Insurance & Reinsurance 2024

Last Updated January 23, 2024

Brazil

Law and Practice

Authors



Ernesto Tzirulnik Advocacia (ETAD) is an insurance and reinsurance boutique law firm that advises clients on loss-adjustment procedures, legal and regulatory issues, complex insurance, reinsurance, brokerage litigation, contract law, tort law, and corporate conflicts. During its nearly 40 years of practice, the firm has established an excellent reputation in the market, having represented almost all Brazilian insurance companies, Brazil’s monopoly reinsurer, and international reinsurers in strategic issues. After decades of advising insurance and reinsurance companies, ETAD has become known for representing and advising large policyholders on contentious and non-contentious complex insurance matters, and is also respected for strategic contractual and corporate litigation. It is part of ETAD’s policy to tailor teams for each case according to its needs, feeding a dynamic work environment that engages young partners in high-profile cases, nurturing exchange within a team of diverse age, gender and background.

Brazil’s main sources of insurance and reinsurance law are as follows.

  • The Brazilian Civil Code (Law No 10.406/2002), Articles 757–802, establishes key rules pertaining to insurance contracts in general, non-life insurance and life insurance.
  • The Brazilian Commercial Code (Law No 556/1850), Articles 666–731, establishes specific rules applicable to maritime insurance.
  • The Brazilian Aeronautical Code (Law No 7.565/1986), Articles 281–286, governs some aspects of aviation insurance. 
  • Decree-Law No 73/1966 establishes Brazil’s National System of Private Insurance (Sistema Nacional de Seguros Privados), whose executive agencies, the National Council of Private Insurance (Conselho Nacional de Seguros Privados – CNSP) and the Superintendency of Private Insurance (Superintendência de Seguros Privados – SUSEP) are tasked with regulating the insurance and reinsurance market for the benefit of policyholders. It also provides some rules on insurance contracts.
  • Complementary Law No 126/2007, which abolished the federal government’s monopoly on reinsurance (formerly exercised through the Instituto de Resseguros do Brasil – IRB), establishes the rules for reinsurance and retrocession activity.
  • As Brazil’s legal system on insurance is incomplete and outdated, the executive agencies (the CNSP and especially SUSEP) supplement the law with extensive regulation on insurance and reinsurance. The most relevant rules on prudential supervision and specific insurance branches (property insurance, life insurance, etc) are found in the CNSP’s resoluções (resolutions) and SUSEP’s circulares (circular letters).
  • For policies taken by consumers (ie, those who do not take insurance for business activities), Brazil’s Consumer Protection Code (Law No 8.079/1990) provides important rules on business practices (eg, tie-in sale is forbidden) and policy content (eg, policy provisions that excessively restrict consumers’ expected rights related to the insurance contract are null and void).
  • Where health insurance is considered a type of insurance, Law No 9.656/1998 establishes detailed rules on health insurance contracts, and Law No 9.961/2000 enacts and defines the legal powers of Brazil’s National Health Agency (Agência Nacional de Saúde – ANS), an independent regulatory agency.
  • Where complementary welfare is considered a type of insurance, Complementary Law No 109/2001 regulates open and closed pension funds. Law No 12.154/2009 establishes two executive agencies responsible for pension funds supervision: the National Council of Complementary Welfare (Conselho Nacional de Previdência Complementar – CNPC) and the Superintendency of Complementary Welfare (Superintendência Nacional de Providencia Complementar – PREVIC).

In the last decade, Brazil has made significant efforts to increase the relevance of precedent in legal practice. Despite these measures, such as the promulgation of a new Civil Procedure Code (Law No 13.105/2015), the courts, especially Brazil’s highest court on federal law (the Superior Court of Justice or Superior Tribunal de Justiça – STJ), have not adopted a stable body of precedent on insurance matters.

Oversight of the insurance and reinsurance sector falls to many different independent and executive regulatory agencies.

Decree-Law No 73/1966

The CNSP and SUSEP are mainly responsible for supervising insurance and reinsurance companies and open pension funds. The CNSP, mostly through resolutions, is empowered to establish general guidelines and rules on:

  • solvency;
  • insurance policy;
  • reinsurance in general;
  • co-insurance and insurance; and
  • reinsurance brokerage.

SUSEP is tasked with complementing and executing CNSP guidelines, which, in practice, results in extensive supervisory activities, due to the vast powers directly attributed to SUSEP (eg, the agency is charged with setting guidelines for all insurance policies) and to the usually open-ended regulation enacted by the CNSP.

Law No 9.961/2000

The ANS, as the only independent agency between all insurance regulatory bodies, is responsible for health insurance regulation. The ANS:

  • establishes limits for yearly premium adjustments;
  • defines which procedures must be covered;
  • authorises health insurance writing; and
  • conducts prudential oversight of health insurers.

Law No 12.154/2009

The CNPC and the PREVIC, which mirror the CNSP and SUSEP (all four of which are likely to be merged to reduce redundancy), supervise closed pension funds in all capacities, focusing mainly on authorisation for new closed pension funds.

Only legally authorised entities (which in almost all cases must be a corporation) are allowed to write insurance and reinsurance. Insurance and reinsurance companies must comply with legal and regulatory requirements established in Decree-Law No 73/1966 and CNSP Resolution 422/2021.

Legal authorisation for insurers and reinsurers is given in two steps. First, a legal representative of the future shareholders must formally request SUSEP’s authorisation to constitute a (re)insurance company. The request must be accompanied by:

  • a sound business plan;
  • a full description of the corporate group and the shareholders;
  • proof of financial and economic capabilities suitable for the (re)insurance branch(es) in which the corporation intends to operate, especially the minimum partnership capital requirement, set out by CNSP Resolution 432/2021;
  • a description of the financial resources to be used in the (re)insurance company; and
  • any other document demanded by SUSEP to prove reputation and good character of the future relevant shareholders.

After authorisation is granted, the (re)insurance company must be constituted within 90 days and prove the origin of the resources used. After the company is constituted, SUSEP grants authorisation to underwrite (re)insurance in the requested branches. There is no regulatory distinction between excess layers and reinsurance and other insurance branches, but there are more flexible rules pertaining to SME insurance and business insurance. Both branches are subject to less regulation, either by having lighter authorisation requirements (SME insurance – SUSEP Circular Letter 439/2012) or less stringent supervision on policy content (particularly in large or jumbo risks business insurance – CNSP Resolution 407/2021).

