The Impact of Climate Change on Pricing Models for Insurance in Brazil: An Analysis

In recent decades, the impact of climate change has intensified globally, with extreme weather events like floods, droughts, and storms becoming more frequent and severe. In Brazil, these events have led to significant social and economic repercussions, notably affecting the insurance sector due to increased risks to property, agriculture, and vehicles. Many of these occurrences are now classified as catastrophic, despite Brazil's historical reputation as a non-catastrophic region. Traditionally, insurance pricing relies on statistical and probabilistic models to estimate the frequency and severity of potential losses. However, the rise in climate-related events poses challenges to these models, especially in Brazil, with limited historical data on such extreme occurrences. This article examines how the Brazilian insurance market is adapting its pricing strategies to account for these catastrophic events and explores how other countries, with more extensive historical data (though sometimes less applicable), are considering alternative pricing models that could also be suitable for Brazil’s evolving climate risks.