Insurance Development Forum
Insurance Development Forum
Insurance Development Forum

Climate Disaster Risk Insurance for Smallholder Farmers in Mexico

Tripartite agreement programme

A Public-Private Partnership Enhancing Disaster Resilience

Mexico’s smallholder farmers, primarily cultivating on non-irrigated lands, are highly susceptible to climate-induced risks such as drought and excessive rainfall. The discontinuation of the CADENA programme in 2020 left approximately 3.5 million smallholder farmers without protection against extreme weather events.

Agricultural insurance can help transfer such production risks, both for the Government and farmers, allowing for access to credit, promoting investments, and improving the management of fiscal resources to respond to climatological contingencies. This project aimed to enhance resilience, promote sustainable farming practices, and integrate risk financing into national development strategies.

The Tripartite Mexico scheme introduces a sovereign parametric drought and excessive rainfall agricultural insurance solution, leveraging public-private collaboration to provide swift financial protection to smallholder farmers.

The protection gap

Approximately 80% of the total number of farmers in Mexico own less than 5 hectares; only 18% have access to formal credit and commercial agricultural insurance. They often face substantial losses due to drought, hurricanes, excess rainfall, and floods.

The insurance solution

The project developed a drought and/ excessive rainfall agricultural index-based (parametric) sovereign insurance solution, tested through a pilot, identifying and covering all smallholder farmers cultivating maize, and a robust and efficient distribution model of direct payouts to improve their resilience against extreme drought and rainfall events. It aimed to provide swift financial protection to smallholder farmers.

This included an IT platform and mobile app that facilitates the enrollment of eligible farmers through various channels. Also a Calculation Agency / claims payout distribution.

The pilot, which insured 10,000 farmers, aimed to validate the operation assumptions and the development of the IT platform to manage the enrolment process, policy issuance, and ensure payouts are delivered directly to farmers’ accounts. During the pilot test two excess-of-rain-triggered events resulted in a direct payout to over 1,400 affected farmers.

This scheme also has other benefits including that these farmers will not only have ready access to finance, but they will also receive timely weather forecasts.

Insured Asset

Agricultural production costs of maize.

Insured peril / hazard

Extreme rainfall, drought.

Geographic focus

Initially Oaxaca, Tabasco and Chiapas, then rollout throughout the country in 236 municipalities of 27 Mexican States.

Policyholders

The policy holder will be Government of Mexico Partners, including Ministry of Finance & Public Credit, and the Ministry of Agriculture.

Estimated Beneficiaries

  • 10,000+ smallholder farmers in the pilot.
  • The subsequent roll out aimed to protect almost 270,000 farmers, covering 650,359 ha in 236 municipalities of 27 Mexican States.
  • 3,735,072 by 2025, of which 100% are poor and vulnerable.

Claims Payouts

The project designed a claims process that enabled payouts to be delivered directly to farmers’ accounts once an agreed payout is triggered.

Other project benefits

  • Development of index-based standalone solution for two perils, data collection and modelling (based on satellite data, Chirps with 5 x 5km resolution).
  • IT platform and mobile app that facilitates the enrollment of eligible farmers through various channels.
  • Calculation Agency / claims payout distribution.
  • Training for stakeholders and enrollers.
  • Premium financing for a pilot in 11 municipalities.
  • Helpline and Call Centre for beneficiaries and enrollers.

Project impacts

The ultimate goal was to provide the tools the government needs to include subsidies for insurance coverage targeted at vulnerable populations, as part of the Federal Budget. By achieving this, the following impacts are expected to be seen:

  • Increased access to finance for smallholder farmers after a disaster (timely and direct payouts) and other social protection schemes, resulting in their increased resilience.
  • Smallholder farmers’ increased preparedness from access to tailored, location-based weather forecasts and extension services through technology.
  • Reduction of the protection gap of climate disaster risks.
  • Integration of risk financing into national development strategies.
  • Further development of the local insurance market.
  • Promotion of sustainable farming practices.

Project Launch: March 2022
Project Formal Close: April 2024 – but continued interaction with the Mexican Government.

Approx. EUR 3.8 million, co-funded by the participating IDF industry members and the InsuResilience Solutions Fund (ISF).

The partners of the Tripartite Agreement Programme are:

  • German Federal Ministry for Economic Cooperation and Development (BMZ), through the InsuResilience Solutions Fund (ISF).
  • Insurance Development Forum (IDF).
  • United Nations Development Programme (UNDP).
  • Ministry of Finance & Public Credit.
  • Ministry of Agriculture.
  • Mexican state-owned insurer Agroasemex.
  • AXA Climate
  • Guy Carpenter
  • Munich Re
  • Swiss Re
  • Raincoat

Partners