In 2024, global economic losses from natural catastrophes were estimated at USD417 billion, of which USD154 billion was insured, implying a gap in insurance protection of 63%. These losses came in at 15% and 27% above the ten-year average economic and insured loss, respectively.
In Brazil, we observe a similar step change in the insured loss trend from natural catastrophes. Adjusting to 2024 values, average insured losses for the 20-year period 2000-2019 are USD175 million, while for the five-year period 2020-2024, the average is USD908 million, a fivefold increase — attributable mainly to severe droughts and floods in recent years.
A significant protection gap is also observed in Brazil. In Rio Grande do Sul alone, recent catastrophic flooding resulted in estimated economic losses of USD15 billion, of which a mere USD1.5 billion was insured by the private insurance market, implying a 90% protection gap. This low level of insurance penetration in Brazil means that when disaster strikes, countless businesses bear the disruptive costs of reconstruction without the support of their insurers. There is also a social burden with exacerbated impacts on poorer communities where those living in informal settlements like favelas can remain trapped in poverty.
The devastation wrought by natural disasters, exacerbated by a growing protection gap, slows economic recovery. As climate change alters the frequency and severity of natural catastrophes, and exposures increase further with rapid urbanization and coastal migration, the cost and strain on infrastructure also increase, posing greater threats to communities.
In this article, we explore the emergence of catastrophe risk in Brazil, and given the emerging state of cat modeling in the Brazilian market (relative to what we see globally), we offer practical approaches to improve catastrophe risk management practices today.