Agricultural Insurance for Smallholder Farmers in Mexico

Climate change puts vulnerable farmers in Mexico at risk. With the aim to insure smallholder farmers against drought and excessive rainfall, the InsuResilience Solutions Fund (ISF) is co-funding the development and implementation of a sovereign parametric insurance solution. The insurance solution is being promoted by a project consortium formed by members of the Insurance Development Forum (IDF) in close cooperation with the Mexican government.

In Mexico, over 80% of total economic losses from weather-related disasters in the last two decades occurred in the agricultural sector. Smallholder farmers are hit hardest as they practice rain-fed agriculture and have less access to technology, formal credit and commercial agricultural insurance. To insure smallholder farmers against the impact of natural disasters, the Mexican government implemented the fully subsidised CADENA programme. The programme was discontinued in 2020 mainly because payouts did not reach the target group efficiently, leaving around 3.5 million smallholder farmers without protection against extreme weather events.

To improve the resilience of currently uninsured smallholder corn farmers to extreme drought and rainfall events, a new project consortium formed by the Insurance Development Forum (IDF) and state-owned re/insurer Agroasemex to promote the development of a sovereign insurance solution. ISF co-funds the project implementation and thereby helps to accelerate growth and enable the potential extension throughout the country. To this end Frankfurt School of Finance and Management (FS), managing the ISF, today signed a grant funding agreement with the project consortium partners. This marks a public-private partnership project under the Tripartite Agreement between the German government, IDF and UNDP to support risk-management solutions for climate-vulnerable countries.

Led by IDF members AXA Climate, Guy Carpenter, Munich Re and Swiss Re, it includes Agroasemex as a key local partner. The Ministry of Finance and the Ministry of Agriculture strongly support the insurance scheme that ensures that insurance payouts will reach farmers directly and rapidly to mitigate the impact of natural disasters. Earlier this year ISF financed a dedicated feasibility study to substantiate the elements that are necessary to develop a suitable insurance cover to protect smallholder farmers. The new national insurance programme for smallholder farmers cultivating corn will be jointly designed by the re/insurance companies AXA Climate, Munich Re and Swiss Re, the reinsurance broker Guy Carpenter, as well as the Puerto Rican InsurTech Raincoat providing the insurance platform, including input from the local insurance companies.

This innovative solution makes use of insurance as an efficient mean to enhance social protection for low-income farmers. Serving as a role model for other countries, the project is expected to have positive spin-offs by facilitating access to finance and tailored weather forecasts for the smallholder farmers covered, as well as other social protection schemes through e.g. increased mobile phone penetration, inclusive enrolment processes and women empowerment measures. These types of disaster risk reduction measures are expected to help build farmers’ resilience beyond the benefits of insurance.