El Salvador’s only insurance cooperative Seguros Futuro launched a parametric insurance product in 2018 to protect clients from catastrophic events. “Produce Seguro” provides cover for agriculture, small businesses and low-income families against natural disasters, the intensity and frequency of which have been increasing due to climate change. The catastrophic risk policy – the first in the country - is triggered automatically by predetermined weather-related events to cover business interruption losses from excessive rainfall, severe drought and earthquakes.
Seguros Futuro is El Salvador’s only cooperative insurer. It was created by the Federation of Cooperative Savings and Credit Associations of El Salvador (FEDECACES) that together make up a network of FEDECACES cooperatives. When the company was created in 1994, its mission was to provide protection for Salvadoran families that did not have access to insurance services because of their cost and perceptions that insurance was only for the well-off.
Initially, Seguros Futuro only offered insurance to members of the 25 cooperatives affiliated to FEDECACES. Today, its insurance products are available to El Salvador’s entire population through direct sales and various other channels. Currently, the sale of microinsurance through affiliated cooperatives represents 45% of Seguros Futuro’s entire business.
For Seguros Futuro, working with cooperatives represented an important opportunity to leverage their national coverage and broad member base. However, in order for the cooperatives to generate an insurance culture and offer protection services, they needed to develop and strengthen their sales force management. To address this, Seguros Futuro made arrangements with the cooperatives so that they became part of the main marketing channel, becoming points of sale, with the support of insurance advisers to guide customers in making insurance purchases.
Published August 2022
To learn more about the growth of Seguros Futuro and its new parametric insurance product, click here to access a Social Finance Brief produced by the International Labour Organization (ILO) and the Impact Insurance Facility
Catastrophic index insurance
Since 2018, Seguros Futuro has sold a catastrophic index insurance product called “Produce Seguro” (“produce safely”), in collaboration with the Microinsurance Catastrophe Risk Organisation (MiCRO), the reinsurer Swiss Re, and the Agricultural Development Bank (Banco de Fomento Agropecuario - BFA), a public bank designed to promote agriculture through loans to farmers in El Salvador. The product offers farmers protection against risks caused by excessive rain, drought and earthquakes. Satellite data allows the insurer to determine claims automatically and remotely based on precipitation indices, without the need to carry out loss adjustment in the field.
During the first year, the insurance premium was subsidized by the State of El Salvador. The subsidy was offered at various levels (50%, 75% and 100% of the total insurance premium) on a randomized basis. This mechanism was used to understand the effects of the different levels of premium subsidy, and to encourage insured farmers to learn about and experience the insurance during the first year, in the hope that they would be willing to pay for the product fully in following years.
At the end of the first year, it was observed that some producers, despite being offered a 100% premium subsidy, did not take up the insurance. This was likely due to a lack of information provided by the bank advisers to the farmers, partly as a result of limited training given to the advisors and follow up. Since the experience of this first year, Seguros Futuro focused on adviser training and financial education as well as communication with clients.
Currently, the parametric insurance product is offered without state subsidy. In 2018, about 10,000 policies were sold to clients of the BFA. In 2019, the producers paid 100% of the insurance premium because they did not have the subsidy and about 3,000 farmers were insured. As of 2020, new channels with other financial entities were included, insuring more than 4,000 farmers. Many of the insured were compensated that same year for a total amount of USD 900,000 as a result of Hurricane Amanda that catastrophically affected El Salvador.
