HIGHLIGHTS

• It’s rare for lower income farmers to have insurance
• Coverage could help millions of smallholder farmers in Mexico mitigate the impact of potential emergencies
• We created recommendations for better communicating about insurance to make it easier to access and use

The Challenge

Households with low incomes navigate many challenges daily. On top of making day-to-day decisions with often insufficient resources, they’re also more vulnerable to threats from potential emergencies. In Mexico’s agriculture sector, these threats include natural disasters and pests, which in addition to potential medical emergencies, can impact a farmer’s crop yield and devastate their finances for the year.

Insurance coverage could help millions of low-income households mitigate the impact of such threats and maintain greater financial stability when emergencies occur. However, it’s quite rare for farmers, particularly lower income or smallholder farmers, to buy insurance. In the microinsurance market, which serves the low income and rural community in Mexico, only 15% of farmers are covered. In addition, of the few farmers who have insurance, many have trouble reaping the benefits by filing a claim.

The Savings Banks Foundation for International Cooperation (SBFIC), within the scope of a project funded by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ), works to strengthen the agricultural sector and promote rural development in Mexico by offering financial services and harnessing new technologies. Collaborating with SBFIC we identified behavioral barriers to insurance uptake and created recommendations for communicating about insurance in a behaviorally informed way. We provided these behaviorally informed recommendations to SBFIC to inform a financial curriculum and the design of communications about insurance products that support farmers.

Our Approach

First, we conducted a series of interviews across two rural communities in Mexico to learn more about farmers’ experiences with risk and mitigating impacts. Most of the farmers we interviewed noted that insurance products could be helpful when emergencies arise, if well-designed for a small farm’s needs.

We found various behavioral barriers to getting insurance and to filing a claim to reap the benefits of insurance. For example, many farmers would consider insurance during a difficult time when it’s too late to cover that problem in the moment. And for those who had insurance, factors like insurance jargon and unclear steps and deadlines prevented many from filing claims and getting the benefits of their coverage.

We developed simple, low-cost recommendations for SBFIC and financial education providers to use in their communications to farmers about financial services such as insurance:

1. Simplify technical terms: Feeling confused about the jargon used in insurance can be alienating—“if I can’t understand it, then it’s not for me.”
2. Use relevant analogies: For example, compare an insurance “policy” to the other types of contracts (such as car or truck rentals) farmers have signed in the past.
3. Provide practical advice on how to claim benefits: Provide people with relatively easy-to-follow guidelines to claim their insurance benefits, like rules of thumb or simple checklists.
4. Illustrate with examples: Examples can illustrate the situations in which insurance is most valuable. For example, insurance against catastrophic loss such as droughts is essential, but insuring a cellphone is less critical because the cost of losing or breaking it isn’t as high.
5. Share testimonials: Sharing testimonials from farmers who have had positive experiences using insurance, as these stories tend to be shared less frequently than negative experiences, can help.
6. Consider timing: Communications or trainings should be timed for when farmers will be more available to consider new information, like after harvesting when they experience less scarcity in time and resources.

Takeaway

While many farmers recognize the value of insuring their farms, getting and using insurance is far from simple. It’s important to note that we also found structural barriers—deterrents which behavioral science alone won’t solve. For example, some farmers indicated that there was a lack of insurance products that directly cover their needs, and others noted the cost of insurance was too high. Applying behavioral insights to communications and education about insurance, as well as addressing structural barriers to like adequate coverage and costs, can boost the resiliency of smallholder farmers in Mexico.