In light of extreme weather events occurring in different regions of Brazil, the Special Committee on Disaster and Natural Calamity Prevention and Assistance met at the Chamber of Deputies in Brasília (DF) on April 17, 2024. On this occasion, Gesner Oliveira, researcher at the Fundação Getulio Vargas Institute of Innovation in Insurance and Reinsurance (FGV IISR), presented a strategy for municipalities to adapt and mitigate the consequences of climate catastrophes such as floods and droughts. The strategy considers the fundamental role of the insurance industry and will result in a manual to be launched in July.
The climate resilience manual for municipalities focuses on two main issues: floods and droughts. According to Gesner Oliveira, the effects of climate change on the population have been widely and systematically discussed, as there is an intuitive understanding that it is necessary to prevent the consequences of these events. However, the main question is how to do this.
“To deal with drought, for example, an effective prevention measure is water reuse, a practice widely adopted in other countries but still rare in Brazil. Only 1.5% of sewage effluent is treated for reuse, yet we have the capacity to increase this rate to at least 10%, enabling this water to be used for various types of irrigation and across different industries,” Oliveira highlighted.
Another example mentioned by the professor concerns floods. In this regard, he emphasizes the need to invest in adequate drainage infrastructure capable of absorbing water from heavy rainfall—something only two-thirds of Brazilian municipalities currently have.
“We need more linear parks with soil that can absorb water, as well as retention areas.”
The Role of the Insurance Industry in the Context of Climate Change
The researcher points out that these initiatives have been discussed on several occasions, but without a defined strategy for implementation. This is where the insurance and reinsurance industry comes in.
“When it comes to implementing these infrastructures, municipalities, states, or the federal government often lack funds. So, the big question is how to raise resources to implement these solutions,” Gesner stated. He believes it is necessary to encourage investors to engage in projects of this nature.
“Municipalities need insurance but often cannot afford the costs. By selling climate catastrophe insurance to a municipality or individual, insurers could securitize these contracts,” he explained.
Securitization transforms credit instruments, such as unpaid invoices or loan debts, into negotiable securities in the capital market. For Gesner, this would be a way to involve the private sector and philanthropists in strategies to mitigate damage caused by climate catastrophes.
“We combine strategies to securitize policies that protect municipalities from climate consequences with investments in projects that can reuse floodwater during severe droughts. In this scenario, risks decrease, and investors begin to see a municipality as resilient, increasing incentives to invest locally and, consequently, helping protect the region from extreme climate events.”
The resilience manual for cities facing extreme climate events originated from research on Insurance and Climate Change conducted in partnership with Franziska Arnold-Dwyer, a researcher at Queen Mary University of London (QMUL) and FGV IISR. The article based on this study will be published soon.
You can view Gesner Oliveira’s presentation to the Special Committee on Disaster and Natural Calamity Prevention and Assistance at the Chamber of Deputies by clicking here.