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The Brazilian insurance market: its modernization

In reality, there is still nothing new to announce. Perhaps, the exceptions are the provisional suspension of Resolution 382 and the simplification of mass-market insurance that is still under public consultation. Other points more under analysis, but these two are the ones that affect the most, in fact, insurance brokers in general.

I sincerely hope that SUSEP sends, as soon as possible, for public consultation and approval the release for the market to freely create the products, clauses and conditions based, obviously, on legal, secure, technical measures and strict responsibility with the necessary quality. In my view, this is the best way to generate the degree of competitiveness desired by the current SUSEP.

These issues, and the kerfuffle with the suspension of Resolution 382, make me resume my comments with the new market situation.

Recently, as a result of countless consultations, conversations, and other understandings, I have come to the conclusion that, in fact, SUSEP truly intends to modernize the Brazilian insurance market, not only placing it at an international level, but above all in freeing it from the oligopoly exercised by bank insurance companies, especially in massified insurance, with a highly harmful impact on competitiveness. In addition, to break the extremely conservative yoke exercised by the hierarchies that dominate insurance institutions such as insurance companies and the larger representation of insurance brokers.

This exacerbated dominance of bank insurers and their high fees via captive brokers and their broker-dealers is harmful to free competition. So, I must recognize that the attitudes now adopted by SUSEP have nothing to do with a supposed intolerance against brokers. It is much more the adoption of measures that aim to free the market, to provide more competition and transparency to the activities of insurers and insurance brokers, to increase the pool of participants with more insurers competing freely and more brokers providing services to their policyholders – these services, inherent to insurance and not performed by insurers. All of this within a modern quality structure of products and services inserted in the international insurance and reinsurance market and that are, in fact, compatible with the interests of the consumer, the insured, so needy today.

In this sense, we can understand SUSEP’s salutary purpose.

In the process of successfully implementing its positive market innovation policy, some aspects escape the understanding of what really affects, here or there, a specific sector, in this case the situation of insurance brokers. With the sudden impact of Resolution 382, not understood as part of a broad whole planned to free the market from its current moorings, the impact falls with greater intensity on the individual broker-dealer, but will benefit them, in the medium and long term, to compete healthily with the producing machines of banks and financial institutions breaking the existing oligopolies.

Antes de entrarmos no mérito, volto a tratar da função dos corretores de seguros. Aproximadamente, a partir de 1980, o mercado começou a adotar o termo ‘corretor-produtor’ para o corretor que atua tão somente na produção de seguros, em geral, pessoas físicas e pequenas empresas que operam nos seguros massificados como automóvel e residencial. These are the ones that insurers and SUSEP call ‘mere intermediaries’. Next, we have mega brokers who act as broker-dealers for the large financial institutions and the captive brokers of large companies. And we still have, in smaller numbers, what the market has determined to call “broker” – also big and in this so Brazilian mania of filling our language with anglicisms. For, ‘broker’ is, no less, a broker or intermediary. 

However, the intention of the market is to understand that a “broker” would be a broker that acts in the intermediation of insurance, but performs extensive and specialized services and consulting from risk management to the full and complete administration of the client’s insurance program.

I want to make it clear that I recognize that the brokers’ activities, whatever they may be, are not carried out with due professionalism time and time again. It happens a lot, for example, brokers that only have contact with the client when the insurance is taken out, in case of a claim or at the time of renewal. This situation is more common in the broker-producer, which allows the pejorative use of the term ‘mere intermediary’. Although, unfortunately, the situation is true, this happens because of the current technical ignorance of brokers that the risk is something dynamic and the policy is something static. The broker must always be available to monitor the evolution of his client’s risk for the correct adjustment of the policy, hence the need to assist him throughout the insurance term.

So, to simplify. Let’s adopt the three terms: producer, captive-producer, and broker.

In the absence of statistical information, I dare to present, by ‘guesswork’, some numbers that may help understand the current fears of insurance brokers in general, namely:

Total insurance brokers in Brazil: approximately 97,000.

  • Approximately 80,000 broker/producers, individuals;
  • Approximately 16,000 brokers, legal entities;
  • Approximately 100 captive brokers from banks, financial institutions and proven companies;
  • Approximately 400 professional brokers, small, medium, large, mega.

Within this magnitude and context, it seems to me that the relevant points of Resolution 382, good or bad, affect all brokers. And what affects insurance brokers the most?

 

 

Anticipate the client’s remuneration

Hidden Client

Insurance company to assume responsibility for the broker’s performance

Broker-producers individuals and companies

X

X

X

       

Captive brokers banks and companies

_

X

_

       

Broker

?

X

X

 

In this chart, we analyze the likely impact of these points by broker:

  • Broker-dealers, individuals and companies, will be directly impacted. Anticipating the remuneration to the client may cause a very aggressive situation and generate a predatory competition for the “mere intermediaries”. On the other hand, they can improve and reduce rather exaggerated commission rates of between 20% and 30% of the premium. Mass insurance does not require a provision of services that justifies these commission rates. However, it is fair to recognize the difficulty of brokers subjecting themselves to commission auctions. Here, my fear is that it will result in yet another way to encourage fraud and trickery among insurers and brokers eager for production.

