The insurance market, which has historically been somewhat insulated from natural catastrophe risks in Brazil, is now facing unprecedented exposure and must adapt to the new reality.
In late April and May of this year, Southern Brazil experienced its worst flood in 80 years, marking what has been reported to be the most devastating environmental disaster in the history of Rio Grande do Sul. The relentless rains, which began at the end of April and continued for over a month and a half, wreaked havoc on the region. By early July, the floods had claimed at least 180 lives, with more than 30 people still missing, and had affected 1.5 million residents in Rio Grande do Sul.1
A blow to the economy
The impact on agriculture, a cornerstone of Brazil's economy, has been particularly acute. As the world's largest producer and exporter of soybeans, Brazil's agricultural sector is critical to both the national and global food supply. Fortunately, much of the soybean harvest had been completed before the storms hit, sparing this crucial crop from significant damage. However, the same cannot be said for rice production. Rio Grande do Sul, which supplies 60% of the country's rice, saw a large portion of its production devastated by the floods.2 This disruption is likely to drive up rice prices, adding pressure to the already volatile inflation rates.
Rio Grande do Sul’s agribusiness represents 12.6% of the national agricultural GDP, making the setbacks from these floods a national concern.3 The recent flooding is merely the latest in a series of extreme weather events that have plagued the region since 2020. In 2023 alone, an extraordinary cyclone triggered intense rainstorms, while 2022 witnessed the worst drought in the state's history. La Niña influenced the severe droughts from 2020 to 2023, whereas the arrival of El Niño last year led to three separate floods in June, September, and November. Although a drier period is anticipated, flooding could return as early as Q1 2025.4
Insurance market under pressure
As the frequency and severity of these extreme weather events increase, the insurance market in Southern Brazil is facing significant challenges. While rural insurance and agricultural risk management tools were sparse and difficult to source in the past, the rising costs of rural insurance premiums, which jumped from BRL88.2 million in 2006 to BRL2 billion in 2018, underscore the market’s significant growth.5
Rio Grande do Sul is among the Brazilian states with the highest demand for rural insurance. Insurers are now considering reevaluating insurance premiums to reflect the heightened risks. This may involve revising coverage restrictions, potentially excluding certain risks or adjusting deductibles to manage their exposure to weather-related claims.6 The persistent storms are also driving up demand for insurance in the region, with this year's floods marking one of the largest compensation events in the history of the Brazilian insurance market.7
With extreme weather becoming more common, insurers are urging public authorities to implement more robust planning measures to mitigate future damages. This includes developing structured disaster prevention and alert systems and enhancing infrastructure resilience with anti-flood measures such as elevating road embankments.
Government support
Proagro, a federal government insurance programme that suspends financial obligations in the event of extreme weather, has seen a surge in awareness and demand. In 2013, many farmers in the region were unaware of this protection. Today, the authorities are overwhelmed by the number of requests and inspections needed to process insurance claims. To qualify for Proagro, producers must adhere to the Agricultural Zoning for Climate Risk guidelines.8
In February, Bloomberg reported that the government had awarded subsidised insurance to farmers involved in the deforestation of protected areas, engaging in slavery-like labour practices, and planting on Indigenous lands.9 In response, the government tightened the rules of the Proagro programme in April, aiming to save nearly USD 597 million by 2025.10
Future Outlook
The escalating impact of climate change on Brazil's agricultural sector and the corresponding strain on the insurance market highlights the urgent need for comprehensive strategies to address these challenges. As extreme weather events become more frequent and severe, the interplay between agriculture, insurance, and climate resilience will be crucial in shaping the future of Brazil's economy and ensuring the stability and security of its food supply.
The increasing risk of extreme weather events is becoming a reality for the agriculture sector in Brazil. Therefore, risk mitigation is essential to soften the impact. Equally important is working with a global insurance broker like Gallagher. We can help clients source the most competitive and comprehensive insurance solutions, even in the most challenging circumstances.