Mexico crop insurance displays major growth potential

Crop insurance in Mexico has potential for strong growth, given the line's low penetration and heavy exposure to climate-related disasters, which look to intensify with climate change and a growing population.

Data from the insurance regulator (CNSF) indicates that penetration for crop insurance, designed to cover damage from pests, weather events, disease and other calamities, has reached only 0.5% of Mexican GDP.

According to the Mexican insurer association (AMIS), agriculture occupies 25.2%, or 27.5mn hectares. In Mexico, however, only 489,000 hectares - 1.8% of all agricultural lands - are insured.

AMIS in its annual public policy statement, cited data from the UN's Economic Commission for Latin America and the Caribbean (Eclac), showing that more than 80% of the economic losses related to climate disasters (droughts or floods) occurred in the agricultural sector.

"Agricultural insurance is a fundamental instrument for the functioning of the agricultural markets of developed countries," said AMIS in the report. "In Latin America: Brazil, Argentina, Chile, Peru, Guatemala, Honduras, El Salvador, are boosting their development (climate change is accelerating it)."

"In Mexico, there are agricultural insurance funds or non-profit farmer societies. Insurance funds are mainly reinsured with Agroasemex through its insurance function that contributes to the creation of a national risk management system for the comprehensive protection of the rural sector," said CNSF.

Data provided by rural insurer and reinsurer Agromasemex, reported in local media outlet El Economista, show that in this year's first quarter, 67.2% of the insured farmland corresponds to such non-profit insurance funds, while private insurers cover 32.8%.

In terms of coverage in monetary terms, 67.1% (7.26bn pesos, or US$364mn) is covered by insurance funds, while private insurers cover 32.9% (3.56bn pesos).

Crop insurance coverage has however increased significantly in the last year, growing 29.6% from 8.35bn pesos in 1Q17. The non-profit insurance funds have increased coverage 22.1% in the same comparison, while private insurers saw 48.2% growth.

Of the insured production units, the ones with the highest coverage are those that specialize in cotton cultivation (75.7%), followed by soy (43.1%), while those producing wheat grain and rice accounted for 44.1%.

AMIS risk management unit

To better protect the country's farmers, AMIS has proposed a risk management unit that would function as a shared risk platform.

"The linking of all participants in the agricultural insurance market is a factor for success in strengthening the subsidy programs, hence the importance of the risk management unit to promote synergies between them," said the association in its public policy statement.

As proposed, the unit would be responsible for ensuring the implementation of a public risk management policy through the management of the risks inherent in Mexico's strategic priorities, not only for agricultural insurance but other risk areas as well.

To foster expansion of agricultural insurance, the insurance sector proposes that this unit would be able to channel all subsidies - whether agricultural or livestock - to achieve efficiencies in processing times by optimizing the operational cost of access for insurers and the funds.

Likewise, the unit would have to guarantee the regulatory transversality of market participants, under CNSF's supervision, in addition to integrating statistics and analysis, to avoid asymmetries of information. In addition, it should promote synergies in the interaction between market participants.

"Promoting these proposals can boost the development of the Mexican countryside by achieving a more efficient subsidy scheme that achieves greater scope to more effectively integrate the coverage of risks to which it is exposed," AMIS said.