Beyond the floods: the economic case for adaptation and insurance in Brazil

Climate-induced disasters are an increasing threat for economies, societies and public finances. In this context, this report quantifies average annual fluvial flood losses for eight Brazilian cities under three climate scenarios covering 2025 to 2100. It highlights the economic case for adaptation, insurance and better financial planning for flooding, and by implication, other climate-related physical risks. The analysis is informed by stakeholder interviews with policymakers, international actors, the insurance sector and others.

Key findings

• Economic losses caused by fluvial flooding in Brazilian cities are large and growing, with major fiscal implications for municipalities, states and the federal government. The most exposed cities face average annual flood losses equivalent to 2–5% of city gross domestic product.
• The insurance protection gap is a direct source of fiscal instability: when losses are uninsured, they fall on public balance sheets.
• Investment in adaptation measures reduces the expected cost of disasters and increases resilience to them. Modelling shows that upgrading flood protection in the most exposed cities could reduce average annual losses by around 50–80%.
• Brazil’s insurance sector should play a greater role in managing climate-related risks, such as floods. Currently climate catastrophe cover is a relatively small and underdeveloped segment of the market and insurance penetration for climate-related hazards is limited.
• The risks from flooding disproportionately affect the most vulnerable communities in Brazil.

Core recommendations

• Create a Disaster Risk Financing Strategy for Brazil, to be led by the Ministry of Finance, complementing the new National Civil Protection and Defence Plan.
• Expand the Brazilian development bank’s (BNDES) toolkit for disaster risk financing and climate resilience.
• Increase the uptake of parametric insurance at state level and explore an inter-state risk pool.
• The Ministry of Finance should scale up adaptation investment, starting in the cities and communities most exposed to flooding.
• The Ministry of Finance should harness Brazil’s digital public infrastructure to strengthen adaptation and insurance markets.

DOI: 10.21953/researchonline.lse.ac.uk.00140697