As Brazil’s insurance companies deal with the fallout of rainfalls that have caused flooding, mudslides, death and destruction, the fact that poor, underinsured areas look to be hardest hit drives home the need for microinsurance, Moody’s analyst Rodolfo Nobrega told BNamericas.

“It’s too early to know the extent of the damage, but our guess is that it won’t be very hard on the market overall,” he said. Henrique Brando, the head of Rio de Janeiro broker association Sincor-RJ, has put insured loss estimates at about 60mn reais (US$33.8mn).

Death tolls look to exceed 180 from the rains that have battered the state of Rio de Janeiro since April 5, effectively shutting down the country’s second largest city at points. Brando said he expected 8,000 vehicle claims, with as many as 1,500 totaled vehicles.

However, the problem of underinsurance among the worst damaged areas has already begun to emerge, Nobrega said.

“This is a very unfortunate side of the lack of microinsurance and low penetration of insurance generally,” the analyst said, noting that Chile, for example, and developed nations generally have better mechanisms to deal with natural disasters. “The ones who were most affected would likely be main clients here for microinsurance,” he added.

The Brazilian government has been working on rolling out microinsurance regulation for several years and has announced plans to introduce a legislative framework sometime this year.

COMPANY RESPONSES

Nobrega said that while the overall effect may be low, analysts will have to look on a company-by-company basis to judge risks.

Of companies writing more than 1bn reais in auto premiums per year, SulAmrica is likely to be among the hardest hit, with 351mn reais in premiums in Rio de Janeiro state in the 12 months to end-January of its 1.66bn reais in total auto-related premiums.

All of the other auto insurance companies of a similar size have less than 10% of their national premiums from Rio de Janeiro, according to regulator Susep data.

Generali Seguros Brasil, however, with 259mn reais in auto premiums from February 2009 to January 2010 had 40.1% of its premiums in Rio de Janeiro and just 19.6% in So Paulo state.

SulAmrica has announced 24-hour assistance, increased claims adjuster presence and an employee-based donation program. Bradesco (NYSE: BBD) and Porto Seguro announced similar measures, as well.

GOVERNMENT TO BLAME?

Sincor-RJ in a press release called attention to consumer defense group Ibedec, which has made the case that insurers may have a right to pursue the government for poor infrastructure.

Many vehicles were destroyed or damaged by problems in the public right-of-way, which may be a result of under-investment in and poor maintenance of local infrastructure, Sincor-RJ quoted Jos Geraldo Tardin as saying. However, the burden of proof will be on insurers to show that this was the root cause of the problem.

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