Brazil has seen a significant shift in insured losses from natural catastrophes, with Gallagher Re reporting a sharp increase in recent years.
Adjusted to 2024 values, the average insured loss in Brazil for the period from 2000 to 2019 was US$175 million. For the five-year period from 2020 to 2024, that average rose to US$908 million, a fivefold increase attributed mainly to severe droughts and floods.
A pronounced protection gap persists in Brazil, particularly highlighted by recent catastrophic flooding in Rio Grande do Sul. Economic losses from the event were estimated at US$15 billion, but only US$1.5 billion was insured by the private market, resulting in a 90% protection gap.
Gallagher Re notes that low insurance penetration leaves many businesses to manage reconstruction costs without insurer support, while the social impact is especially acute for lower-income communities in informal settlements.
AM Best has maintained a negative outlook for Brazil’s reinsurance sector in 2024, citing ongoing political uncertainty, tax reform, and regulatory restrictions on foreign assets as key challenges. While the sector saw growth in property, special risks, aeronautics, and financial risk lines, agricultural reinsurance declined by 47%.
The growing protection gap, combined with the devastation of natural disasters, slows economic recovery and places additional strain on infrastructure. Gallagher Re observes that climate change, rapid urbanization, and coastal migration are altering the frequency and severity of catastrophes, raising costs and risks for communities.
Globally, the insurance protection gap for natural catastrophes reached 60% in 2024, according to WTW’s Natural Catastrophe Review. The year also marked the first time average global temperatures surpassed 1.5°C above pre-industrial levels.
Total economic damages from natural catastrophes exceeded US$350 billion, underscoring the lack of resilience to climate-related risks and the growing need for innovative insurance solutions.
Gallagher Re attributes the increasing trend in Brazilian catastrophe losses to exposure growth, infrastructure challenges, and climate change. Underinsurance is also contributing to rising inequality, as those without coverage are more exposed to financial shocks. The insurance industry is examining ways to improve financial education and expand access to insurance products.
Efforts to address the protection gap include new projects from Brazil’s National Confederation of Insurers (CNseg), which are aligned with the United Nations’ Sustainable Development Goals.
These initiatives focus on expanding coverage and strengthening financial protection, including risk-reduction programs tied to climate adaptation, such as investments in flood defenses and nature-based solutions.
Parametric insurance has gained traction in Brazil, offering non-indemnity protection with faster payouts. One example is a rainfall parametric solution in Brazil’s Northeast, which provides income protection for cocoa farmers in Bahia during critical crop periods.
Gallagher Re points to similar parametric and microinsurance initiatives in Latin America, such as Colombia’s MiCRO and Brazil’s PASI, which have improved financial resilience for low-income populations and small entrepreneurs.
These developments illustrate the insurance sector’s potential to support innovation and resilience, while also expanding the private insurance market. Gallagher Re notes that with industry expertise, capital, and technology, insurers can play a central role in building a more equitable and sustainable future.
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