Regulatory authorities have recently loosened authorisation requirements for certain types of insurance companies, aiming to promote innovation through CNSP Resolutions 381/2020 and 417/2021 and SUSEP Circular Letters 598/2020 and 636/2021. This so-called regulatory sandbox grants to new insurance companies with an innovative proposal vetted by regulators a temporary authorisation to operate, which must be converted into permanent authorisation, with all the requirements mentioned above, within three years of active insurance writing.

International reinsurers follow a different procedure, as they are already constituted in their home jurisdiction. They must only be registered with SUSEP to be allowed to write risks in Brazil. According to Complementary Law No 126/2007, the reinsurer must:

  • appoint a representative residing in Brazil;
  • present its latest financial statements;
  • prove itself to be regularly constituted in its original jurisdiction;
  • demonstrate to have been writing reinsurance for more than five years in the branch in which it intends to operate;
  • prove not to have any solvency issues;
  • possess more than USD150 million in assets; and
  • have its individual solvency rated at least BBB or equivalent by selected risk-rating agencies.

Where the international reinsurer aspires to be an admitted reinsurer (ie, not just an eventual one), it must also establish a representation office in Brazil and deposit USD5 million (non-life insurance) or USD1 million (life only) in an authorised bank account.

Payment of insurance premiums is considered a financial transaction and is subject to a federal tax on financial transactions (IOF). According to Decree No 6.306/2007, the federal government is allowed to tax most insurance transactions (rural insurance is exempt from taxation) up to a rate of 25% of the premium paid, but the effective rate is very diverse – reinsurance, obligatory insurance, credit insurance, performance bonds and other types of insurance currently have a taxation rate of 0%. Life and health insurance is currently subject to a 2.38% rate, while other insurance branches not specified in the decree are subject to a 7.38% rate. 

Brazilian law relating to overseas-based insurers is different from the rules on overseas-based reinsurers.

Overseas Insurance

Under Complementary Law No 126/2007, all policies related to risks located in Brazil must be taken in Brazil. Only if local insurance companies are not willing to write the risk, or if the specific insurance branch is not operated in Brazil, can the future insured search for coverage in other jurisdictions. Proof that insurance coverage is not locally available is regulated by Circular Letter No 603/2020: the insured must present the formal refusal to underwrite from at least five insurance companies operating in the Brazilian market.

Nonetheless, global insurance programmes are not forbidden by Complementary Law No 126/2007. Only risks located exclusively in Brazil cannot be insured by international insurers through policies taken by Brazilian residents or companies. International groups often use this restrictive wording to bring their usually more protective policies to their local operation.

Another entirely different matter is applicable law. Recently, the STJ has ruled that international insurance contracts (ie, with international insurers), although concluded in Brazil, can stipulate which law governs the contract. This is a liberal interpretation of Brazilian law (Decree-Law No 4.657/1942) adopted in some STJ rulings which is yet to be confirmed by the Constitutional Court (STF). Mainstream consensus is that Brazil has not yet clearly adopted full party autonomy on choice of law.

Overseas Reinsurance

Brazilian law related to reinsurance fully allows international reinsurance contracts and reinsurance companies to operate in the country. Complementary Law No 126/2007 separates authorised reinsurers into three groups:

  • local reinsurers – reinsurance companies incorporated in Brazil (albeit usually as part of an international group) that have the right to preferentially write 40% of the global reinsurance cession from all insurers operating in Brazil and are the only type of reinsurer allowed to cover specific life insurance policies and pension funds;
  • admitted reinsurers – international companies that establish an office in Brazil and deposit a given amount of capital in an authorised financial institution, in addition to fulfilling all registration requirements discussed in 2.2 The Writing of Insurance and Reinsurance; and
  • eventual reinsurers – international companies that only fulfil the registration requirements discussed in 2.2 The Writing of Insurance and Reinsurance and are not incorporated in a tax haven (defined by CNSP Resolution 422 as a jurisdiction that does not tax income, has an income tax rate lower than 20% or does not require the company to publicise its shareholder structure).

According to Complementary Law No 126/2007, the federal government can set specific cession limits to eventual and admitted reinsurers to maintain reinsurance contracts tied to Brazil. However, following Decree No 10.167/2019, insurers are allowed to cede 95% of all premiums to eventual and admitted reinsurers, making both types of reinsurers equivalent for the purpose of cession.

Mirroring the insurance system, CNSP Resolution 451/2022 provides that if there is not any authorised reinsurer (local, admitted or eventual) willing to write the risk, the insurer is allowed to cede to non-authorised reinsurance companies after formally consulting all reinsurers.

According to CNSP Resolution 451/2022, any reinsurance contract related to risks in Brazil must be governed by Brazilian law unless the parties elect arbitration as their preferred dispute resolution method.

Fronting is allowed in Brazil. In most cases, insurers must retain at least 30% of all premiums received in a given year pursuant to CNSP Resolution 451/2022. However, the mandatory retention is determined globally. It is, therefore, possible for insurance companies to cede all or almost all risk to reinsurers in specific reinsurance treaties or facultative contracts. In large or jumbo risks, and with policies issued by insurers that are part of large reinsurance groups, that is a recurrent practice frequently tied with claims control or co-operation clauses. As the cedent is the only liable party before the insured under Complementary Law No 126/2007, some retention (even if negligible) is typical.

This year, a major acquisition happened in retail insurance, merging two of the biggest insurance companies in Brazil: HDI Seguros, part of the German group Talanx, acquired the Latin American branch of Liberty Mutual Group, Liberty Seguros.

The general trends are the same as last year. In large risks and sophisticated insurance, the increasing presence of international reinsurance groups continues to blur the line between insurance and reinsurance.

By contrast, in retail insurance – a market dominated by large Brazilian companies and bancassurances – technological improvements are streamlining internal processes and facilitating insurance distribution.

