Agriculture Insurance for Smallholder Farmers in Mexico

Mexico’s Agriculture Insurance for Smallholder Farmers is a national effort to safeguard vulnerable rural populations from escalating climate shocks through sovereign parametric insurance. Designed jointly by the Government of Mexico, UNDP, and the Insurance Development Forum, the initiative responds to rising climatic volatility, particularly droughts and excess rainfall that threaten the livelihoods of millions of smallholders who depend almost entirely on rain-fed white corn.

The project introduces a fast-acting, rules-based financial protection mechanism that allows the federal government to manage climatic risks proactively, protect fiscal stability, and deliver rapid payouts to affected farmers. The pilot phase, launched in 2022 across 11 municipalities, demonstrated strong demand, high enrollment, and operational success: nearly 10,000 producers enrolled, the index triggered twice, and over 1,400 farmers received timely direct payments.

Beyond immediate protection, the project strengthens institutional capacity, modernizes risk management systems, and improves financial inclusion for rural communities. By 2025, the mechanism is expected to reach 3.7 million poor and vulnerable people, laying the foundation for a nationwide climate-risk financing strategy that can scale and integrate with Mexico’s broader rural development and social protection programs.

The implementation combined sovereign risk transfer, community-level enrollment, and digital tools to operationalize coverage for remote rural populations.

First, the project established a parametric design based on drought and excess-rainfall indices for white corn, the main staple crop. This allowed payouts to be triggered automatically when thresholds were exceeded, removing the need for field verification and enabling faster, cost-efficient responses. The national government (Treasury and Agriculture ministries) acted as the policyholder, with reinsurance partners (Swiss Re, Munich Re) and a local insurer providing the risk capacity. 

Second, enrollment targeted 11 municipalities across four states. Implementation teams prioritized community-based outreach, enrolling 95% of farmers through local assemblies and 42% women as enrollers, ensuring gender inclusion and cultural sensitivity. Indigenous translation was provided where possible, supported by community leaders where languages were not available. 

Raincoat (local technology provider) developed a mobile application enabling offline registration, simplifying data capture, and allowing real-time validations. This supported a highly dispersed and often connectivity-poor territory.

Third, the pilot incorporated a strong financial inclusion strategy. Because 60% of beneficiaries had bank accounts, payouts could be sent directly, while remaining farmers required manual payment processes, a challenge identified for future streamlining. 

Finally, the team executed two triggered payouts, delivering compensation to over 1,400 farmers, with 95% satisfaction, and 100% of women stating they would renew the product. Positive pilot results were formally submitted to the Treasury, which is now seeking federal resources to scale coverage to 100 municipalities in 19 states, reaching more than 200,000 small producers in the next expansion phase. 

A multi-actor coalition enabled design, delivery, and scaling.

• Ministry of Treasury and Public Credit – policyholder, fiscal planning
• Secretariat of Agriculture and Rural Development – rural coordination
• UNDP / IRFF – technical support, capacity building, convening
• Insurance Development Forum – design and risk-layering approach
• Swiss Re, Munich Re – reinsurance partners
• Raincoat – digital tools and enrollment platform
• Local insurer Agroasemex – implementation support

Engagement strategies ensured accessibility and trust.

• Community assemblies covering 95% of enrollments
• Local communication channels and rural leaders promoted the product
• Indigenous-language translations in key municipalities
• Simple, visual communication materials to explain triggers and payouts
• Follow-up sessions to reinforce understanding

The project blends development funding and sovereign risk finance.

• €4.4 million project development cost (Tripartite funding) 
• Federal budget expected to finance premium payments post-pilot
• Reinsurance capacity provided by Swiss Re and Munich Re
• Local insurer and Raincoat financed technology adaptation and operational deployment
• Enrollment cost: MXN 600 (USD 32) per producer 

The pilot delivered measurable institutional and community outcomes.

• Successful establishment of a sovereign parametric insurance mechanism
• Strong uptake among vulnerable populations (incl. 36% women; 9% Indigenous beneficiaries)
• Proven operational feasibility with two successful payout cycles
• Documented increase in risk awareness and financial knowledge
• Institutional learning enabling scale-up to 19 states and 200,000+ producers

Although the parametric insurance does not directly reduce greenhouse gas emissions, it meaningfully supports low-carbon outcomes. By providing rapid financial protection, the scheme helps smallholders avoid high-emission coping strategies, such as land clearing, expanding cultivation into forests, or adopting diesel-dependent irrigation, when crops fail. The stability generated by timely payouts also enables farmers to maintain or adopt climate-smart practices, while predictable fiscal protection prevents the diversion of public resources away from mitigation efforts. In this way, the mechanism reinforces a development pathway that is both resilient and aligned with long-term emission-reduction goals.

Implementation revealed gaps that inform future expansion.

• Complex public–private administrative processes slowed delivery
• Training materials still too technical for some farmers
• High enrollment costs and insufficient indigenous-language capacity
• Knowledge retention decreased over time, requires reminder campaigns
• 7.7% of beneficiaries did not cash out payments due to communication gaps
• Manual payouts for non-banked farmers created delays and higher transaction costs

The project’s success rests on several replicable features:

• Sovereign risk pooling: A national policyholder enables consistent coverage, efficiency in premium payments, and predictable fiscal planning—an approach adaptable to other middle-income and developing countries.
• Simple, transparent triggers: Weather-index thresholds offer clarity to farmers and government alike, reduce administrative costs, and enable rapid payouts.
• Technology-enabled last-mile delivery: The offline mobile app, streamlined enrollment, and simplified communication materials address common barriers in remote areas and can be easily adapted to other contexts.
• Community-based engagement: Leveraging rural leaders, women enrollers, and Indigenous translation increases trust, uptake, and long-term sustainability.
• Gender-sensitive and inclusion-focused design: Features such as direct digital payments and tailored communication ensure that women, Indigenous communities, and financially excluded populations benefit equally.
  
  As Mexico moves toward scaling the mechanism to 100 municipalities in 19 states and eventually to millions of people, the project demonstrates how climate-risk insurance can evolve from small pilots into nationwide safety nets integrated with agricultural development, disaster management, and social protection systems.
  
  This scalable and transferable Insurance model, positions Mexico as a global frontrunner in soverign risk finance.
   

• Agriculture Insurance for Smallholder Farmers in Mexico– UNDP IRFF fact sheet
• UNDP Insurance & Risk Finance Facility
• Insurance Development Forum
• Agroasemex
• Raincoat: Financial resilience from disasters

Tuga Alaskary
Risk Finance Specialist
UNDP Insurance and Risk Finance Facility
tuga.alaskary@undp.org

Serin Oh
Project Associate – Climate Risk Finance & Policy
Munich Climate Insurance Initiative
oh@ehs.unu.edu