The Mexican experience in the development and operation of parametric insurances applied to agriculture

Publication´s abstract

The paper discusses the development and use of index-based insurance solutions in the agriculture sector in Mexico. After describing the characteristics of parametric insurances, it explains in detail how AGROASEMEX approached the design of the index-based rainfall insurance called “Catastrophic Crop Insurance”.

• Feasibility premises: challenges and solutions
• Assessment of concepts and methodology in the field (design and implementation of the pilot test, follow-up and evaluation, conclusions)
• Empirical results (indemnities, case analysis about the State of Mexico, projections

Conclusions:

• The pilot test results showed the general feasibility of index-based insurance solutions under the assumptions and conditions established in such test and exclusively in the assessed regions.
• Index insurances applied to agriculture represent a viable alternative to face, at a low cost and in an efficient way, the catastrophic events having a regional or multiple impacts, related to the weather variability and extremes.
• The risk is transferable to the reinsurance international market, given two conditions: that the climatic databases comply with the quality standards established by the risk taker and that the measuring infrastructure guarantees efficient levels of operation in the recording and transmission of the data.