Insurtechs, the expected target of M&A in insurance, are usually grown inside or in close relation to established insurance companies. They are not currently focused on displacing traditional insurers – most insurtechs in Brazil threaten the insurance brokerage and traditional insurance agency business, such as with the recent growth of manager general agents (MGAs) and the creation of insurance service initiation companies (SISS), the first of which has recently received regulatory approval.

Insurance and reinsurance contracts are distributed in different ways in Brazil.

Reinsurance Distribution

According to Complementary Law No 126/2007, facultative and treaty reinsurance contracts are supposed to be directly concluded between cedent and reinsurer, or by way of a legally authorised intermediary (the reinsurance broker).

The reinsurance broker must be authorised to operate in Brazil by SUSEP. Under CNSP Resolution 422/2021, reinsurance brokers must comply with regulatory requirements different from those applicable to insurance brokers. The most relevant distinction is that reinsurance brokers are required to have professional liability insurance (E&O) with a minimum BRL10 million global limit.

Insurance Distribution

Insurance is distributed by a myriad of channels, and authorities have recently created new ones through so-called open insurance (CNSP Resolution No 415/2021). Direct sale, insurance brokerage, insurance agents and distribution deals with large financial companies are the most-used channels.

Insurance companies are allowed to receive and accept insurance proposals directly from the proponent, waiving any insurance intermediation. In this case, the insurance company must still pay the usual brokerage commission to a fund administered by the National Insurance School Foundation (FUNENSEG) pursuant to Law No 4.594/1964.

Insurance brokers are the legally preferred channel for insurance distribution. Insurance brokerage is governed by three main laws.

  • The Brazilian Civil Code (Law No 10.406/2002) enacts general rules relating to brokerage in Articles 722–729.
  • Law No 4.594/1964 establishes specific rights and duties for insurance brokers and requires operating authorisation for insurance brokerage. In Brazil, brokers are responsible for counselling the policyholder on which is the best insurance product in the market for its purposes.
  • Decree-Law No 73/1966 provides that brokers are part of the National System of Private Insurance and empowers SUSEP to grant operating authorisation to brokers. The most prominent requirement is a specific professional qualification for working in an insurance branch group (mostly life and non-life insurance).

Insurance agencies are generally limited to retail insurance, mainly distributing travel, life and certain types of casualty insurance (eg, extended warranty insurance). Large retailers are typically the biggest insurance agents. Agents are subject to the following regulations:

  • The Brazilian Civil Code (Law No 10.406/2002) enacts general rules relating to agency in Articles 710–721;
  • Law No 4.886/1965 provides basic rules on commercial agency, focusing mainly on protecting the agent as the economically weaker contractual party; and
  • CNSP Resolution 431/2021 establishes specific rules on insurance agents (eg, it forbids an agent from underwriting on the insurer’s behalf).

Since most retail insurance is operated by bancassurance conglomerates, banks are frequent venues for taking policies. They are not typical insurance agents – thus, the aforementioned rules do not directly apply – as they are usually beneficiaries of the policy taken by the client (eg, in payment protection insurance) or are the policyholder in group insurance. Authorities have tried to curb the latter through CNSP Resolution No 439/2022, which forbids group insurance administration only for financial gain.

According to Article 766 of the Brazilian Civil Code (Law No 10.406/2021), the insured must disclose all relevant information to the insurer when the contract is being negotiated.

Case law and jurisprudence have recently highlighted that the insurance company must at least refer to which kind of information may be relevant to write the risk. Where a questionnaire is provided, the courts have mostly referred to the questions in determining whether the information allegedly omitted was material or not. That is frequently discussed in life or health insurance litigation (therefore, in consumer insurance contracts). Any documents not demanded or questions not asked, unless obviously relevant, cannot be levied against the policyholder or beneficiary to deny coverage.

If any misrepresentation is made, the insurance company may demand additional premium from the insured, who may lose coverage only if the insurance company can prove wilful misconduct or gross negligence in omitting information. Contrary to expectations, case law shows that the gross negligence threshold is easily achieved. Especially in business insurance, courts are rarely impressed with allegations that a misrepresentation was made by mistake, without any intention to take advantage from insurers.   

Insurance intermediaries can act on behalf of both insurers and policyholders, although they do not represent either insurance companies or insureds in a legal sense. Brokers, in general, are perceived to be acting on behalf of policyholders, and are thus legally required to aid policyholders in choosing, negotiating and managing the insurance contract according to Law No 4.594/1964 and longstanding practice. For instance, in large-risks insurance, claims made by the insured to any insurer are frequently handled by brokers, who typically mediate loss-adjusting communications.

Conversely, in retail insurance (such as policies issued by bancassurance conglomerates) brokers are frequently part of the same economic group as the insurers and are incorporated for the main purpose of raising commissions. “Contingent commissions” agreements with insurance companies are unfortunately common in Brazil, making brokers financially interested in quashing or reducing claims brought by policyholders. Therefore, on whose behalf an intermediary is acting must be determined on a case-by-case basis.

The Brazilian Civil Code (Law No 10.406/2021) Article 757 establishes the five distinguishing features of any insurance contract:

  • guarantee or coverage;
  • insurable interest;
  • risk;
  • premium; and
  • enterprise.

By legal definition, insurers receive a premium to guarantee the legitimate interests of insureds. The insured must, then, have a qualified interest – that is, an economic or otherwise relevant relation to a thing or a person worthy of protection – to be able to insure it. The legitimacy of the interest is typically only called into question to prohibit speculation through insurance. In life insurance, for instance, the Civil Code requires the policyholder to expressly declare its interest in the life of the insured person, and a kinship or likewise worthy link between insured person and policyholder is required for the contract to be valid.

Insurance contracts are consensual, although the Brazilian Civil Code demands that the insured submit an insurance proposal in writing to the insurance company. Policies are seen as having only probatory value of the agreement and it is longstanding practice that insurance contracts can be formed by simple silence of the insurer after receiving a proposal.

Recently, and in contravention to the Brazilian Civil Code, SUSEP has tried to change this through Circular Letter No 642/2021. Under this illegal but still-in-force regulation, proposals must be signed by the insured and acceptances must be given in writing or in other specific way by insurers.

