Brazil’s insurance market rules restricting tailor-made coverage bemoan risk managers

This problem has been exacerbated by a recent decision by Susep, Brazil's insurance supervisor, to eliminate a market practice that facilitated the purchase of 'singular' insurance in circumstances where companies are unable to obtain the desired cover. Susep eliminated the fast track process for approval of singular insurance wordings at the end of 2012. Subsequently if a company needs special coverage demanded by a new or emerging risk, insurers must obtain approval for any solution from Susep. Brazilian firms, particularly those with a large presence in international markets, such as aircraft producer Embraer, fear that the end of this fast track process will only make it harder to place their insurance programmes.hideThis rigid system whereby every insurance contract offered in the Brazilian market needs to be approved by Susep, coupled with the fact that Brazil's reinsurance monopoly only ended in 2008, has prevented the market from moving at the same pace as buyers' needs, risk managers said. Outdated wordings are particularly evident in liability policies, remarked Pedro Henrique Puccini de Gesso, a member of the board at ABGR, Brazil's risk management association. "Liability insurance lines remain too restricted in Brazil. Even a large company like ourselves work with wordings that date back forty or fifty years," he said. "It is difficult to change them. Wordings in liability insurance policies are generic and today the market needs to offer tailor-made coverages." He added: "The chemical industry faces one kind of liability risk while car manufacturers, food producers or electronic companies face risks that are completely different. But the wordings of the contracts are standard and it makes it very hard to get adequate coverages." Risk managers in Brazil complain that decisions taken by Susep are hindering the development of the country's insurance market. Some say that the regulator fails to understand the needs of corporate buyers and their insurers. "As the market is today there are a number of standards that limit the kinds of coverages that insurers can get approved to offer in the market," said Mr Puccini, who is also the insurance consultant at BASF in Brazil. "Everything that does not fit those standards is not approved for sale in the marketplace. But insurers cannot get pre-approval for all kinds of risks that can be found in the modern world. So everything that is not part of current standards becomes singular insurance, which requires a huge effort to get approved and you have to wait over one year to finalise the process. Liability is the line that has stayed further behind and transportation insurance is very traditional too. Property lines are more evolved," he added. "The matter of the singular clauses is causing considerable problems," said Cristiane França Alves, Head of Risk Management at CSN and President of ABGR. "In some cases insurers felt pressed to provide better solutions and would come up with them with the help of the singular clauses. In the end, it all adds to the so-called Brazil cost. The insurance company now needs to hire more people in order to be able to adapt particular clauses to the demands that a large company is making. The risk manager will have to take into account that the level of risk that would have been covered by the singular clause will not be covered anymore, and now there are gaps in the insurance programme." Carlo César Carvalho, ABGR board member and Manager of Insurance and Financial Guarantees at Embraer, added: "The issue of singular clauses affects companies that require types of coverage that are unique to them. Embraer is the only maker of airplanes in Brazil today and as a result it makes no sense to expect that each and every insurance company will develop wordings that are specific to the company. If the singular clauses are not allowed anymore we will have to submit to Susep's approval any wordings and technical norms that are particular to our company every time that we switch from one insurer to another, which means an extra load of work and a protracted process." The full version of this story will appear in the next issue of Commercial Risk Europe.

Brazil’s insurance market rules restricting tailor-made coverage bemoan risk managers

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