REVEALING INCENTIVES IMPLICATIONS OF THE DESIGN OF PUBLIC RURAL INSURANCE POLICIES IN BRAZIL

The report compares the Agricultural Activity Guarantee Program (PROAGRO) and the Rural Insurance Premium Subsidy Program (PSR) in Brazil. It finds that PROAGRO's design, where the government bears the risk while financial institutions operate the program, leads to severe information asymmetries, moral hazard, and higher claim rates. In contrast, the PSR, where insurers bear the risk, provides stronger incentives for monitoring and selection, resulting in lower claim rates and a more sustainable financial balance. The authors recommend migrating resources from PROAGRO to the PSR, improving the training of claims adjusters, and incorporating parametric insurance and sustainable management criteria into policy design.

• The PSR has experienced significant growth in both policy volume and insured value, while PROAGRO has seen a decline in the number of contracts. Between 2013 and 2021, PSR policies increased from 102,600 to 213,800 and insured value rose from R$ 22 billion to R$ 67 billion, whereas PROAGRO contracts fell from 466,900 to 284,300.
• PROAGRO suffers from more severe information asymmetry and incentive problems because the federal government bears the risks, reducing the motivation for financial institutions to monitor producers and for producers to avoid losses. Conversely, under the PSR, insurers bear the risk, which incentivizes them to select lower-risk producers and monitor activities.
• Distortions in incentives have led to a higher volume and value of claims in PROAGRO compared to the PSR. Between 2019 and 2021, claims were granted for over 28% of PROAGRO policies versus 19% for the PSR. In terms of value, paid-out claims accounted for 22% and 18% of insured values under PROAGRO MAIS and PROAGRO TRADICIONAL, respectively, compared to only 5.4% under the PSR.
• PROAGRO's financial sustainability has deteriorated as the demand for National Treasury resources for compensations has grown much faster than premium revenues. Spending on compensations increased four-fold from R$ 1.3 billion in 2017 to R$ 5.8 billion in 2021.
• Both programs are highly concentrated in a few crops, with soybean, corn, and wheat accounting for approximately 80% of the insured value in both. Soybean is the most dominant, representing 57% of the PSR's insured value and 34% of PROAGRO's.
• The PSR faces challenges in reaching small producers, a group primarily served by PROAGRO. While a 2020 pilot project for PRONAF operations showed the PSR could serve small producers, the program's presence remains weak in the North and Northeast regions, where it accounted for less than 3% of total subsidized policies in 2021.

APA

SOUZA, P., PEREIRA, L., & STUSSI, M. (2022). REVEALING INCENTIVES IMPLICATIONS OF THE DESIGN OF PUBLIC RURAL INSURANCE POLICIES IN BRAZIL. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2022/07/Revealing-Incentives.pdf

Chicago

SOUZA, PRISCILA, LEILA PEREIRA, and MARIANA STUSSI. REVEALING INCENTIVES IMPLICATIONS OF THE DESIGN OF PUBLIC RURAL INSURANCE POLICIES IN BRAZIL. Climate Policy Initiative, 2022. https://www.climatepolicyinitiative.org/wp-content/uploads/2022/07/Revealing-Incentives.pdf.

Wikipedia

{{cite report |last1=SOUZA |first1=PRISCILA |last2=PEREIRA |first2=LEILA |last3=STUSSI |first3=MARIANA |title=REVEALING INCENTIVES IMPLICATIONS OF THE DESIGN OF PUBLIC RURAL INSURANCE POLICIES IN BRAZIL |publisher=Climate Policy Initiative |date=July 2022 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2022/07/Revealing-Incentives.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{souza2022revealing, author = {SOUZA, PRISCILA and PEREIRA, LEILA and STUSSI, MARIANA}, title = {{REVEALING INCENTIVES IMPLICATIONS OF THE DESIGN OF PUBLIC RURAL INSURANCE POLICIES IN BRAZIL}}, institution = {Climate Policy Initiative}, year = {2022}, month = jul, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2022/07/Revealing-Incentives.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }