Brazil's corporate insurers grapple with new freedoms
Nearly one year into the historic overhaul of the South American country's regulatory framework, insurers are still working out how to fit new wordings and covers into their treaty reinsurance contracts
Once a byword for protectionism and rigidity, Brazil has triggered a process that aims to turn the country into one of the world’s freest and most open insurance markets.
A flurry of decisions by the insurance regulators in the past couple of years have set the scene for disruptive companies to introduce new technologies that challenge the incumbents that dominate both the corporate and mass insurance sectors.
A sandbox to nurture the emergence of digitally driven underwriters has been implemented, benefiting around three dozen new carriers. A pioneering Open Insurance project is under way, raising hopes that carriers and brokers will be able to freely access data from insurance buyers to fine-tune their commercial strategies.
Regulators have also created specific rules that establish a clear separation between retail and large risks insurance markets, giving corporate insurers freedom to introduce new wordings and design tailored covers for buyers.
“The new rules reduce red tape to offer insurance products in Brazil. It is a very important, even historic moment for the market,” Eduardo Figueiredo, head of corporate risk and broking, Brazil at WTW in São Paulo, says.
‘In the next few years, all these factors are going to bring huge opportunities for any companies that wants to bring capacity and know-how to the Brazilian market’
João Marcelo Santos
Market players say the promulgation in March of Resolution 407 by the National Council of Private Insurance (CNSP), Brazil’s highest insurance regulatory body, is tantamount to a revolution in the country’s corporate insurance market.
Before it was passed, the law demanded every insurance cover sold in Brazil was previously approved by Susep, the insurance supervisor. This requirement was justified by the authorities as a measure to protect buyers, as regulators would make sure terms and conditions were reasonable and adequate to the risks they covered.
Even though the argument may have made sense in terms of the mass insurance market, especially considering the very low levels of insurance literacy among the Brazilian population, it was hardly justifiable when it came to corporate buyers, as Brazil hosts one of the most sophisticated business communities in the emerging world.
For an insurer to sell a bespoke cover to a corporate client, it had to go through a lengthy approval process that, according to lawyers, would often take more than a year to be completed.
The new resolution has changed all that by establishing that, in large risks, insurance policies are all about the negotiation between underwriters and buyers. If the buyer agrees with the conditions offered by the insurer, there is no need for Susep to be involved.
A “large risk” is defined as one that requires more than Real15m ($2.8m) of capacity or which is offered to an insurer by a company with annual turnover of more than Real57m. Risks in segments like oil and gas, global banking, aerospace, maritime, nuclear energy and imports and exports, among others, are automatically qualified as large risks.
It may sound pretty obvious for insurance professionals in most markets, but this new rule constitutes a seismic change in Brazil, where state interventionism has for a long time been a hallmark of the industry.
Until 2007, Brazil enforced a reinsurance monopoly held by IRB, a state-owned company. IRB would take all risks ceded by Brazilian insurers and transfer them to global markets via retrocession contracts. When Susep gained more autonomy, it did not flinch when someone decided official action was needed.
“In the past, Susep would even set the value of brokers’ fees,” João Marcelo Santos, a partner at the Santos Bevilacqua law office in São Paulo, says. “And people used to say Brazil’s best actuary was the one who knew IRB’s head actuary.”
Freedom for negotiation is not the only novelty introduced by Resolution 407. Breaking with an old practice by Susep of classifying insurance covers, once properly pre-approved, into well-defined segments of products that could not be mixed, the new rules allow insurers to bundle different kinds of coverages into a single package.
Previously, only companies in sectors like oil and gas, banking, and airports were allowed to purchase packaged coverages.
It has also removed a rule according to which, once an insurer was offered a risk, if it did not make a decision within 15 days, the risk was deemed as automatically accepted. Now the negotiation between the parties can take as long as necessary to find an agreement. The only regulatory constraint is it must comply with the insurance-related clauses of Brazil’s Civil Code.
