IADB

Insurance can potentially play an important role in climate change adaptation for rural households in developing countries. However, agricultural insurance markets seldom develop fully because of market failures. In Colombia, these market failures, namely information asymmetries and high transaction costs, are amplified by the country s difficult topography, poor infrastructure, and history of rural violence. Even though the government provides support to the insurance market through premium subsidies, coverage is still very low and important crops and small producers are not covered. This paper analyzes in detail the market constraints in Colombia for the full development of the agricultural insurance market and provides recommendations so that insurance can fulfill its potential as a risk management tool in the country.