Agricultural Insurance in Latin America: Developing the Market

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 publicprivate 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.