According to the Brazilian Civil Code (which is supplemented by SUSEP Circular Letters No 621/2021 and No 667/2021, and CNSP Resolution No 407/2021), the insurance policy should at least contain, in a clear and direct way:

  • the name of the insured or beneficiary, if applicable;
  • protected interests;
  • covered risks;
  • liability limits;
  • premium owed by the insured; and
  • contract duration.

Parties not named as insureds can be beneficiaries of an insurance contract. This is the rule and not the exception in some branches (eg, Construction All Risks (CAR) insurance). The insured must of course have a legitimate interest threatened by insurable risks in that specific insurance branch to be able to benefit from coverage.

Disclosure obligations fall only on the insured taking the policy if they are the only party involved in negotiations. In certain insurance branches, such as bonds, insurance companies may question policyholders and beneficiaries alike before writing the risk. In that case, both are obliged to disclose what was asked and what is obviously relevant to risk assessment must be informed to insurers.

The rights and duties of the parties are not inherently different regarding reinsurance and consumer contracts. As with any rules related to good faith and fair dealing, case law adopts a more defensive stance when dealing with consumers and other vulnerable parties, while weakening the influence of many protective statutes on commercial contracts negotiated by experts.

Alternative risk transfer (ART) transactions are not at all common in Brazil, although a recent federal law (Law No 14.430) created an insurance-linked security (the Letra de Risco de Seguro – LRS) and a specific type of insurance company (the Seguradora de Proposito Específico – SSPE) focused on ART. As far as is known, the market has not engaged much with these new tools and there is no regulation classing them as insurance or reinsurance contracts.

International ART transactions are even rarer in Brazil. Local insurance and reinsurance companies do not frequently use them and there is no specific regulation on ART transactions. Considering the broad and economically focused language of CNSP Resolution No 422/2022, which establishes general rules on solvency, ART transactions could be treated as reinsurance for solvency purposes.

Where the insurance policy is drafted only by the insurance company (or by reinsurers), as is the case in almost all situations, the Brazilian Civil Code (Law No 10.406/2002) imposes the so-called contra proferentem interpretation – ie, an ambiguous contract term should be construed against the drafter. Despite clear wording in the law, case law has been somewhat reluctant to broadly interpret insurance policies and frequently defers to the actuarial stability argument. As policies in Brazil are notoriously badly written, resorting frequently to mistranslations from international sources, the contra proferentem rule should not be used sparingly.

In addition to this specific and overstated rule in insurance, Brazil’s rules on interpretation are very similar to those found in other civil law jurisdictions. The aim of any contractual interpretation is to reveal common intent registered in a party’s declarations. To that end, circumstances, “usual practice”, reasonableness and good faith are all tools used in revealing or reconstructing the common will manifested in the declarations – there are few binding rules on interpretation, such as the above-mentioned contra proferentem rule. Four corners clauses, although frequent in commercial contracts, hold little sway.

Although not referred to as such, as a “warranty” is a foreign concept for civil law jurisdictions, most policies impose duties on the insured whose breach entails loss of coverage, or which must be observed to ensure coverage in the case of loss. It is not clear how far insurers can impose these duties on policyholders, as Decree-Law No 73/1966 prohibits any clause that affects coverage not linked to a legally established cause of coverage loss, such as risk aggravation or late-claim notice. Case law typically combines both the policy clauses and the closest legal provision in most rulings, and requires that the warranty breach be directly related to the loss discussed.

As with warranties, “conditions precedent” are a foreign concept for civil law jurisdictions, and are by contrast rare in insurance contracts in Brazil. Insurers usually do not tie the existence of the insurance contract to any specific event. A noteworthy exception are the “open policies” in transport insurance, which require the insured to disclose to the insurer certain facts before coverage is granted to each trip.

Disputes over coverage are usually addressed by ordinary litigation. Arbitration is rare in insurance, even though policies frequently allow arbitration as a dispute resolution method. In consumer contracts, under the Brazilian Consumer Protection Code, compulsory arbitration clauses are forbidden. By contrast, arbitration is commonplace in reinsurance contracts.

Under the Brazilian Civil Code (Law No 10.406/2002), the statute of limitation for an insurance claim in Brazil is one year. The date on which this period starts is a very disputed subject. The dominant view in case law was that the period starts from the loss discovery and is suspended during loss-adjusting procedures. More recently, the courts have adopted a different starting point: the moment in which the insurer refuses coverage to the policyholder or beneficiary.

Any beneficiary can enforce an insurance contract, be they named in the policy or not. Injured third parties can also directly enforce an insurance contract against the insurer in civil liability insurance, despite breached warranties by the insured.

According to Decree-Law No 4.657/1942, the law applicable to insurance contracts is the law of the proponent’s residing county, and Brazilian courts have jurisdiction over disputes where the respondent resides in Brazil, or where Brazil is the place in which performance should be rendered.

As discussed in 3.1 Overseas-Based Insurers or Reinsurers, Brazil is one of the last jurisdictions in which party autonomy on choice of law is not clearly established, despite some rulings to this effect by the country’s highest federal court.

According to Brazil’s Civil Procedure Code (Law No 13.105/2015), litigation in Brazil starts with a complaint filed either in a state or federal court. After preliminary analysis, the judge orders the respondent to be served.

Against the claimant’s complaint, the respondent may either recognise the claimant’s enforced right or respond to the complaint, which can lead to a counterclaim.

The judge then enquires of the parties regarding evidence. After all relevant evidence is procured, parties may present final arguments summarising all that has been presented thus far.

The judge subsequently renders their final judgment on the case. The losing party may appeal to the state or regional federal court, which reviews the ruling made by the singular judge in collegiate bodies. After the regional or state court reviews the decision, the losing party can appeal either to the Superior Court of Justice (Superior Tribunal de Justiça – STJ) on grounds of federal law violation by the lower court, or to the Supreme Federal Court (Supremo Tribunal Federal – STF) on grounds of a constitutional violation by the lower court or the STJ.

Pursuant to Brazil’s Civil Procedure Code (Law No 13.105/2015) and Arbitration Law (Law No 9.307/1996), national provisional and definite rulings or arbitration awards can be enforced in Brazil, requiring either a simple request or a specific petition. By contrast, under the Brazilian Constitution, enforcement of foreign judgments must be previously approved by the STJ, which assesses whether or not the judgment violates Brazil’s public policy or res judicata rule.

