Parametric insurance is growing in Brazil, but requires a solid database to be more effective, highlights a study by FGV Agro.

Given the significant climate changes and natural disasters recorded worldwide in recent years, parametric insurance, or index insurance, offers a complementary alternative to traditional insurance models. It triggers claims based on indicators such as temperature, rainfall, or average productivity, without the need for field inspections, resulting in greater predictability and operational agility. However, its effectiveness depends on reliable data and institutional capacity. Even so, globally, the agricultural parametric insurance market has shown robust growth, valued at US$5.9 billion in 2023, and this number is expected to almost double (US$11.3 billion) in 2033. The data comes from the study “Parametric Insurance in Brazil – Opportunities, Limits and Challenges”, prepared by the Rural Credit and Insurance Observatory of FGV Agro (Agribusiness Center of the Getulio Vargas Foundation). In Brazil, this type of insurance is also growing, but at a much lower rate, increasing from four contracts, totaling 186.5 hectares and R$470,000 in 2021, to 171 policies and 5,579 hectares, totaling R$21.6 million in insured in 2024. Last year, from January to April alone, there were 63 parametric policies, 5,200 hectares and R$10.8 million. However, according to the authors of the FGV Agro study, Vitor Ozaki and Daniel Miqueluti, building an effective parametric insurance policy requires rigor in statistical modeling and pricing. “The biggest challenge with parametric insurance is the possibility that the index may not adequately reflect the actual loss experienced by the individual insured. It is possible that the farmer may suffer substantial losses without the index reaching the trigger, or vice versa. The understanding of this insurance, which is more abstract than agricultural insurance, can also be a barrier to greater adoption, especially for small producers.” The study also highlights the inefficiency of current data on climate and agricultural production in Brazil. For parametric insurance, a robust base of real-time historical meteorological data is necessary.

This text was translated by machine from Brazilian Portuguese.