How Peru could develop its agriculture insurance segment

Peru's insurer association Apeseg sees significant growth potential for agriculture insurance in the Andean country over the coming years due to the expected growth of the agriculture sector and efforts to make coverage more accessible, according the trade group's president Eduardo Morón (pictured).

The growth prospects of the Peruvian agriculture sector and agro-exports are very promising for the next 10 or 15 years and it would only be "natural" for the insurance industry to support the expansion, said Morón.

Apeseg is currently working with several authorities on preparing a bill that would see the state partly subsidizing commercial agriculture insurance policies, Morón told BNamericas.

Morón expects the bill to be sent to congress later this year and believes it could become crucial in terms of increasing the currently low level of agriculture insurance penetration in the Andean nation.

Direct premiums in the agriculture segment amounted to 39.8mn soles (US$12.2mn) in 2017 while the entire P&C market had direct premiums of 3.82bn soles.

Coverage for the agriculture sector is consists of a catastrophe policy (SAC) that is fully subsidized and a commercial policy with no subsidy.

The former is a parametric-based policy focused on farmers in the poorest regions that are exposed to climate-related risks, while the latter is a multi-risk policy that is sold by agriculture-focused development bank Agrobanco and other rural financial institutions that provide financing to the sector.

Without a subsidy the commercial policy is not very attractive for many farmers, said Renato Bedoya, Apeseg's risk manager.

However, climate-related disasters are occurring every year and they are becoming more frequent and more severe in their impact.

Many farmers affected by these disasters who do not have insurance coverage have been forced to sell their lands to pay back their loans – which is detrimental for the long-term development of the agriculture sector, Bedoya said.

Several countries in Latin America, including Chile, Colombia, Ecuador and México, have been able to improve insurance coverage in their agriculture sectors by partially subsidizing commercial insurance policies, Bedoya added.

The goal of the bill that Apeseg, financial services regulator SBS and the agriculture and finance ministries are working on is to support and protect farmers through a specific regulation for an insurance segment that requires a high degree of specialization, said Bedoya.

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Insurance companies that want to provide the parametric-based coverage participate in a tender mechanism where they can choose to provide coverage in one or several of the country's departments.

For several years local player La Positiva and Spanish insurance giant Mapfre were the only insurers that participated in the tender due to operating problems of the subsidized system. The claims payment process was very slow and this represented a reputational risk for insurance companies that might otherwise have been interested, said Morón.

The authorities and Apeseg worked together to solve the problems and this resulted in the entrance last year of Germany's HDI and Peruvian insurer Rimac into the SAC, he said.

Morón added that a fifth insurance company is also likely to join SAC due to the improvements to the system.

The Peruvian insurance industry is comprised of 20 insurance companies. La Positiva agreed in March to sell a 51% stake to Fidelidade from Portugal.

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Apeseg will on September 11 hold an Insurance Day in Lima where local and international speakers will discuss a broad range of topics, including global trends, digital transformation, natural disasters and pensions. More information, in Spanish, about the event can be accessed here.