VIEW: On efforts to modernise insurance regulation in Brazil

With members from 20 different countries, we see a range of regulatory approaches at Global Insurance Law Connect. While the leading markets have regulatory provision that stands up in any court in the world, some countries face poor oversight, stifling nascent insurance markets and preventing growth.

Recent developments in Brazil, however, demonstrate how solid step-by-step work by a regulator can improve this situation. They also demonstrate the pitfalls that can create very real barriers to such change.

Efforts have been underway for some time to modernise and liberalise the regulation of insurance in Brazil. Already, the Brazilian insurance supervisor, SUSEP, has authorised greater freedom in the creation of new insurance products, with a significant reduction of complexity in the rules around insurance wordings.

Further, the law which did not allow HMOs (Health Management Organisations) and pension funds to be direct cedents in reinsurance operations has now been clarified, with the intention to confirm that it is permissible for them to buy their own reinsurance. However, the change became a controversial matter – one which is currently being tested by the Brazilian Supreme Courts. The insurers backing the court action want to remain the only option for risk transfers by HMOs and pension funds. In essence, the insurers have taken the case out to protect their monopoly in Brazil.

This is a typical barrier that regulators face in emerging markets, and one that must be challenged. Even now, things are not as confused as they look. The original resolution is still currently in effect, and the chances of success for the insurers backing the court action remain very remote.

Meanwhile, the same resolution opened a wider debate about whether it was now possible for foreign reinsurers (including Lloyd´s) to reinsure risk coverages associated to accumulation products in life and pension plans. After some debate, SUSEP settled its position in favour of the foreign reinsurers. This is a real positive for major corporates, given that Brazil, although a young country, has a large and well-funded private pension system with a real need for risk transfer instruments.

In summary, the Brazilian re/insurance market is now without doubt about to see a widening of international access in the life insurance and pensions. Other regulators could do worse than follow Brazil’s ‘prune and improve’ approach to its insurance regulatory oversight if they wish to see their markets grow too.

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