Agricultural Insurance in Mesoamerica: An Opportunity to Deepen Rural Financial Markets

This study analyzes the opportunities and challenges presented by agricultural insurance instruments to deepen financial services in rural areas in a sustainable manner. It:

• Presents a public policy framework to guide the decision making process of public support and interventions.
• Focuses on the role of insurance to financially manage (and transfer) agricultural production risks that are too large for self-insurance to cover.

In this study, the authors present the paradigm shift from the traditional agricultural insurance to development of innovative insurance instruments such as weather-based and area-yield based index instruments, which offer a radical change in the approach to agricultural production risk management.The study explores these innovative insurance instruments to understand the benefits and challenges they offer. It also researches the current agricultural insurance scenario in Mesoamerica.The study further discusses that there is requirement for a public policy structure focusing on:

• Adequate regulatory and legal framework,
• A reliable and extensive public information system,
• Clear rules for catastrophic interventions in rural areas,
• A regional integration of public goods and services to encourage private insurance and reinsurance companies to enter the market.

The authors conclude that:

• All countries should focus on providing the public goods and services needed to lift the barriers to market failure.
• The countries must take full advantage of the opportunities of index-based instruments to reach the small-scale farmer.