In January 2023, the National Congress of Chile approved a law allowing the distribution of parametric insurance products. It also authorised more flexible rules regarding claims and adjustments for this insurance.

With this approval, a new country was added to the list of Latin American nations where it is possible to market policies of this nature, joining Mexico, Venezuela, Colombia, Brazil, Argentina and Uruguay.

Many Caribbean countries have been pioneers in this space, establishing in 2007 a segregated portfolio company and forming the first multi-country risk pool in the world. This entity offers earthquake, tropical cyclone and excess rainfall policies to Caribbean and Central American governments.

This insurance is particularly appropriate for covering climate-related risks that affect agriculture, since many of the countries in the region are world agricultural powers, such as Brazil and Argentina. Other countries have specialised in certain products within agriculture, in which they are also leading producers. Here in Chile, for example, during the 2022–2023 season we produced US$2.3bn worth of cherries (the fourth largest producer in the world) in a small country of less than 20 million people.

Another risk covered by parametric solutions is that from earthquakes. This is significant for large swathes of the population, since the seismic activity in the region is very high due to the Pacific Plate (in South America) and the San Andreas Fault (in the case of northern Mexico).

By way of example, the Chilean National Seismological Center has recorded between 1995 and 2015 an average of one magnitude eight (Ms scale) earthquake every three years.

In the future this insurance could experience significant growth in the region, if the authorities were to appreciate that this coverage can be used as part of the protection net for the most vulnerable sectors of the population. Through subsidies or granting benefits to those who employ parametric solutions, it would be possible to remedy the damages caused by natural disasters in a quicker and less costly way, and limit ‘leakage’ due to corruption that is unfortunately common when aid is distributed in the aftermath of a natural disaster.

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