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The Brazilian insurance market: its modernization

In reality, still, nothing new to announce. Perhaps the exceptions are the provisional suspension of Resolution 382 and the simplification of mass insurance, which is still under public consultation. There are other points under analysis, however, these two are the ones that affect, in fact, insurance brokers in general.

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

These matters and the stir with the suspension of Resolution 382, make me resume the comments with the situation of the new market.

Recently, due to numerous consultations, conversations and other understandings, I come to the conclusion that, in fact, SUSEP truly intends to modernize the Brazilian insurance market, not only placing it on an international level, but above all in freeing it from the oligopoly exercised by bank insurers, especially in mass insurance, with a highly harmful impact on competitiveness. In addition, breaking the extremely conservative yoke exercised by the domes that dominate insurance institutions as insurers and greater representation of insurance brokers.

This exacerbated dominance of bank insurers and their high fees via captive brokerages and their producer brokers are harmful to free competition. So I must recognize that the attitudes now adopted by Susep have nothing to do with an alleged intolerance against brokers. It is much more the adoption of measures that aim to liberate the market, to provide greater competition and transparency to the activities of insurers and insurance brokers, to increase the number of participants with more insurers competing freely and more brokers providing services to their policyholders – these services, inherent to insurance and not exercised by insurance companies. 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, who is so needy today.

In this sense, we can understand the healthy purpose of SUSEP.

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 comprehensive plan designed to free the market from its current ties, the impact falls with greater intensity on the individual broker-producer, but will benefit them in the medium and long term, competing healthily with the machines producing banks and financial institutions, breaking existing oligopolies.

Before we get to the merits, I go back to the role of insurance brokers. Approximately, from 1980, the market began to adopt the term ‘broker-producer’ for the broker that operates only in the production of insurance, in general, individuals and small companies that operate in mass insurance such as home and car insurance. These are what insurers and SUSEP call ‘mere salesmen’. Next, we have mega brokers that act as producer-brokers for large financial institutions and captive brokers for large companies. And we still have, in a smaller number, what the market determined to call ‘broker’ – big ones too and in this so Brazilian craze to fill our language with anglicisms. Well, ‘broker’ is nothing less than an intermediary or salesman. However, the intention of the market is to understand that a broker would be that broker that operates in insurance intermediation, however, performs extensive and specialized provision of services and consultancy from risk management to full and complete administration of the customers’ insurance program.

I would like to make it clear that I recognize that the activities of brokers, whatever they may be, are not carried out with due professionalism countless times. There are a lot, for example, of brokers that only have contact with the customer when carrying out insurance, in the event of a claim or at the time of renewal. This situation is more common in the producer-broker, which allows the pejorative use of the term ‘mere intermediary. Although, unfortunately, the situation is true, this is due to the current lack of technical knowledge by the brokerage companies that risk is something dynamic and the policy is something static. The broker must always be available to monitor the evolution of his customer’s risk for the correct adequacy of the policy, hence the need to assist him throughout the term of the insurance.

So, to simplify. We will adopt the three terms: producer, captive producer and ‘broker’.

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

Total number of 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 private companies;
  • Approximately 400 professionals or small, medium, large, mega ‘brokers’.

Within this magnitude and context, it seems to me that the relevant points of Resolution 382, for better or worse, affect all brokers. And what else affects insurance brokers?

The Brazilian insurance market – its modernization

The National Insurance System is in a strong transition process with the direct and indirect participation of all its representatives. This process aims to modernize the system or what each sector believes to be ‘modernization’.

For some, the necessary inclusion of our System in the International System and consequent adaptation to the evident globalism of insurance; for others, the traditional complacent stance of maintaining the ‘status quo’; and still others, ultra-conservative, intend to return the monopoly of reinsurance and absolute state control of the System.

It seems to me that the initiatives to introduce this process start with the breaking of the monopoly maintained by the IRB: a few market leaders – brokers, some insurers and technicians from the IRB itself, aware of the international and global condition of insurance – tried to update the methodology of the processes in our System. Unfortunately, they were hampered by the abundant ignorance that permeated Government decisions, in the structure of SUSEP, in the representations of insurers and brokers who, at the time, believed that the breaking of the reinsurance monopoly and the authorization for the creation of Brazilian reinsurers – highly protected – would be enough modernization for our market. They did not take into account the main and traditionally overlooked point: the major interests of the customers.

