ba
nana
s on
al
l isl
ands
, the
reby
pe
rmitt
ing
the
com
pany
to
ach
ieve
bot
h sp
read
of
ris
k an
d a
criti
cal
prem
ium
mas
s an
d al
so
to e
xper
ienc
e m
uch-
redu
ced
mar
ketin
g an
d op
erat
ing
cost
s be
caus
e of
the
com
puls
ory
natu
re
of c
over
.2.
Sta
rt-u
p ca
pita
l pro
vide
d by
the
Isla
nd g
over
nmen
ts
thro
ugh
the
BGA
s to
for
m
WIN
CRO
P’s
paid
-up
shar
e ca
pita
l.
Sinc
e W
INCR
OP
com
men
ced
oper
atio
ns in
the
198
7–88
se
ason
, gov
ernm
ent
has
not
prov
ided
any
for
m o
f fin
anci
al s
ubsi
dy o
r su
ppor
t to
WIN
CRO
P. In
the
pas
t,
one
of t
he B
GA
s el
ecte
d to
pr
ovid
e pr
emiu
m s
ubsi
dy
supp
ort
to it
s gr
ower
m
embe
rs b
ut w
as f
orce
d to
w
ithdr
aw t
his
supp
ort
whe
n its
res
erve
s w
ere
exha
uste
d.
Crop named-peril
WIN
CRO
P pr
ovid
es n
amed
-per
il cr
op
insu
ranc
e fo
r da
mag
e fr
om w
inds
torm
s (in
clud
ing
loca
lized
win
dsto
rms,
tr
opic
al s
torm
s, a
nd h
urric
anes
) and
vo
lcan
ic e
rupt
ion
in t
he s
ingl
e cr
op o
f ba
nana
s. T
he W
INCR
OP
bana
na p
olic
y is
a s
tand
ard
dam
age-
base
d in
dem
nity
po
licy
that
was
spe
cific
ally
des
igne
d to
be
sim
ple
and
tran
spar
ent
and
to
oper
ate
at lo
w c
ost
for
larg
e nu
mbe
rs
of s
mal
lhol
der
bana
na g
row
ers,
oft
en
with
an
aver
age
of 1
hec
tare
or
less
of
bana
nas.
The
pol
icy
prot
ects
aga
inst
ph
ysic
al d
amag
e by
win
d to
the
ban
ana
plan
ts, d
efin
ed a
s sn
appi
ng, t
oppl
ing,
an
d up
root
ing
of t
he p
lant
and
leaf
st
rippi
ng. T
he s
um in
sure
d is
est
ablis
hed
on t
he b
asis
of
each
gro
wer
’s t
hree
-yea
r ro
lling
ave
rage
ban
ana
prod
uctio
n an
d de
liver
ies
to t
he B
GA
s. T
he p
rem
ium
is
dedu
cted
at
sour
ce b
y th
e BG
As
and
paid
to
WIN
CRO
P. S
impl
e da
mag
e co
unt
loss
ass
essm
ent
proc
edur
es a
re u
sed
to
estim
ate
the
perc
enta
ge d
amag
e to
the
to
tal n
umbe
r of
ban
ana
plan
ts in
sure
d,
and
this
per
cent
age
dam
age
is a
pplie
d to
the
sum
insu
red.
For
the
pas
t 15
yea
rs
the
polic
y on
all
isla
nds
has
mai
ntai
ned
a st
anda
rd 2
0% d
educ
tible
for
eac
h an
d ev
ery
loss
. Thi
s hi
gh d
educ
tible
is
requ
ired
to m
aint
ain
prem
ium
rat
es a
t af
ford
able
leve
ls f
or f
arm
ers.
The
actu
aria
lly d
eter
min
ed p
rem
ium
s fo
r w
inds
torm
cov
er a
re h
igh,
ran
ging
fr
om 2
0% o
n th
e m
ost
expo
sed
nort
hern
is
land
s to
11%
on
the
leas
t ex
pose
d so
uthe
rn is
land
s in
the
Win
dwar
d ch
ain.
In
vie
w o
f th
e hi
gh p
rem
ium
rat
es, t
he
BGA
s ha
ve t
radi
tiona
lly m
aint
aine
d th
e su
ms
insu
red
at a
bout
35%
of
the
full
prod
uctio
n co
sts
for
bana
nas.
In
the
even
t of
win
dsto
rm d
amag
e th
e in
dem
nity
am
ount
has
the
refo
re o
nly
cove
red
the
basi
c co
sts
to r
eest
ablis
h th
e ba
nana
hol
ding
.
In 2
007
WIN
CRO
P ha
d 2,
767
insu
red
grow
ers,
re
pres
entin
g ab
out
63%
all
bana
na g
row
ers
for
expo
rt a
nd
62%
of
the
culti
vate
d ar
ea o
f th
is c
rop.
450,
000
4,40
0,00
0
Agricultural Insurance in Latin AmericaDeveloping the Market
Report no. 61963-LAC
Agricultural Insurance in Latin A
merica —
Developing the M
arket Rep
ort n
o. 61963-LA
C
World Bank Insurance for the Poor Program
1818 H Street, NWWashington, DC 20433www.insuranceforthepoor.org