Brazil has enacted a new legal framework for rural insurance that shields federal premium-subsidy funds from budget freezes, addressing one of the main obstacles to expanding agricultural insurance in the country.
The law, signed Wednesday by President Luiz Inácio Lula da Silva, also allows rural insurance policies to be used as part of the collateral package for farm loans, potentially giving insured borrowers access to better interest rates, maturities and credit limits.
Under the new law, federal spending earmarked in the budget to subsidize rural insurance premiums becomes mandatory and therefore cannot be withheld. The amount, however, is capped at the level proposed by the government in its annual budget bill sent to Congress.
Brazil had allocated 1.01 billion reais, or about $195 million, to rural insurance subsidies this year, but only about 150 million reais, or $29 million, had been committed by early September. The greater budget predictability is expected to strengthen the country’s federal rural insurance premium subsidy program, known as PSR.
Credit Integration
The law requires rural insurance to become part of the guarantees backing farm-credit transactions.
An insurance policy may, for example, assign insurance rights and indemnity payments to the lender under a fiduciary arrangement or designate the bank as the first beneficiary of a payout following a covered loss.
As a result, farm loans protected by rural insurance may qualify for differentiated terms, including interest rates, maturities and credit limits.
The legislation also sets deadlines for insurers to assess and settle claims. When an on-site inspection related to harvesting, cutting or release of the insured area is not required, claims must be assessed within 15 days of notification.
Payments must be made within 30 days after the required documentation is submitted or an inspection is carried out, when one is necessary.
Catastrophe Fund
Another provision establishes rules for Brazil’s Catastrophe Fund, designed to provide supplemental coverage for rural insurance risks. The fund was created in 2010 but has yet to become operational.
Bruno Lucchi, technical director at CNA, Brazil’s national agriculture and livestock confederation, said in a statement that the fund would provide a financial buffer for insurers operating in areas exposed to a high concentration of extreme weather events.
Lula vetoed two provisions of the legislation. According to CNA, one would have created an alternative funding source for the Catastrophe Fund through insurance-linked securities, while the other would have granted a tax exemption for rural insurance.
CNA had supported the tax exemption as a way to reduce insurance costs for farmers and plans to discuss with the FPA, Brazil’s congressional agriculture caucus, whether lawmakers should override the veto, Lucchi said.
Implementation of the law will still require presidential decrees, resolutions from Brazil’s National Monetary Council, known as CMN, and the creation of the Catastrophe Fund’s bylaws.
This story was translated from the original Portuguese with the assistance of artificial intelligence and reviewed by The AgriBiz editorial staff.