For years, the ideal of modernizing the market has been maintained through articles, courses, lectures, techno-commercial and political pressures. However, with the arrival of the new SUSEP Superintendent, Ms. Solange Paiva Vieira, arose a greater interest. And everything leads us to believe that, undeniably, the renowned economist and trusted person of the Minister of Economy, follows the primer of frank neoliberalism where State intervention as a participant in the evolution and modernization of the economy is allowed. In this sense, it contradicts the laissez faire of liberalism, the survival of the strongest of old Darwin and the Wild Capitalism of the Americans of yore.

I have great sympathy for neoliberalism, however, in the case of the activities now under study and others practiced by SUSEP, I believe that there must be a certain distance, except for better judgment, between the position of the Superintendent who seeks to modernize our archaic System and the other structures of SUSEP that still persist in acting in the 1967 style. As in the case of Resolution 382 of 2020, which seems to indicate a certain lack of knowledge regarding the activities of insurance brokers. On the other hand, several agendas under study with the purpose of allowing the market to take on the free creation of its products, eliminating the systematic standardization of clauses and conditions, demonstrate a clear objective of modernizing the System.

Except for a better judgment, what seems to me is that no one bother to find what the absolute majority of participants in the current Insurance System want. How to participate in the international market to which you are dependent and participant. Above all, to respond to the real customer demand to what, in fact, would be the modernization of the market.

Therefore, it is essential that everyone gets involved and listens, comments and advises on SUSEP studies in order to achieve a long-term objective, of a proposal for the proper, efficient and effective functioning of a new Insurance System in Brazil. That it does not accept the traditional subservience of the weakest to the strongest, an important point of neoliberalism. It is also worth remembering that the economic / financial development of the insurance market depends heavily on the country’s own economic evolution and, as a consequence, on the adoption of measures that will allow the generation of demand for insurance. With the outbreak of the pandemic, we were already in a serious situation in the economy. We were waiting for numerous reforms after the Pensions/Social Security. Now, the recession is even stronger and, certainly, its effects will be felt by the System. Thus, it is important to understand that simple modernization will not necessarily influence the growth of insurance production, nor will the System adopt actions that, under the pretext of competition and cost reduction, intend modern, professionally false measures and alien to reality, very common in countless projects and programs in Brazil.

As mentioned at the beginning of this article, the ideas for modernizing the National Insurance System are quite heterogeneous, with numerous and different thoughts in the way intended for its maintenance and, above all, in the way of acting in the Insurance activity. The important thing to consider preliminarily is that the insurance activity is important and reasonable, involving millions of jobs and different dependencies. Therefore, the attempt to modify the System in an exemplary manner is extremely serious. By the way, it is good to remember that the technical insurance reserve in Brazil reaches a value above 1 trillion reais. This is still quite small considering the international market.

So, within my inference, what do we really want for a new Insurance System?

Of the countless versions, I dare to present what I think each of the participants could recommend: really, it is a great boldness, because, humbly, I should retire to my insignificance. But let’s go!

In the context of ultraconservatives, it seems to me that most of them would like to go back to 1967 with the System imposed by Decree Law 63, including maintaining the IRB as a monopoly body. In this group, we will find a reasonable number of insurers, mainly among those that best control their representative institutions. Also, a reasonable number of insurance brokers linked to their representative bodies.

The conservatives, in my opinion, wish to maintain the current situation, the ‘status quo’, with greater control by SUSEP in order to standardize conditions and clauses to the maximum, further restricting the activities of insurance brokers with strict supervision, preferably under their total control. Here we find bank insurers and other interests.

The liberals, on the other hand, want the total insertion of the local market into the international market, bringing to Brazil all product operations, immediately modernizing the services inherent to this activity. Financial institutions, banks, investment companies and that such would be excluded and prohibited from operating in insurance. In my view, it would place insurance and reinsurance activities entirely at the mercy of the international market and, here in Brazil, influenced by savage capitalism, it would detonate the weakest. For example, we would have to consider whether Brazil is interested in maintaining reinsurance companies. Would the IRB be kept holding more than 60% of the national reinsurance, as a Brazilian reinsurer, removed from the banks’ shareholding control?

Finally, we have the neoliberals from Ms. Solange Vieira, who, in my opinion, intends to open the market by liberating the productive operation of insurance companies, creating the conditions for technical improvement of insurance brokers, however, balancing the pressure of the strongest, allowing the maintenance of local insurers and reinsurers, but, fully inserted in the international market.

And, after all, what does the customer want?

I dare to consider that the Brazilian client, or operating in Brazil, wants his risks to find efficient and effective technical conditions and services from his brokers and the insurance market that allow him to control the choice of his retention and insurance transfer policy. And in this process, a fair and judicious regulation of claims and, above all, the return of the institution of ‘good faith’ from a distant past, which today is called professional ethics.

Paulo Leão de Moura Jr. – São Paulo, July 2020

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