Feasibility Study: Disaster Risk Financing and Insurance Solutions for Family Farmers in El Salvador, Honduras and Guatemala

The study aims to identify disaster risk financing and insurance (DRFI) solutions for family farmers in El Salvador, Guatemala and Honduras. This study arises from the consensus on the need to design and implement large-scale DRFI solutions to improve the financial resilience of family farmers in North Central America (NCA) and reduce their vulnerability to extreme weather events and climate risks. There is a significant protection gap in the agricultural sector, with less than 2% of GDP prearranged for disaster financing in each country. Most existing DRFI instruments do not directly benefit family farmers, and social protection systems are underfunded and do not focus on long-term livelihood protection. International experience and index-based insurance, such as the parametric collective insurance implemented by the Ministry of Agriculture, Livestock and Food (MAGA) of Guatemala, have proven effective in protecting the livelihoods of family farmers against severe weather events. However, insurance adoption at the micro level has not achieved relevant scale due to challenges in educating farmers about complex financial products and the need to build trust. Traditional indemnity-based insurance products are not suitable for the socioeconomic profiles and risk transfer needs of family farmers.