Climate disasters increase, and rural insurance does not accompany crises – 06/04/2023 – Vaivém

The lack of climate predictability and the increased frequency of extreme events result in significant economic losses for producers. The agricultural sector is increasingly exposed to natural effects, and climate change exacerbates production risks.

According to Conab (National Supply Company), in 2021 the country’s corn production was 20 million tons below the initial potential, due to climate effects, mainly frost. The following year, it was the turn of soybeans, which had a similar drop in production, also caused by climate effects.

This new climate reality and the transition to low-carbon production require the adjustment and improvement of policies for the sector. Appropriate financing instruments are needed to make investments viable in view of the risks involved.

Faced with this situation, researchers from the CPI (Climate Policy Initiative), affiliated with PUC in Rio, evaluated the importance of rural insurance in Brazil and the need to improve this instrument for the sector.

In the 2021/22 harvest, indemnities were twice the amount collected, according to data from Susep (Superintendence of Private Insurance). Indemnities totaled R$11.4 billion, and the value of the premium, R$5.1 billion. In 2022, insurers and reinsurers spent more on compensation than they earned from premiums collected.

As a result, the cost of insurance increases and supply decreases, further reducing access for producers who cannot afford high costs.

The CPI researchers based their study on soybeans, the main crop in Brazil and a product that has been spreading throughout all regions of the country.

For this year, Conab estimates indicate production of 151 million tons of oilseeds and exports of 92 million. Brazil leads the world production and export.

Producers and insurers must be prepared to adapt to the effects of global warming, warn researchers. The effect is gradual, but the variations are already felt. In 2022, the total value of rural insurance compensation was R$ 8.8 billion, more than collected in premiums.

To identify the current scenario, the researchers investigated the most relevant climate variables, identified the regions with the greatest exposure to risk and assessed the distribution of insurance across the country.

Insurance is restricted and heavily concentrated in the South and Midwest regions. Soy advances, however, through the region called Matopiba (Mato Grosso, Tocantins, Piauí and Bahia), but insurance does not follow.

In 2010, the Matopiba region was responsible for 10% of soybean production. A decade later, that share rose to 14%. In that same period, the number of municipalities that produced soybeans in the country rose from 1,800 to 2,388. But in 2018, around 1,000 municipalities did not have soy insurance.

Brazilian production of grains is poorly insured, and there is a concentration in some crops. Soy stands out with 30% of policies and more than half of the premiums paid in 2018, according to Susep.

According to the study, the South region concentrates 60% of policies aimed at soy and 43% of the premium value, in addition to 37% of the production value between 2006 and 2018.

In order to understand the effects of climate in recent years, the researchers raised the most relevant facts to explain the losses in agricultural production based on data from 2006 to 2018 from Susep.

The model selects the variables in the most important months to explain losses, indicates the number of policies with claims and the value of indemnities.

In the South region, for example, the model selected climate variables in the second half, which coincides with the planting of soybeans. In the Midwest, the peak of the variables occurs in the first semester, due to the harvest.

The study points out that, given the new climate reality, it is essential that insurers adopt more elaborate models in expanding insurance coverage for which the history of claims is restricted.

Among the researchers’ recommendations for improving public policies is that of acting on multiple fronts. The articulation must be between the public power and the private sector.

For Priscila Souza, senior research manager at the CPI and study coordinator, the government should encourage the expansion of rural insurance, investing in the PSR (Rural Insurance Premium Subsidy Program), reducing the cost of purchasing policies, improving the Zarc (Climate Risk Agricultural Zoning) and strengthening the reinsurance market in Brazil.

In a higher risk scenario, reinsurers become increasingly important, she adds. In addition to Priscila, Mariana Stussi and Wagner Oliveira participated in the study.

The implementation of public policies for the expansion of rural insurance is important not only for the protection of producers and for the development of the sector, but also for the evolution of sustainable agriculture and for the reduction of greenhouse gases, according to the researchers.