The Mexican experience in the development and operation of parametric insurance oriented to livestock

Publication´s abstract

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

• Technical and methodological foundations (construction of databases, design of a Generalised Vegetation Index, risk definition, definition of damage event, parametric load capacity model)
• Field evaluation of concepts and methods (pilot test design, analysis and conclusions)

Conclusions:

• The pilot test results confirm the need to design a parametric insurance applied to agriculture and livestock activities to allow a high correlation –independent of the weather index characteristic to be protected and the technology used to build and measure the same – between the weather event to be insured and the impacts over-vegetal species production levels that are indirectly covered.
• It is concluded that for the development and operation of parametric schemes specifically oriented to cattle-raising activities, the creation of coverage based on vegetation indexes calculated by the use of remote sensors represent a feasible option to design protection instruments targeted to give cattle breeders an insurance against climatic events that result in a reduction of food availability for their cattle and a negative impact on their economy, because of the need of resources for unplanned additional supplementation.