Brazilian Private Insurance Authority (SUSEP) issues new rules concerning Mass Property and Casualty Insurance
Learn about what has changed (and what remains unchanged) vis-à-vis the draft regulation made available via public consultation
On February 17, 2021, the Brazilian Private Insurance Authority’s (SUSEP) Circular No. 621 was published, addressing functional and operational aspects of property and casualty insurance that were raised during Public Consultation No. 16/2020. Launched in July 2020, Public Consultation No. 16/2020 sought to address perceptions of excessive regulation of the Brazilian insurance market, noting a need to deregulate both mass property and casualty and large risks insurance. The local insurance market has been awaiting the release of this document with heightened expectation.
As anticipated in our comments on the draft content submitted for Public Consultation No. 16/2020, SUSEP Circular No. 621/2021 establishes provisions for regulating mass property and casualty insurance, while expressly stating that specific regulation for large risks insurance will be issued in the near future. On the other hand, SUSEP Circular No. 621/2021 also authorizes the application of its provisions to large risks insurance contracts on an optional basis, a new change when compared to the draft.
SUSEP Circular No. 621/2021 does, however, maintain the spirit of the Public Consultation No. 16/2020’s draft. It promotes simplification and greater flexibility in the structure of property and casualty insurance contracts, while preserving the role of state governments to safeguard certain interests of policyholders and beneficiaries. Many of these interests are already guaranteed by pre-existing laws and regulations.
SUSEP Circular No. 621/2021 takes effect on March 1, 2021, after which insurers who offer mass property and casualty insurance products have 180 days to adapt their respective products to the regulation’s new provisions.
When comparing SUSEP Circular No. 621/2021 with the draft from last year’s public consultation, the most significant changes are found in the section regarding excluded risks, as discussed below:
- Even if recognized by a final and unappealable court decision, it has not become mandatory to exclude damages arising from unlawful acts carried out with willful misconduct or gross negligence by the insured party (even if an individual), its controlling shareholders/quotaholders and management; and
- Specifically with regard to civil liability insurance products (financial lines), it is not prohibited to exclude coverage for damages arising from (a) the insured party’s employees intentional unlawful acts, (b) acts carried out by the insured party, the insured party’s beneficiary or a legal representative of either, except when acting with willful misconduct, as determined by a court award (when the latter is an individual) and (c) unlawful acts carried out by the controlling shareholders/quotaholders and management of the insured party (when the latter is a legal entity).
These changes are in line with the initial objective of providing greater flexibility to mass property and casualty insurance products. They increase the ability to develop more suitable products for policyholders and beneficiaries, thus favoring competition in the Brazilian insurance market.
Several central aspects of the draft presented to Public Consultation No. 16/2020 have remained unchanged in SUSEP Circular No. 621/2021, of which we highlight the following:
- Insurers have the freedom to choose not to structure their products according to traditional divisions of general, special and particular conditions. Insurers are expected to take advantage of this flexibility to both customize their insurance coverage, and develop clearer policy terms and conditions for policyholders and beneficiaries;
- Possibility to structure all-risks insurance in such a way that all of the underlying risk’s related events are covered, except for those expressly excluded. This can reduce operating costs and allow policyholders and beneficiaries to take advantage of more comprehensive – and thus suitable – products for their activities;
- Possibility to structure insurance policies with coverage from different insurance lines, allowing for more comprehensive general conditions. The advantage for policyholders and beneficiaries is that this facilitates the insurance contracting process, as it makes it possible to bring more than one insurance line together. However, it should be noted that insurers may only operate insurance lines for which they have received authorization from SUSEP;
- End of standardized and non-standardized insurance policy plans. However, contract conditions and proposals are required to contain a warning that “product registration is automatic and does not indicate recommendation or approval by SUSEP”;
- Exemption of actuarial technical notes from being registered with SUSEP. Insurers must still prepare this document, though SUSEP will be satisfied as long as it is made available for consultation if or when deemed necessary. However, contractual terms and conditions for mass property and casualty insurance products remain subject to registration (and not approval) prior to their respective sale to the public at large.
- Provision of services as an alternative to indemnification payment. Contractual terms and conditions may allow for insured parties to select a service provider or accredited network;
- End of standardized policy competition clause (cláusula de concorrência de apólices), allowing insurers to prepare the wording of such provisions in accordance with the design of insurance policy plans;
- End of SUSEP’s “short term table” (tabela de curto prazo), giving insurers greater freedom to stipulate the relationship between insurance premiums and length of coverage. As per SUSEP Circular No. 621/2021, insurance policies’ contractual terms and conditions must state the consequences of premium payment default, as well as the rules for coverage reestablishment (restabelecimento de cobertura); and
- Prohibition of excluding coverage for claims or accidents resulting from the insured party’s conduct when in a state of insanity or under the influence of alcohol or toxic substances (the draft submitted to Public Consultation No. 16/2020 mentioned the term “alcoholism”). The new regulation provides for such circumstances to be considered as an aggravation of risk, as long as the insurer is able to prove that they are decisive to the occurrence of the claim.
For more information about SUSEP Circular No. 621/2021, contact Mattos Filho’s Insurance, Reinsurance and Private Pensions practice area.