Arbitration clauses can be enforced both in commercial insurance and reinsurance contracts under the Brazilian Arbitration Law (Law No 9.307/1996). As insurance contracts are frequently formed by adhesion to already drafted polices, the adhering party must consent either by specifically signing the arbitration clause or by enforcing the arbitration clause themselves.

The Brazilian Arbitration Law (Law No 9.307/1996) treats an arbitration award as having the same legal effect as a court ruling. As such, the same restrictions mentioned in 9.4 The Enforcement of Judgments apply to foreign arbitration awards, but the approval procedure is governed by the Arbitration Law (Law No 9.307/1996), which mirrors the New York Convention (incorporated by Decree No 4.311/2002).

Alternative dispute resolution methods such as mediation play a small role in insurance and reinsurance disputes in general, despite being a growing field in other matters.

Under the Brazilian Civil Code (Law No 10.406/2002), insurers are liable for all damages caused by late payment of claims if the loss-adjustment process is not regularly conducted. According to SUSEP Circular Letter No 621/2021, insurers also have 30 days after receiving all requested documents to settle the claims. If the deadline is not observed, interest must be paid to the insured.        

According to the Brazilian Civil Code (Law No 10.406/2002), insurers have a right of subrogation following the payment of a claim – any act of the insured that diminishes or extinguishes this right is considered void.

In general, case law pertaining to subrogation has been overprotective of insurance companies. Even though they succeed the insured as creditor before the responsible party, insurers are subject to new limitation periods, extending claims almost indefinitely, and some case law frees them even from arbitration clauses that bind the insured.

Insurtechs are generally seen as the latest big change in the Brazilian insurance market and are expected to be as relevant as fintechs have been to the financial services sector. Having such big shoes to fill means that it is very difficult to accurately measure real developments taking place in the Brazilian insurance market due to insurtechs.

Insurtechs have had an impact on insurance distribution. Most successful Brazilian insurtech enterprises tackle how insurance is processed internally (eg, premiums and claims), promoted to the consumer, and sold to the policyholder – not insurance contracts or economics. In that capacity, there is healthy co-operation between traditional innovation-focused business models and insurance businesses, who feel the impulse to improve provided services. The biggest insurers in Brazil have dedicated teams and investment lines for improving internal processes.

Nevertheless, insurance is a more conservative business than financial services in general (especially banking). It is difficult to affect the core product without financial backing of a large financial conglomerate or international reinsurers. Underwriting, insurance policies wording, loss adjusting and claims settling are, by their nature, very similar between all insurance and reinsurance companies. There is no insurance without a certain degree of standardisation. Hence, in core insurance, insurtechs are yet to have any meaningful impact, particularly on insurance branches that rely heavily on reinsurance (eg, large or jumbo risks), although some marginal change can be seen (eg, in bike insurance).

In the last few years, Brazilian regulatory authorities have been playing a very active role in fostering innovation in the insurance sector. The biggest action taken is the creation of the so-called regulatory sandbox (CSNP Resolutions 381/2020 and 417/2021), in which new insurtechs can be incorporated with less stringent regulatory requirements and oversight for a maximum period of three years. The aim is to allow new ideas to be tested in a friendlier – albeit controlled – environment.

Despite these efforts, it is too early to tell how successful they have been. Insurtechs, although providing new and interesting solutions, are currently very distant from true competitors to the established insurance companies in Brazil, who are mainly branches of the biggest financial conglomerates in the country.

The regulatory authorities have been quick to introduce regulation on new insurance policy types such as cyber-risks insurance (a special liability policy governed by SUSEP Circular Letter 638/2021). The market has not, in return, been so eager to face emerging risks. High deductibles and restrictive underwriting have been the usual answer, as new insurance products are seen as too uncertain or volatile.

This is not an isolated trend in the Brazilian insurance sector. Despite relevant general growth in the last few years, anything other than small retail insurance is facing persistent crisis and being left to international groups and reinsurers who are willing to write.

Brazil is not a leading market in developing alternative solutions to address emerging risks. Almost all innovation on insurance comes from more established markets – ie, Europe (in particular the UK) and the United States.

In terms of legal development, Brazil has experienced unprecedented change in the (re)insurance legal framework. Almost all relevant insurance regulation was either revised or revoked in the past four years. It is not clear yet how the administration will deal with this – ie, whether it will uphold most created rules, revoking only those which the sitting President’s party has challenged in the Constitutional Court, or whether it will promote another general revision of insurance regulation.

This year, the Insurance Contract Law Bill (PLC 29/2017) has gathered a lot of steam in the National Congress, as it has received the full support of the new government’s economic advisers. After a round of revisions in the second half of 2023, a new version of the bill was presented and is currently supported by representatives from insurance companies and brokers, as well as by policyholders, both consumers and businesses. If the bill does become law, as seems likely, all rules on insurance policy will be changed to become clearer and more aligned with the practice in other jurisdictions, such as Portugal, Spain, France, Belgium, Switzerland and Germany.

Ernesto Tzirulnik Advocacia

São Paulo
Rua Ceará 202
Pacaembú
CEP 01243-010
Brazil

+55 11 3829 0202

etad@etad.com.br www.etad.com.br
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Trends and Developments


Authors



Mello Torres is a full-service law firm that provides personalised high-standard legal services for its clients. Through its offices located in São Paulo and Rio de Janeiro, the team comprises around 70 attorneys who are closely involved with the clients’ most relevant business transactions and critical disputes in various integrated practice areas.

Brazil’s insurance industry is undergoing a revolutionary transformation with the advent of Open Insurance, known in Portuguese as Sistema de Seguros Aberto, and with the use of new technologies such as artificial intelligence, blockchain and big data by insurance companies and insurtechs.

This article is divided into four sections, discussing open insurance, SPOCs, the regulatory sandbox, and the regulatory agenda.

Open Insurance in Brazil: a Transformative Shift in the Insurance Landscape

Open Insurance provides consumers with a secure, agile, precise and convenient means of sharing data across entities authorised by the Brazilian Private Insurance Authority (Superintendência de Seguros Privados – SUSEP), including insurance companies, open-ended pension funds and capitalisation companies.

