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

This policy brief analyzes two public rural insurance programs in Brazil: the Agricultural Activity Guarantee Program (PROAGRO) and the Rural Insurance Premium Subsidy Program (PSR). The authors find that PROAGRO's design, where the government bears the risk while financial institutions operate the program, creates severe information asymmetries and moral hazard, leading to higher claim rates and increasing costs for the National Treasury. In contrast, the PSR, where private insurers bear the risk, shows greater efficiency and growth, though it struggles to reach small producers. The report recommends migrating resources from PROAGRO to the PSR, improving the training of claims adjusters, and adopting parametric insurance to reduce fraud and monitoring costs.

• The Rural Insurance Premium Subsidy Program (PSR) has experienced significant growth in both policy volume and insured value, while the Agricultural Activity Guarantee Program (PROAGRO) has seen a decline in the number of contracts. Between 2013 and 2021, PSR policies increased from 102,600 to 213,800, with insured values rising from R$ 22 billion to R$ 67 billion. During the same period, PROAGRO contracts fell from 466,900 to 284,300, although its insured value remained stable at approximately R$ 17 billion.
• PROAGRO suffers from more severe information asymmetry and incentive problems than the PSR because the central government bears the risks while financial institutions manage the program. This structure reduces the incentive for financial institutions to monitor producers and for producers to avoid losses. Consequently, PROAGRO has higher claim rates; between 2019 and 2021, claims were granted for over 28% of PROAGRO policies compared to 19% for the PSR.
• The financial burden of PROAGRO on the National Treasury has increased sharply due to a mismatch between premium revenues and compensation payments. Between 2017 and 2021, spending on compensations under PROAGRO grew four-fold, increasing from R$ 1.3 billion to R$ 5.8 billion. In contrast, the PSR's revenue has grown as policy volume increased faster than government subsidies, with the ratio of total subsidy on the premium paid by producers dropping from 0.74 in 2017 to 0.38 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 insured value in the PSR and 34% in PROAGRO.
• The PSR faces challenges in providing coverage for small producers, a demographic primarily served by PROAGRO. While a 2020 pilot project for operations under the National Family Farming Strengthening Program (PRONAF) demonstrated that the PSR can serve small producers, the program remains more concentrated in the Central-West region, whereas PROAGRO has a stronger presence in the Northeast.
• The report suggests that parametric insurance—which uses pre-established index values (such as rainfall) rather than on-site assessments—could reduce information asymmetry and monitoring costs. This model reduces the need for direct interaction between beneficiaries and claims adjusters, thereby mitigating incentives for fraud or irregular approval of payments.

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} }