agricultural insurance in latin america - world bankdocuments.worldbank.org/curated/en/... · xiv ]...

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

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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.

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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


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.


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


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.


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


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.


Map 2.2 Flood hazards in LAC countries

Flood Hazard

Deciles1st - 4th

5th - 7th

8th - 10th


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


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.


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


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


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.


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


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).


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


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


(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


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.


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.


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.


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.


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.


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%


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


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.


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


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).


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


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.


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.


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


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.


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.


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


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


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.


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).


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.


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,


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.


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


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


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


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


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.


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


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


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.


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.


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.


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


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


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


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.


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


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.

BIBLIOGRAPHY

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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.

Mahul, O., and C. Stutley. 2010. Government Support to Agricultural Insurance: Challenges and Options for Developing Countries. Washington, DC: World Bank.

Martínez-Córdova, L. R., and M. C.–J. Martínez Porchas. 2009. “Mexican and World Shrimp Aquaculture: Sustainable Activity or Contaminant Industry?” Revista Internacional de Contaminación Ambiental 25 (3, August): 181–96.

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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.

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———. 2010. World Development Indicators. Washington, DC: World Bank.


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.


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


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

.


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


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


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


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.


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


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


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.


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


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.


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.


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.


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.


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.


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

.


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


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

.


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


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.


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.


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

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