This groundbreaking initiative allows consumers access to a seamless and secure sharing of information related to insurance products, pension funds and capitalisation products. The Open Insurance framework seeks to deliver enhanced benefits to consumers by streamlining data and service sharing through the integration of systems, prioritising privacy and security.

Integration with Open Banking

Open Insurance has a strategic vision of interoperability with Open Banking, forming a broader ecosystem commonly referred to as Open Finance. This integration aims to create a seamless flow of financial services across platforms, enhancing the overall interconnectedness of financial ecosystems.

Entities in Open Insurance

Beyond traditional insurers, pension entities and capitalisation companies, Open Insurance anticipates the participation of customer order-processing companies (sociedades processadoras de ordens de clients – SPOCs). SPOCs can offer a spectrum of solutions ranging from data aggregation services to information and control panels (dashboards), and even include the execution of services (see the SPOCs: Transforming Insurance Dynamics in Brazil section).

Treatment of information in Open Insurance

In Open Insurance, entities should obtain a consumer’s explicit and unequivocal consent, ensuring operations are conducted with the utmost security and privacy.

Types of data in Open Insurance

Open Insurance classifies information into two fundamental groups: public data and personal data.

Public data encompasses details ranging from physical and electronic service points to comprehensive information on products offered by diverse industry entities.

Personal data includes:

  • registration details of clients;
  • data about representatives; and
  • information tied to policies, tickets, certificates, contracts or capitalisation titles.

Personal data also encompasses data obtained through used or embedded electronic devices.

Consent in personal data and service sharing

The sharing of personal data within the scope of Open Insurance depends on the prior consent of the customers. The consent must be characterised as a freely given, informed, prior and unequivocal expression of will, made electronically, through which the customer agrees to the sharing of data or services for specific purposes.

Possible solutions arising from Open Insurance

Open Insurance makes the following solutions possible in the Brazilian insurance market:

  • comparators and marketplaces – innovations such as applications that compare products from various insurers in one platform, empowering consumers to make informed choices based on personalised data, fostering a more competitive landscape;
  • innovative apps and solutions – technological advancements leading to solutions that aggregate information on financial life, incorporating insurance, open complementary pensions, and capitalisation products;
  • digital initiatives for insurance and private pensions – streamlining services such as claims notification and pension portability through digital means, enhancing overall user convenience and efficiency;
  • personalised risk assessment – leveraging customer data to offer tailored risk assessments, leading to the development of bespoke insurance products and pricing;
  • enhanced fraud detection – the collaborative nature of Open Insurance facilitates robust data sharing, enabling more effective fraud detection mechanisms to protect both insurers and policyholders;
  • customer-centric innovations – shared data allows insurers to develop customer-centric products and services, fostering a more responsive and dynamic industry that caters to the evolving needs of consumers; and
  • financial health platforms – integration of insurance data into broader financial health platforms, offering consumers a comprehensive view of their financial well-being and encouraging a holistic approach to financial planning.

Open Insurance is poised to reshape the Brazilian insurance landscape, creating an environment of collaboration, transparency and consumer empowerment. As the governance structure matures and consumers embrace the possibilities, the industry is set to witness a wave of innovative solutions, from personalised risk assessments to the integration of insurance data into broader financial health platforms.

These advancements promise to not only enhance the overall insurance experience for Brazilians but to also provide valuable insights for foreign entities navigating the dynamic and customer-centric Brazilian insurance ecosystem.

SPOCs: Transforming Insurance Dynamics in Brazil

In the ever-evolving landscape of the Brazilian insurance industry, a groundbreaking shift is underway with the emergence of the sociedade processadora de ordem do cliente (SPOC), which replaced the sociedade iniciadora de serviços de seguro (SISS).

The journey from SISS to SPOC in Open Insurance

The inception of SISS occurred when SUSEP introduced an initiation of movement service under Resolution CNSP 415/2021, the same resolution that marked the beginning of Open Insurance.

Resolution CNSP 415/2021 described the SISS as a “joint-stock company, accredited by SUSEP as a participant in Open Insurance, providing data aggregation services, information and control panels (dashboards), or, as a client representative with their consent, offering initiation of movement services, without ever holding the client’s funds, except for any compensation for the service provided”.

This solution promised to be a significant evolution, enabling companies to create their SISS solutions and enter the Open Insurance ecosystem, even if they weren't traditional insurers. The initiator’s role was, with the client’s consent, to obtain quotes from various insurance companies.

Nonetheless, such rules excluded insurance brokers from the Open Insurance environment, which led to many complaints by insurance brokers against the SISS. This issue even reached Congress, which drafted a bill to revoke the rules related to the SISS. SUSEP, for its part, decided to revoke the rules related to the SISS before Congress passed the bill.

Transition from SISS to SPOC

On 19 October 2022, Brazilian authorities edited Resolution CNSP 450/2022 discontinuing the SISS and creating the SPOC in its place. In addition, Resolution CNSP 450/2022 included insurance brokers in the context of Open Insurance, allowing them to operate on the SPOC platform and to participate in the governance structure of Open Insurance.

This modification empowers brokers, including those deeply rooted in their local communities for decades, to remain industry experts and seamlessly integrate into this revolutionary era.

SPOC revolution

In the broader context of the Brazilian insurance market, the SPOC stands out as a transformative force. Empowering end users, creating opportunities for brokers, and reshaping the traditional functions of insurance companies, the SPOC is not merely a technological advancement but a strategic game-changer. As the insurance landscape in Brazil continues to evolve, the SPOC is undeniably at the forefront of trends and developments, paving the way for a more dynamic and consumer-centric future.

This transformative platform is set to revolutionise the traditional insurance business model and redefine the role of insurance brokers, all the while enhancing the overall consumer experience. Picture this: the ability to secure insurance coverage for your vehicle on a short-term basis, for the precise duration of your travels or within specific regions of your journey. Imagine obtaining comprehensive home insurance quotes from every insurance provider across Brazil to pinpoint the service tailored to your unique needs. These scenarios are no longer distant possibilities but tangible prospects with the introduction of the SPOC.

