Brazil’s Agriculture Ministry has drafted a proposal for a new rural insurance model that would require farmers to purchase parametric insurance in order to access subsidized working capital and investment loans under the government’s Plano Safra (Crop Plan) credit program.
According to a presentation delivered to insurers in late 2025 and reviewed by Valor, the policy would carry a fixed premium rate of 4% for all crops nationwide. The new structure would require an annual budget of R$4.5 billion—four times the R$1.01 billion currently earmarked for 2026—with the government subsidizing 50% of premiums.
The proposal also provides for an optional supplementary layer of coverage, either through traditional or parametric policies, for producers facing higher production risks. Small family farmers cultivating up to 50 hectares would be exempt from the mandatory requirement and directed to the Proagro farm activity guarantee program.
Parametric insurance is based on predefined indices and can be tailored to individual policies, with triggers such as rainfall volumes during specific periods of the crop cycle in designated locations. These parameters rely on third-party data, typically collected via satellite or radar, and claims can be verified and paid remotely.
Under the proposal, mandatory parametric insurance would apply a fixed 4% premium rate on the insured amount, linked to the value of the loan. The government subsidy would cover 50% of the premium—more than double the 20% currently applied to soybean policies under the existing rural insurance premium subsidy program (PSR).
Based on 2024 subsidized rural credit disbursements, the ministry estimates that roughly R$4 billion would be required to cover 50% of premiums for the mandatory basic layer, with producers paying the remaining half.
The idea has been debated within the government for three years, but insurers and producers have complained that they were not consulted in advance. Only five companies currently offer parametric coverage in Brazil, while 20 insurers operate under the PSR.
The model would create two layers of protection. The mandatory basic layer would apply nationwide at a single fixed rate and cover two climate risks—drought and excessive rainfall—via parametric insurance. Coverage levels would vary according to rainfall thresholds, defined in millimeters based on property location.
The ministry argues the measure would help “universalize” insurance coverage and sufficiently protect financing in regions such as Mato Grosso, where farmers are less accustomed to buying insurance, concentrating risk in the South and driving up policy prices.
The second layer would be voluntary. Financial institutions could require additional coverage—traditional or parametric—as a condition for granting credit. “This layer is added to the basic coverage, expanding protection for financing and is more suitable for regions more exposed to extreme events, such as Rio Grande do Sul, southern Mato Grosso do Sul, and others,” the Agriculture Ministry presentation says.
Pricing and coverage conditions for the optional layer would follow market standards, supported by the PSR as is currently the case. Simulations indicate that including optional coverage could push the PSR’s annual budget to nearly R$10 billion.
Agriculture Minister Carlos Fávaro said the government is prepared to adopt a 50% premium subsidy and estimates annual demand at R$4.5 billion. He said the model would help reduce the fiscal burden of debt renegotiations and strengthen loan protection, though he did not confirm all proposal details.
“The government gains stability, credit flows again, and if adverse weather occurs the producer will not be left indebted and seeking renegotiation. The cost will already have been covered through insurance,” he said. “I support requiring insurance for working capital and for the annual investment installment.”
Fávaro said the goal is to universalize access to rural insurance. “What is mandatory is having insurance. The flexibility is that producers with lower risk windows can opt for parametric coverage, which will be cheaper,” he said, adding that the proposal does not eliminate Proagro or traditional insurance models.
Implementing the new framework would require two legislative changes: authorization to link credit and insurance sales, and protection of the insurance budget against cuts. “To have rural insurance in all regions, including those with lower climate risk, we need to allocate more resources so it becomes a benefit rather than a burden for producers,” Fávaro said. The measure will be introduced as a substitute bill to Senate Bill 2,951/2024, sponsored by Senator Tereza Cristina (PP-MS), currently under review in the lower house.
The government is still studying funding sources to reinforce the PSR budget, which stands at R$1.01 billion and is frequently subject to cuts. One option under consideration is reallocating part of Proagro’s R$6.6 billion budget this year.
Under that approach, Proagro—managed by the Brazilian Central Bank—would focus on small producers, freeing up resources for the broader rural insurance program. Extraordinary budget allocations currently used for debt renegotiations could also be redirected to the PSR, Fávaro said.
Source - https://valorinternational.globo.com
