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Mexico launches IDF-backed parametric climate solution for farmers

25th March 2022 - Author: Matt Sheehan

The Government of Mexico has announced the launch of a tripartite project to develop a sovereign parametric insurance solution for climate-vulnerable smallholder farmers, supported by investments in long-term risk finance and insurance market development.

Mexico flag mapThe solution represents a partnership between the Ministry of Finance & Public Credit, the Insurance Development Forum (IDF), the United Nations Development Programme (UNDP) and the German Government.

Led by IDF members AXA, Guy Carpenter, Munich Re and Swiss Re, the public private partnership includes Mexican state-owned re/insurer Agroasemex as a key local partner for the national insurance programme to be developed.

Insurtech firm Raincoat will also provide the IT insurance platform and, during the project roll-out phase, the local market will be invited to participate in the programme.

In parallel to this, UNDP will be offering technical and coordination assistance to both help deliver on the industry-led risk financing solution and combining that with long-term investments to integrate risk-financing and insurance into national development strategy and delivery.

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This is the first country project to be launched in 2022 under the Tripartite Agreement announced in 2019 between the German Federal Ministry for Economic Cooperation and Development (BMZ), the IDF and UNDP, to deliver technical assistance and risk financing solutions to twenty countries vulnerable to climate change by 2025.

The InsuResilience Solutions Fund (ISF), funded by the KfW Development Bank on behalf of BMZ, will co-fund the implementation of the programme alongside the IDF insurance industry members.

“80% of the total number of farmers in Mexico are small farmers (owning less than 5 hectares), and most of them cultivate on non-irrigated lands, making them relatively more exposed to weather shocks. Of these farmers only 18% have access to formal credit and, thus, commercial agriculture insurance,” noted Héctor Santana Suárez, Head of Insurance, Pensions and Social Security Unit in the Ministry of Finance & Public Credit, Mexico.

Given the evidence of exposure of the agriculture sector to such systemic weather events, the Government (Federal and State) must manage risks to provide a safety net for the rural poor and to ensure that the agriculture sector is sustainable and not decapitalised by major events,” he continued.

“I greatly welcome the launch of this project in Mexico and the partnership and support from the IDF and its members in helping realise our ambition to provide better protection for low-income farmers against catastrophic events and actively support their progress to more profitable and sustainable farming practices.”

Ivo Menzinger, Industry Chair, IDF Sovereign & Humanitarian Working Group, also commented: “I’m very pleased with how the Insurance Development Forum and its members have mobilised to develop and initiate the implementation of this new country project under the Tripartite Agreement.”

“Through the IDF Tripartite projects, the insurance industry is delivering on its responsibility to help developing countries vulnerable to climate change protect their hard-earned development gains, while using risk financing tools to increase their financial, physical, as well as social resilience.”

Lorenzo Jiménez de Luis, Resident Representative, UNDP Mexico, further stated: “The lack of preparedness and funds in face of rising global risks, like climate change, must be fixed. Insurance and risk finance can offer security and greater resilience to the vulnerable sections of our society.”

“At UNDP Mexico, we want to facilitate a proper penetration of high-quality insurance for everyone. We are consistently supporting the Mexican government to promote sustainable development and our work under the Tripartite Agreement will help deliver long term benefits.”

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