At the forefront of this revolution is the end customer, who gains unprecedented control over insurance services and maintains autonomy over their data. The SPOC serves as a centralised hub, seamlessly connecting consumers with insurance providers. This facilitates optimised insurance contracts and streamlines data sharing with numerous companies and brokers, resulting in more accurate and personalised insurance quotes. It signifies a paradigm shift in how insurance is consumed and procured, setting the stage for unprecedented industry transformations.

For insurance companies, the adaptation is subtle but impactful. While their core role remains unchanged, the potential integration of the SPOC necessitates the creation of a distinct business unit. Additionally, insurers can now extend their reach to the market through collaborations with retail companies and financial institutions, utilising them as payment initiators to mediate interactions between customers and insurance providers.

The SPOC is expected to deliver more value to end users, placing control over insurance contracting in the palm of their hand, and providing greater autonomy to make changes, such as requesting endorsements, portability and initiating new contracts.

The impact on consumer interactions, data protection and decision-making autonomy is profound, ushering in a new era in the Brazilian insurance market.

From a broader perspective, this is the missing step needed for Open Insurance to interact with Open Finance, forming a more interconnected and consumer-centric financial ecosystem.

Regulatory Sandbox: Unlocking Innovation Potential

The Sandbox is an experimental environment, aimed at reducing entry barriers and facilitating the testing of new technologies and products, ultimately improving user experiences and fostering innovation in regulated markets. SUSEP has already launched two editions of the Sandbox and will very likely launch a third edition in the first quarter of 2024, allowing new players to innovate in the Brazilian insurance market.

History

On 12 June 2019, a joint statement from the Special Finance Secretary of the Ministry of Economy, the Central Bank of Brazil, the Securities and Exchange Commission (CVM) and the SUSEP unveiled the ambitious plan to implement a Regulatory Sandbox in the Brazilian financial, insurance and capital markets. This initiative was a response to the ongoing transformation in these sectors, driven by widespread internet use, the evolution of data availability and processing capabilities (big data), and the rapid development of innovative technologies such as distributed ledger technology (DLT), blockchain, robo-advisers and artificial intelligence.

Strategic significance in the insurance sector

Given the inherent characteristics of the insurance sector, the implementation of a Regulatory Sandbox was particularly relevant. Open Insurance (the development of which, alongside Open Banking, forms Open Finance) was a significant driver. Mass-market insurance, unexplored digital channels, accelerated processes for policy issuance and claims payment, and high entry barriers further justified the strategic importance of the Sandbox in the insurance landscape.

Pillars of the Regulatory Sandbox

The Regulatory Sandbox, with its three pillars of controlled risk, innovation and consumer focus, stands as a model for regulatory adaptability in the face of technological advancements, ensuring a resilient and responsive insurance landscape in Brazil.

Regulatory simplification and reduction of entry barriers

Considering the need for delimitation and simplification of rules applicable to insurance companies participating in the experimental regulatory environment, the applicable regulation has established measures for regulatory simplification, reduction of entry barriers and facilitation of innovation, among which the following stand out:

  • as a rule, a reduction in the initial capital requirement to BRL1 million, compared to the BRL15 million that was previously required;
  • the possibility of adopting a simplified investment structure for calculating risk capital; and
  • the setting of a temporary authorisation period for a duration of 36 months.

Market potential

The low insurance penetration in Brazil, coupled with the sector’s growth potential, emphasised the need for innovation. The country’s insurance premiums, as a percentage of gross domestic product (GDP), were half the global average. To fulfil the unique role of insurance in providing financial protection, it was crucial to reach a larger population through simple, transparent and affordable products.

Regulatory framework

The regulatory framework, as defined by SUSEP, included three main pillars: controlled risk, innovation and a consumer-centric focus. This involved establishing limits on coverage periods, the number of risks and maximum indemnities, encouraging technological differentiation, and emphasising business models that reduce bureaucracy and costs and that enhance information security.

Implementation and results

In March 2020, SUSEP initiated the procedures for selecting the first companies to take part in the first round of the Regulatory Sandbox. In 2021, SUSEP promoted a second round of the Regulatory Sandbox. A total of 32 new insurance companies were authorised through these rounds. The evaluation process involved assessing project eligibility, business plans and technical analysis. The demand was significant, with the potential addition of over 20% of new players to the market. The first company to act in the Sandbox was authorised in December 2020.

Products and innovations in focus

According to SUSEP, a substantial number of customers of the entities authorised under the Regulatory Sandbox purchased insurance for the first time. This highlights the Sandbox’s role in promoting financial inclusion. The projects facilitated the combination of customised offerings, attractive prices and extensive reach through digital channels. Some projects even offered fully digital journeys for consumers, allowing simplified policy transactions through smartphone applications.

Products highlighted in the first edition included:

  • intermittent auto insurance (pay-per-use);
  • insurance tailored for rideshare drivers;
  • simple theft coverage for smartphones; and
  • veterinary assistance for pets.

The technologies observed included:

  • machine learning;
  • artificial intelligence;
  • mobile app sales channels;
  • Internet of Things (IoT) devices for monitoring insured vehicles;
  • the use of PIX for fund transfers; and
  • smart contracts based on blockchain technology for policy movements.

Innovation potential and future prospects

The observed projects showcased the potential for innovation, such as:

  • customisable coverage combinations;
  • differentiated commercial policies;
  • individualised and dynamic pricing based on consumer behaviour;
  • digital claims regulation; and
  • parametric coverage with easily understandable conditions for consumers.

Additional remarks

The Regulatory Sandbox in the Brazilian insurance sector has emerged as a catalyst for innovation, promoting financial inclusion, and addressing the unique challenges of the industry. The successful implementation of the Sandbox, as evidenced by the authorisation of 32 new insurers, has set the stage for a more dynamic and customer-centric insurance market in Brazil. The ongoing commitment to flexibility, technological differentiation and consumer-centric approaches positions the insurance sector to meet the evolving needs of a diverse and underserved population. The Sandbox is already a success, with some companies having already left the Sandbox and having been authorised as full insurance companies, and with other companies being invested in by major venture capital funds.

