Crop insurance is an activity with several market imperfections, which have led the Mexican state to make interventions in it. This research explains the historical development of agricultural insurance and reinsurance in Mexico and how in the second half of the 20th century corrupt practices arrested its development. This study is a historical narrative based on corporate reports of the state agricultural insurer, the archives of Mexico’s Ministry of Finance, and interviews with industry actors.
In Mexico, since its origins in 1961, and during most of the period under study, agricultural insurance was provided to farmers mainly by the government. This was done through a state-owned insurance company, Anagsa. Although during the 1960s crop insurance in Mexico was based on technical criteria, in following decades its allocation was based on political criteria and a mechanism that fostered corrupt practices. Most crop insurance was tied to agricultural credit, which was also granted to political targets. Risk was little diversified, and Anagsa’s losses were absorbed by the government. More than crop insurance, it was a transfer to interest groups.
The government encouraged a perverse scheme whereby rural insurance was used to cover the risks of loans granted to farmers by the government’s agricultural development banks. The scheme also fostered corruption between policy holders and the government’s insurance company. That, combined with the indiscriminate expansion of insured crops, destroyed the possibility that insurance would be effected on a technical basis with actuarial criteria. In addition, it led to big losses for the national budget. Anagsa faced large fiscal losses for two decades, and in the 1970s and 80s it was the flagship of corrupt governmental practice. Under these circumstances insurance and reinsurance markets in agriculture could not develop, an outcome with long-lasting effects.