🙅 Uninsurable

Happy Friday! Today, how the Rio Grande do Sul floods are affecting the insurance industry. Meta under fire. And the impacts of the recent rout of the Brazilian real.

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Climate change hits Brazil’s insurance industry

Beyond the human toll, the recent floods in Rio Grande do Sul are expected to affect inflation. Brazil’s southernmost state is home to the country’s fourth-largest economy, and is the country’s main rice producer and a key manufacturing hub. But the floods are also affecting car insurance premiums across the country.

By the numbers. According to CNSeg, an organization representing insurers, over 48,000 claims for compensation were registered between April 28 and June 18 due to damages caused by the floods. They reach almost BRL 3.9 billion (USD 715 million). Companies expect even more claims, as the state continues to be on alert for further floods.

• Car insurance claims alone account for BRL 1.27 billion in compensation.

Impact. A survey by the news website Uol shows that contract renewals can be up to 15 percent more expensive — and new contracts can get up to 40 percent higher. Additionally, customers living in areas prone to flooding are being refused insurance.

• To avoid bad optics, insurers are raising prices across the country in order to dilute the impact of the Rio Grande do Sul tragedy.

 Why it matters. The threat of climate change-related disasters is a major factor that is driving up consumer costs. Brazil is highly exposed to extreme weather events, with punishing droughts and floods becoming increasingly common.

Change in the industry. The main insurers in the country are already creating committees to deal with crises related to climate issues, and developing methodologies to assess risks. Revenue from corporate insurance rose by almost 20 percent between January and October last year, as companies try to prepare for climate-related events. 

• But losses ate up half of the BRL 3.2 billion raised from the segment.

Meta under fire from Brazil data protection watchdog

Brazil’s Data Protection Agency (ANPD) revealed plans to question Meta for failing to inform Brazilian users that their posts on Instagram and Facebook would be used to train artificial intelligence software.

Context. Last week, Meta announced a halt on its plan to use data from users in the European Union and the United Kingdom to train its AI systems. The decision came after pushback from the Irish Data Protection Commission (DPC). Consequently, the company also delayed the launch of its Meta AI digital assistant in Europe.

• On May 22, Meta’s Brazilian blog announced that it “may use information that people have shared publicly about Meta products and services for some of our generative AI features,” including “public posts or photos and their captions.” 

• Users can opt out of this data mining. However, European privacy activists successfully argued that users should be asked for explicit consent before their personal data is processed rather than merely being given the option to refuse.

 Why it matters. According to consultancy DataReportal, Brazil has the world’s third-largest number of Instagram users (137.2 million) and the fourth-largest number of Facebook users (112.6 million).

What they are saying. The ANPD emphasized to the fact-checking agency Aos Fatos that a “clear warning to users is essential so that they can choose freely and informedly what to do. There is no transparency when there are surprises.” Currently, Brazilian users must navigate several clicks and complete a form in order to opt out of Meta’s AI data mining.

Do as they please. In 2023, The Brazilian Report revealed in an exclusive story that Google’s lawyers argued to Brazilian authorities that the company does not need express consent from users to collect geolocation data, citing other legal grounds for doing so.

Regulations. A bill on the regulation of AI, currently discussed in the Senate, proposes that copyrighted material would not be protected if used to feed non-commercial AI models. 

Currency woes continue

The Brazilian real continued its rout on Thursday, with investors reacting poorly to President Luiz Inácio Lula da Silva’s continuous bashing of the Central Bank — which on Wednesday kept the country’s benchmark interest rates unchanged at 10.5 percent. The bank also hinted at a prolonged period of high rates.

• One U.S. dollar can buy BRL 5.462, the most since the first days of the Lula administration, which took office on January 1, 2023.

Context. Lula and his allies have blamed high borrowing costs for any and all of the government’s economic shortcomings so far. The president has said, on multiple occasions, that central banker Roberto Campos Neto is working “against Brazil” and that he has a political agenda to benefit potential right-wing challengers.

Yes, but … Lula’s defense of low interest rates despite inflationary concerns worries investors about the future of Brazil’s monetary policy. At the turn of the year, Lula will be able to appoint Mr. Campos Neto’s replacement — and the markets fear his choice will prefer to cut rates to jolt the economy at all costs, even if that means higher prices.

• Investors remember Alexandre Tombini, who headed the Central Bank during the Dilma Rousseff administration. Under his leadership, the bank cut interest rates in August 2011 even though consumer prices had gone up by 7 percent in the 12 months prior, and were still rising.

 Why it matters. Currency rates affect inflation, as inputs for several sectors of the economy are rated in dollars. 

Pass-through. The exchange rate pass-through effect on domestic prices is more acute in sectors such as automobiles, food, pharmaceutical, oil refining, wholesale, and retail trade — according to a 2023 study by researchers from the Federal Universities of Rio Grande do Norte and Bahia. The study analyzed price behaviors between 1995 and 2019. 

Quick catch-up

President Lula will today sign a decree with new rules for energy concessions, including a provision that allows the unilateral termination of contracts in case of grave supply faults — such as the recent outages that have plagued the city of São Paulo.

Carrefour opened the first Atacadão store in Europe in the French city of Aulnay-sous-Bois. After being acquired in 2007, the supermarket chain grew to account for two-thirds of Carrefour’s revenue in Brazil, thanks to its model of incorporating the buy-in-bulk advantages of a cash-and-carry for traditional supermarket customers.

• Carrefour bets the model will please French customers rattled by rising food inflation, despite Atacadão’s model being diametrically opposed to that of traditional French retail.

 President Lula said he would only engage in municipal election races that don’t represent a risk of upsetting his congressional allies. Brazilians will in October pick new mayors and city councilors — elections that are important for parties to have campaigning networks set up for the general elections in 2026.

The government of São Paulo is expected to present today the initial prospectus of the share offering that will effectively transfer sanitation company Sabesp to private control.

A Datafolha poll shows that two-thirds of Brazilians oppose the strict abortion law proposed by conservatives in Congress, equating pregnancy interruptions after the 22nd week to murder. Protests staged last weekend forced the House to put the bill on the back burner.

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