Multidimensional indicators of sustainability of crop insurance under increased climate-stress

Climate change poses a major challenge to the insurance industry, highlighting the need for sustainable crop insurance programs to protect food production in developing countries amid increasing climate risks. Insurance plays a key role in advancing SDGs 1 (no poverty), 2 (zero hunger), and 13 (climate action). However, the short- and long-term impacts of climate-driven extreme weather events remain insufficiently understood. This study maps major climate threats to crop production in Brazil and examines the influence of extreme weather on price adjustments and insurance uptake. The research used a database of the Brazilian Program of Subsidies for Rural Insurance Premium (PSA) with 1.5 million policies and claims from 2006 to 2023 and meteorological daily data from the Brazilian Daily Weather Gridded Data (BR-DWGD) from 1991 to 2024, both aggregated at municipality level. Four perennials and non-perennials crops were observed as the most insured: soybeans (47%), maize second cycle (13.5%), wheat (8.7%), and grapes (8.9%). Moreover, the most critical hazards were droughts (43.1%), hail (34.4%), frost (10.3%), excessive rainfall (8.2%), floods (1.3%), cold winds (1.0%), and temperature variation (0.3%). In 2021, claim payments reached a historic high, totaling nearly 12 billion BRL, which was unprecedented when compared with the baseline annual values ranging from 0.043 to 2 billion BRL. Two critical periods significantly impacted crop production in 2021. The first occurred between March and April (Austral fall), with severe droughts and frost events affecting maize second cycle in southern and central-western states and wheat in the south. The second critical moment was between August and October (end of Austral spring and beginning of Austral summer), in which major droughts affected soybean production in the states of south, southeast, central west and northeast. The impact on only three crops explain the expressive increase in claim payments. From 2019 to 2023, soybean prices revealed significant evidence of weather shock impacts, as a major driver of premium rates increase. Rates increased by 38%, growing from 344.33 BRL/ha in 2021 to 562.12 BRL/ha in 2022. The insurance uptake increased 11% in 2022, growing from 188,179 to 212,839 policies and had a dramatic decrease of 72% in the following year. The analysis of insurance and weather data highlights significant impacts of increased climate-related stress on Brazil's insurance industry. Initially, unprecedented extreme events tend to drive an increase in insurance uptake. In response, insurance companies often raise premium rates to maintain a balanced ratio between revenue and payouts. However, this adjustment can lead to a subsequent decline in insurance uptake. Climate shocks may have prolonged effects on insurance, potentially undermining the financial sustainability of farmers and their capacity to recover from economic losses. Thus, these dynamics underscore the need for adaptive strategies to ensure resilience in both the insurance sector and agricultural systems.