The impact caused by the ‘hidden customer’ is important, since the provision of services is certainly not the strength of these brokers and, thus, they are vulnerable to the punitive actions of SUSEP. In some aspects, I understand that SUSEP tries to stimulate brokers to be service providers, but in an imposing and even somewhat fascist way, creating conditions for blackmail and corruption.

 

  • Brokerage houses captive to banks and financial institutions can be hit financially, as they can lose the financial incentive given to their agents and managers. For these brokerage houses, the remuneration is simply another source of income. For the captive brokerage houses of other companies, their usefulness is in disuse if they do not invest technically in their professionals to become competitive with the professional brokers.

Regarding the importance of the intervention of the ‘hidden customer’ and the insurer’s responsibility regarding the captive’s compliance with the 382 determinations, it seems to me that here lies the most important point of SUSEP’s action to counteract the current oligopolization of the mass insurance sector. Besides the captive brokerage houses collecting incompatible remuneration, they will not have the means to justify it to the ‘hidden customers’, since they undeniably do not provide any service to their customers, which will certainly, in some way, subject them to punishment and even extinction by SUSEP.

In my view, with respect to companies in general, it is not worth having a captive brokerage. Much better, in some cases, to invest in the creation of captive reinsurers. This initiative could provide SUSEP with the means to break the oligopoly of the banks in mass insurance and generate greater competition in the market.

 

  • That leaves the professional brokers, or in today’s jargon, the ‘brokers’. This broker generally acts in large corporate insurance and reinsurance. In most cases he works in the risk management and insurance system. The remuneration, in general, is on a fee basis. The problem is that this fee must be calculated according to the costs of the services to be rendered and, in some cases, according to the aggressiveness of the companies for their future marketing purposes. There are brokers who are able to practice “dumping” and provide services for up to five years without charging anything from the client. This attitude is certainly unprofessional, but it keeps the client safe.

Normally, the amount charged is the result of an analysis compatible with the services rendered required and a reasonable profit determining a fixed final price or commission. In this case, SUSEP’s rule can also result in predatory competition. Another important aspect is that the price for services has difficult precision, without first having the broker perform extensive work of risk analysis and other conditions of the client. How to anticipate price without first analyzing the client’s risks? At this point, the impact of Resolution 382 on the anticipated definition of price for services ranges from unknown to a total undue intrusion by SUSEP. In this particular case, we have brokers in Brazil, large providers of services and consulting, with final remuneration well above the premium of most Brazilian insurers.

In my view, SUSEP’s interference in the definition of prices for brokers’ services is undue and contrary to the freedom of action of companies in general. However, this is the price to be paid for the modernization of our market.

  • Regarding SUSEP’s other attitude, specifically that of the ‘hidden client’, it is not easy to execute. What broker, the professional broker par excellence, will admit the action of a ‘hidden client’?

How will this SUSEP employee introduce himself to the broker? What does he intend to request? Without a clear identification, no broker will make available his technical methods of operation, his performance, the quality of his products, in short, his professional secrets to a so-called “hidden” individual. Simply, the broker’s compliance and governance will prohibit you from doing so. Again, is this the price you pay for modernizing the market?

  • We now come to the issue of insurers being responsible for the actions of a broker, transferring SUSEP’s inability to supervise brokers to insurers. Especially if they are brokers, it is really hard to accept. What is the condition that an insurer has to supervise the activities of a broker?

First of all, the services they provide are totally different. The professional insurance broker provides services and is responsible for the interests of his clients. An insurer rarely provides services to his insured. His supposed services are related to his own interest, that of accepting or not the risk offered by the insured and the broker. In important cases, the broker is much more professional and knowledgeable about insurance services than a large number of insurers. How will an insurer intrude into the activities and operations of a broker that, like any large company, has professional governance and compliance quality, more qualified employees than many insurers, is legally accountable for its operations, and maintains quality assurance of its services? How will a broker submit to supervision of all the insurers with whom it operates? How will this supervision be determined by SUSEP? How will a large brokerage company submit itself to this supervision and transfer of responsibility?

I understand the generalization of Resolution 382 of SUSEP in relation to ‘brokers’ or, as I like to call them, professional brokers, that for the development and modernization of the Brazilian insurance market, it is worth our while to accept the problems and engage fully in the struggle to achieve our inclusion in the international market.

I hope that SUSEP will find the most effective ways to achieve its goal and finally free the market for professionalism. In this sense, it will have our full support. The simplification of mass-market insurance is the first important and salutary measure adopted by SUSEP. We certainly hope that it will be the first of many to liberate and modernize our market.

Paulo Leão de Moura Jr., Brazil THB Chairman – August, 2020

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The Brazilian insurance market: its modernization

In reality, there is still nothing new to announce. Perhaps, the exceptions are the provisional suspension of Resolution 382 and the simplification of mass-market insurance that is still under public consultation. Other points more under analysis, but these two are the ones that affect the most, in fact, insurance brokers in general.

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