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.