Agricultural Insurance Revisited: New Developments and Perspectives in Latin America and the Caribbean

This paper focuses on production risk management, explaining key concepts, understanding why crop insurance markets have been slow to develop, and making recommendations about how to build sustainable markets in developing countries. It states that:

• Producers in developing countries have little access to formal agricultural insurance products that would allow them to transfer production risk to other parties;
• However, agricultural insurance is gaining interest in light of the need to improve agricultural competitiveness in increasingly integrated commodity markets.

The paper:

• Highlights and discusses the many obstacles that agricultural insurance faces;
• Examines case studies on Uruguay, the Dominican Republic and Peru to reveal how crop insurance products are evolving and/or what government supported initiatives are under-way to expand coverage;
• Recommends how to:
  • Build markets step-by-step;
  • Apply new technology to lower costs.

The paper concludes that:

• Agricultural insurance is an important financial risk management tool;
• Although different types of agricultural insurance products have their own niches they should adhere to basic principles of actuarial fairness, and the reduction of problems with adverse selection, moral hazard and administrative costs;
• Governments have a vital role to play in:
  • Providing information about monitoring, and measuring risk;
  • Maintaining a sound regulatory and supervisory framework;
  • Supporting private insurance providers with assistance and training.
• In developing countries, insurance systems should be cost-effective and part of a larger, layered risk management framework.