Regulatory Agenda: 2024

On 8 December 2023, SUSEP introduced its new Regulatory Plan aligned with its constitutional mission. SUSEP aims to foster national development and to promote the insurance, reinsurance, open-ended pension and capitalisation markets.

In 2024, SUSEP will focus its regulatory activities on nine macro-issues, as described below.

Insurance, new PAC and neo-industrialisation

Under this macro issue, SUSEP intends to:

  • analyse issues related to insurance aspects of the new governmental programme to foster growth (new PAC);
  • prepare a study related to insurance bonds, especially in connection with investments in infrastructure;
  • review the legal framework related to civil liability for cargo transporters; and
  • develop rules and/or contractual conditions within the scope of the Agricultural Insurance Premium Subsidy Programme.

Environmental transformation in the insurance market

Under this macro issue, SUSEP intends to regulate green insurance and pension products covering risks related to ecological transition and the provision of climate, environmental or social benefits to the people.

National Insurance Access Policy

Under this macro issue, SUSEP intends to:

  • review the regulations governing survival coverages offered in individual insurance plans and open complementary pension plans;
  • boost the annuities market and facilitate the development of products that better meet consumer needs;
  • issue rules related to the structuring, marketing and operation of universal life insurance; and
  • prepare a study exploring alternatives to increase the population’s access to insurance and open complementary pensions.

National Reinsurance Policy

SUSEP intends to develop a study regarding the National Reinsurance Policy, covering the following topics:

  • improvement of tax conditions for local reinsurers – creating better business opportunities, generating better and more employment, and increasing domestic saving;
  • a comparative study on national retention of reinsurance premiums and the role of reinsurers in long-term investments; and
  • a comparative study on the behaviour of reinsurers in the insurance market, including the claims control clause and other instruments for modelling the insurance market.

Cybersecurity

Under this macro issue, SUSEP intends to prepare studies related to insurance products covering cyber-risks, and to equate SUSEP’s cybersecurity policy with the national cybersecurity policy.

Authorisation process

Under this macro issue, SUSEP intends to:

  • require SPOCs to be audited by independent auditing firms;
  • review the rules related to the election of directors and officers of entities regulated by SUSEP; and
  • enhance the rules related to transfer of insurance portfolios.

Prudential regulation

Under this macro issue, SUSEP intends to:

  • issue rules related to own risk and solvency assessment (ORSA) and capital management by supervised entities, enhancing the protection of consumers and increasing the resiliency of the insurance market to crisis;
  • regulate the performance, requirements, duties and responsibilities of the fiduciary agent in the issuance of insurance risk letters through a special purpose insurance company; and
  • enhance other aspects of prudential regulation.

Conduct regulation

Under this macro issue, SUSEP intends to analyse and review a series of matters, including:

  • financial resources of customers retained by regulated entities;
  • registration of products with SUSEP;
  • disclosure of the compensation of insurance intermediaries; and
  • capitalisation products regulation.

Development of supervision tools

Under this macro issue, SUSEP intends to:

  • regulate the initiation and conducting of an administrative inquiry to investigate the materiality, authorship and responsibility for administrative offences, and to support any eventual initiation of administrative sanctioning procedures;
  • review the rules related to investigation and penalties for controlling shareholders of regulated entities; and
  • review the rules and effectiveness of administrative sanctioning procedures.

Final Remarks

In conclusion, the transformative journey of Brazil’s insurance industry, propelled by Open Insurance, SPOCs, regulatory sandbox initiatives and the 2024 regulatory agenda, reflects a resilient commitment to innovation, consumer empowerment and industry evolution. Open Insurance, a catalyst for collaboration and transparency, is reshaping the market by fostering customer-centric innovations, personalised risk assessments and enhanced fraud detection.

The advent of SPOCs represents a strategic game-changer, offering a revolutionary platform that empowers end users, redefines the role of insurance brokers and transforms the traditional business model. As consumers gain unprecedented control over insurance services, the industry is poised for a more dynamic and responsive future.

The Regulatory Sandbox, a beacon of adaptability, has successfully incubated 32 new insurers, promoting financial inclusion and addressing industry challenges. Its strategic pillars of controlled risk, innovation and consumer focus have set the stage for a dynamic and customer-centric insurance market. The anticipation of a third round in 2024 further underscores Brazil’s commitment to fostering innovation.

Looking ahead to the 2024 regulatory agenda, SUSEP’s focus on issues ranging from environmental transformation to cybersecurity reflects a forward-thinking approach. The emphasis on national development, insurance access policies and prudential regulations positions the industry to address the diverse needs of a growing population.

Considering these advancements, Brazil’s insurance market is not merely adapting but is flourishing. The commitment to flexibility, technological differentiation and consumer-centric approaches lays the foundation for a robust and resilient industry. As we witness the unfolding of these transformative initiatives, optimism abounds for a future where the Brazilian insurance landscape thrives on innovation, collaboration and a steadfast commitment to meeting the evolving needs of its consumers.

Mello Torres

Av. Brig. Faria Lima
3.355
16º Andar
São Paulo
Brazil

+55 11 3074 5700

contato@mellotorres.com.br www.mellotorres.com.br
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Law and Practice

Authors



Ernesto Tzirulnik Advocacia (ETAD) is an insurance and reinsurance boutique law firm that advises clients on loss-adjustment procedures, legal and regulatory issues, complex insurance, reinsurance, brokerage litigation, contract law, tort law, and corporate conflicts. During its nearly 40 years of practice, the firm has established an excellent reputation in the market, having represented almost all Brazilian insurance companies, Brazil’s monopoly reinsurer, and international reinsurers in strategic issues. After decades of advising insurance and reinsurance companies, ETAD has become known for representing and advising large policyholders on contentious and non-contentious complex insurance matters, and is also respected for strategic contractual and corporate litigation. It is part of ETAD’s policy to tailor teams for each case according to its needs, feeding a dynamic work environment that engages young partners in high-profile cases, nurturing exchange within a team of diverse age, gender and background.

Trends and Development

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Mello Torres is a full-service law firm that provides personalised high-standard legal services for its clients. Through its offices located in São Paulo and Rio de Janeiro, the team comprises around 70 attorneys who are closely involved with the clients’ most relevant business transactions and critical disputes in various integrated practice areas.

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