Rules for mass market insurance wordings have also been made more flexible, although not as much as for large risks. Marcia Cicarelli, a partner at the Demarest law office in São Paulo, believes the changes were well overdue.
“Before [last] year, there was no regulatory differentiation between mass market and large risks insurance products in Brazil. It was important to bring into the regulatory framework something the market already did in practice,” she says.
The expectation is with more freedom to design their wordings, underwriters will be able not only to offer tailored covers to large clients, but also to introduce new products. That goes especially for covers that are highly customisable and, previously, would have had to go through Susep’s byzantine approval process.
For instance, WTW is launching a reputation insurance product in Brazil. New cyber covers could also reach the marketplace soon.
“It is now possible for companies like Willis to bring experiences we have abroad and adapt them to the Brazilian market,” Figueiredo says.
However, nearly one year into the new era, no tsunami of new covers – or even a slow tide – has materialised yet. Figueiredo says the delay is to be expected as companies need some time to adapt their internal procedures to the new rules.
“There are some organisational aspects within insurers themselves that need to be adapted so the full potential of the new rules can be triggered,” he says.
One of the main hurdles is underwriters need to figure out how to fit new wordings and covers into treaty reinsurance contracts that were designed to accommodate a more rigid set of risks. With time, however, carriers should be able to diversify their offering to meet the demands of a fast-evolving client base, and international groups may be among the biggest beneficiaries of the changes.
“International reinsurers can be the main drivers of the process, as they are those who really provide capacity for large risks and already have their own conditions,” Luciana Prado, a partner at Demarest, says. “The same goes for insureds that have risk management departments, want to place risks in international markets and may demand from insurers simplified wordings that are in line with the capacities they can access abroad.”
Risk managers that need to integrate Brazilian covers into their global insurance programmes may be among the people who are most grateful for the loosening of the rules. In the past, they often had to stack dozens of additional clauses into their master policies to ensure compliance with Brazilian law.
“Now all that is needed is to translate the policy and adapt it to Brazilian rules. It is not necessary to completely disfigure the cover,” Cicarelli says.
Another novelty introduced by Brazilian regulators that should have an impact on the corporate risks market is the open insurance project that aims to create an environment of free interchange of data about claims and customers between insurers.
It is one of the first such initiatives in the world and kicked off in December, with its full introduction expected to be complete by the end of this year. By then, if things go to plan, insurers should have access to a system where they can freely access data about insurance clients, products and sales channels.
Some of the companies that are likely to take advantage of this freedom are the myriad of insurtech firms that have appeared in Brazil in the past few years, sometimes with a push by Susep, which has implemented an ambitious sandbox project in the country.
Now in its second edition, the Brazilian sandbox has nurtured more than 30 start-up companies, several of which are already operating.
“The Brazilian sandbox is not for service providers, but for new insurers. It gathers investors in companies that actually accept risks,” Santos, who is himself a former Susep director, says.
‘Before [last] year, there was no regulatory differentiation between mass market and large risks insurance products in Brazil. It was important to bring into the regulatory framework something the market already did in practice’
Thomaz Menezes, chief executive of broker ItsSeg, believes such initiatives have the potential to boost insurance penetration in the country, as new entrants make for easier underwriting of risks and can help to breach the resistance of many Brazilians against spending money with insurance.
“The underwriting of car insurance policies looks simple, but it actually remains quite complex. Open insurance will help to simplify the sale of this kind of product,” Menezes says.
But the change in Brazil’s insurance market has met resistance from traditional players, culminating in the replacement of the Susep official who sponsored the modernisation push. The hope is the push-back will not be strong enough to revert the progress made in 2021.
“The pandemic brought about an acceleration of a process of change that the market was implementing with slower steps than it should,” Menezes says. “The market has gained in efficiency and speed as a result.”
“In the next few years, all these factors are going to bring huge opportunities for any companies that wants to bring capacity and know-how to the Brazilian market,” Santos concludes.