It is up to insurance buyers to put pressure on underwriters and brokers so that they can almost seamlessly integrate Brazilian covers into their programmes, a process that, until recently, was likely to drive many a risk manager to reach out for the liquor cabinet.
The publication of Resolution 407 by the CNSP, Brazil’s top insurance authority, in March removed almost all of the bureaucratic steps for the approval of wordings that for a long time spooked foreign insurance buyers in the country.
Previously, if a buyer wanted to integrate a Brazilian risk into its global programme while complying with local non-admitted rules, it had to go through a neverending pre-approval process at Susep, the insurance supervisor, which could last several months.
“Global programmes were very affected by the rigidity of the Brazilian market. As a rule, when a policy from a global programme was adapted to reflect the Brazilian wordings, it became a Frankenstein,” says Marcia Cicarelli, a partner at the Demarest law office in São Paulo.
The adaptation was made by the “tropicalisation” of the original policy via the addition of clauses that modified its content in order to make it compliant with covers that were already approved by the supervisor.
Cicarelli recalls that, in one particularly tricky instance, no less than 74 clauses needed to be added to a master policy from a multinational company in order to achieve this goal. It is no wonder that, according to market players, the process could take up to a year, causing severe disruptions to global programmes with significant Brazilian exposures.
The new resolution has changed the scenario by stipulating that insurance contracts for large risks can be freely negotiated between buyers and underwriters, with no need for Susep to give the green light to the process.
Even covers that do not exist in the Brazilian market can encompass local risks as long as they are translated to Portuguese, comply with Brazil’s insurance contract rules and are fronted by a local insurer.
“For global programmes, the contract issued in Brazil was very bad. Now it will be much easier for companies to manage their Brazilian exposures within global programmes,” says Joao Marcelo Santos, a partner at the Santos Bevilacqua law office in São Paulo. “Brazil will no longer be an exotic jurisdiction.”
The new flexibility on wordings is also expected to open the gates of innovation in Brazil’s insurance market, as Susep’s rigidity and cumbersome approval processes made it hard for insurers to introduce new covers in the country.
“There are good opportunities to further develop BI covers. There are still some limitations as triggers are linked to physical damage, and they need to be very clearly defined in the policy. Now the market has an opportunity to innovate by introducing a variety of triggers, perhaps with parametric products for example,” says Rodrigo Ávila, head of corporate risks at brokers MDS in Brazil.
Eduardo Figueiredo, head of corporate risk and broking at Willis Towers Watson in Brazil, notes that the company is already preparing a reputation-insurance solution, as well as new political risks wordings that aim to help Brazilian buyers tackle their ever-evolving risk exposures at home and abroad.
“We can bring those products from abroad, ‘tropicalise’ them to some extent, and offer them in the Brazilian market in partnership with insurance companies,” he says.
As Brazilian wordings converge towards standards employed in markets like London, Bermuda or the US, their integration with global programmes could be further improved. However, buyers will have to let insurers know that they want tailor-made products in order to give the market a push to actually offer them.
Lack of new wordings
Eight months after the resolution was published by the government, there still is a lack of new wordings in the market, as insurers are taking their time to adapt their internal process and reinsurance contracts to the more flexible underwriting processes.
It is not an easy task as the Brazilian market has for a long time been kept on a tight leash by Susep and, until 2007, the then monopolistic state-owned reinsurer IRB.
“The opening up of the reinsurance market in 2007 was a revolution,” Santos says. “But product regulation remained very heavy – approving a new product with Susep was a nightmare.”
The result was that Brazilian companies did not develop the ability to innovate as quickly as in markets such as London. The process to set up tailor-made covers for big clients involved huge amounts of red tape, and risk managers often complained that underwriters showed little willingness to put their noses to the grindstone.
Many are still hesitant at dropping their off-the-shelf products in segments like property, liability or D&O in order to work with clients to develop customised covers, Cicarelli points out.
“We tell them that they do not need to adapt anything. Now they have complete freedom to write their own covers,” she says.
Luciana Prado, also a partner at Demarest, warns that it will take some time for the market to adapt itself to an era of wordings freedom. In her view, the international insurers who now dominate the Brazilian corporate insurance market can take advantage of the expertise of their mother companies to push the process forward. But it is up to buyers to make it clear that they want the new practices to take hold in the market.
“We are not seeing demand for tailor-made covers yet but the regulatory framework is there. People wanted freedom for wordings; now it’s a question of learning how to use it,” Prado points out. “Companies’ risks can be better translated into an insurance cover and this will be a competitive advantage at lower costs for them.”
Thomas Menezes, the CEO of It’sSeg, a Brazilian broker that is now part of the US-based Acrisure group, says that large insurance buyers are ready to work with customised covers, and underwriters that step up to the challenge will have an advantage in what could be a growing market.
“Now, insurers will be able to look at a company as a risk and adapt their offer to what it needs, rather than providing some standardised products,” he points out.
The new rules have also made it possible for insurers to integrate several different covers into a single package for corporate insurance buyers. Although this is common practice in many markets around the world, in Brazil, before March, it was allowed only for a few kinds of buyers, such as oil and gas companies, airport operators and banks.
“The integration of covers will happen, but not too quickly. Clients may be concerned about spending too much time negotiating a customised policy with a single insurer, without a guarantee that the underwriter will offer the same product in the following year,” Avila says. “It will take some time for the market to feel confident that these changes are here to stay.”
Figueiredo stresses that therein lies the opportunity for Lloyd’s and Bermuda underwriters, for example, who want to expand their presence in Latin America’s largest market. They have the reputation of providing tailor-made and packaged solutions for clients that have singular risk exposures, and now they will be able to offer that same expertise in Brazil.
Large risks are defined by the resolution as those that require covers of more than BRL12m, which is equivalent to about €2m. Companies whose annual turnover reaches more than BRL57m, or €9m, can also purchase cover for large risks, as well as those that have assets valued at at least BRL27m (€4.3m). Risks in sectors like oil and gas, international trade and global banking are automatically dubbed large risks.
Menezes says the dynamic that the new rules can create in the Brazilian market may attract new players to the corporate insurance sector, especially in areas like cyber risk, where the offer of cover and consultancy services alike remains minimal, even though Brazil is widely seen as one of the economies most exposed to cyberattacks.
The alliance with Acrisure, which purchased a controlling stake in It’sSeg in October, answers to this reasoning, as the US broker has also invested in its cyber risk capabilities lately.
Furthermore, the Brazilian regulators are implementing a bold ‘open insurance’ strategy, which aims to ensure that, by the end of 2022, insurers and brokers have free access to data from products, sales channels and customers.
“But open insurance should have a significant impact on large risks too. Data about all kinds of insurance, both retail and large risks, will be shared by market players,” Prado says.
In Santos’s view, even though it may take a while, Brazil’s insurance market is on the verge of significant transformation thanks to the recent modernisation push. And in fact, there is little alternative to moving with the times.
“It is a very powerful change that is taking place at a moment when the market is ready for it,” he says. “There are many large global insurers in Brazil that can offer new covers. And it is particularly relevant because risks themselves are changing and digitalisation has taken a leap in the past couple of years.”