Insured against climate risks

Context

About three quarters of Peru’s rural population work in the agricultural sector. The main crops are sugar cane, rice, maize, potatoes, bananas, cassava and grasses for livestock farming. Agriculture has developed dynamically in recent years. Between 2010 and 2017, the annual export volume grew by 41 per cent to 4.8 billion US dollars. However, climate change is causing an increase in droughts, floods, landslides and extraordinary temperature fluctuations, and El Niño is a climate phenomenon that regularly results in billions of dollars’ worth of economic damage.

These extreme weather events are making it difficult to fight poverty, which affects about 60 per cent of the rural population. The Peruvian Government has set out to improve incomes and living conditions, especially for smallholder farmers. It aims to help them insure themselves against climate risks and associated crop losses more effectively, and to encourage the farmers themselves to use risk-mitigating measures. By growing bananas, which require significantly less water than rice, for example, they can prevent losses during severe droughts.

Objective

Peru has a risk transfer system for the agricultural sector that is financed by the state and the private sector. The system includes insurance against climate risks.

Approach

The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is supporting the development of integrated financial management to protect against climate risks in Peru. In the project funded by the International Climate Initiative (IKI), GIZ is cooperating with the Ministry of Agriculture and Irrigation, the banking supervisory authority SBS, insurance companies and private pension funds, the Ministry of Economic Affairs and Finance and private insurance companies. An alliance with the reinsurance company Munich Re was formed to analyse the vulnerability of the agricultural sector to climate change.

The aim is to create the institutional and legal frameworks for the risk transfer system by 2019. Guidelines on agricultural insurance, which were previously laid down in various laws, decrees, resolutions, plans and political initiatives, are being compiled systematically. In addition, the tasks of the various institutions are being coordinated more effectively at all levels of government. The state and the agricultural, insurance and banking sectors are jointly developing a risk transfer strategy. In future, all information relating to policies and damage is to be gathered within a single database.

A geo-referenced data collection and management system is being created to assess climate risks. A pilot run for zoning agricultural land (Mapeo de Áreas Agrícolas – MAA) using satellite and remote sensing data is being implemented in the Lambayeque, Apurimac and Ucayali regions, making agricultural statistics more reliable.

Training programmes are being developed for specialised staff in the public and private sectors to develop the necessary skills for the sustainable management of risk transfer systems.

Results

The Peruvian agricultural insurance market has grown by almost 97 per cent since the start of the project. In 2018, about 680,000 hectares were covered by agricultural disaster insurance and commercial agricultural insurance schemes. This equates to 14 per cent of the country’s cropland. The area covered was only 350,000 hectares at the start of the project in 2014. Agricultural insurance currently provides a total of 272,000 agricultural producers in eight regions with protection against climate-related financial risks. Recommendations for calculating premium rates have lowered insurance premiums and increased payout rates.

Training courses for experts and decision-makers at the Ministry of Agriculture and the supervisory authority have helped to improve the quality of decisions taken in the agricultural sector. Online and practical/theoretical courses on agricultural insurance and claims settlement have also been held. The staff of the Ministry of Agriculture and Irrigation, the National Statistics Institute and lecturers at the National Agrarian University La Molina have been trained in agricultural information management and in the use of satellite technologies. The participants have acquired skills to identify agricultural land and compile agricultural statistics using satellite imagery.