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Does Brazil Need Reforms to its Insurance Sector?

Seguros, Resseguros e Previdência privada
Financial Services Advisor

New legislation pending in Brazil’s Congress could lead to several changes in the country’s insurance sector, the London-based International Law Offi ce reported in late March.
The measure could mean changes relating to insurance contracts, payment of premiums, co-insurers and reinsurance.

Does Brazil need major changes in its insurance laws? If passed, what would be the consequences of the legislation on Brazil’s insurance industry and on consumers? Who will be the main winners and losers if the bill becomes law?

Fabio Ramos, partner at KLA-Koury Lopes Advogados: “Since 2004, when the Brazilian insurance law project was presented to the market, the national debate has been polarized between two groups: one defending that the current legal system doesn’t need changes and saying existing rules ensure the roper interpretation of insurance; and the other arguing that those current rules are out-of-date and unaligned with the new legal order. Therefore, a new insurance law would benefi t insureds and mitigate divergences with insurers.

We believe the biggest problem is the fragmentation of the insurance rules, requiring an exaggerated systematic interpretation and a dialogue among sources to understand insurance products. In this sense, conceptually speaking, the Brazilian market can benefi t from an insurance law that consolidates and presents in a clearer, transparent and linear way the general insurance rules, as long as those rules do not restrict insurers’creativity and impose an unequal burden upon them. If passed, insurers would need to review and sophisticate their processes, products and personnel in order to comply with clearer rules and to insureds’ needs and demands.

Consumers will feel more secure and will better understand insurance products and their rights. At fi rst, insureds will benefi t the most, but in the long-term, insurers and the market will benefi t as well, because, as the applicable rules become clearer and more accessible to society, insurers will need to sophisticate their processes, products and personnel. Although evolution brings fear and uncertainty, through evolution society improves its environment. Therefore, even if the new insurance law initially brings discomfort to the market, perhaps it is time to face the fear, embrace the new and try to evolve with the new times.”

Andre Alarcon and Marcia Cicarelli, partners at Demarest Advogados: “In our view, there is no need for a new law. The Civil Code already contains a chapter regulating
the insurance contract. Considering a fast-changing environment in view of new technologies, it is best that insurance is regulated by principles, rather than by such a strict and detailed legislation. Detailed legislation goes against the practice of most developed markets and limits the Brazilian insurance market’s ability to develop and to reach potential growth levels, which would contribute to the country’s economy as a whole. Also, reinsurance should not be further regulated. Complementary Law No. 126/07 already deals with reinsurance. If passed, the new law would require insurers to adapt their products and operational procedures. The law brings some positive changes for consumers, but it does not differentiate consumer insurance products from complex insurance products. Therefore, the changes might bring uncertainty for some lines of insurance. The law contains positive and negative provisions. Insurance players and consumers will gain with the articles that bring clarity for some points of the insurance operation, but unclear and unnecessary provisions may increase the exposure of insurers and reinsurers, bringing legal uncertainty and a more complex business scenario.”

Marcelo Mansur Haddad, partner, and Jaqueline Suryan, associate, in the insurance, reinsurance and pensions practice of Mattos Filho Advogados: “Brazil’s proposed insurance legislation (bill no. 3555/2004) aims to create a standalone insurance law to entirely replace the insurance provisions of the Brazilian Civil Code of 2002 governing insurance contracts. Insurance and reinsurance operations would not be affected by the proposed legislation (and would continue to be governed by existing rules). However, the bill is not uncontroversial. Fundamental assumptions of the new legislation are that all insurance relationships are consumer relationships and all insurance contracts are adhesion contracts. This results in several provisions granting unbalanced protection for all types of insureds, whether unsophisticated individuals or big corporations that have sophisticated risk departments. In addition, the bill mandates new claims adjustment provisions imposing deadlines, procedures and rules that, while not specifi cally benefi ting claims adjustments of mass insurance products, will likely convert claims adjustments of large risks into fairly litigious procedures. The bill contains some innovative reinsurance provisions, leading to some controversy over whether (or not) the insurance law should address that, or simply provide that it does not apply to reinsurance (we believe the latter to be the better approach). One of the most disputed reinsurance provisions imposes mandatory extra-contractual obligations on reinsurers.

Notwithstanding the above, the bill does bring some improvements. It better regulates coinsurance, it eliminates the need for a written insurance proposal to be issued by the prospective insurer (or its broker) and also provides more clarity for statutes of limitation on reinsurance matters. The bill is subject to a fast-track proceedings at the Brazilian National Congress. On April 12, the Chamber of Deputies approved it and sent it to the Senate. If the legislation is amended in the Senate, such changes will need to be assessed by the Chamber of Deputies. Once fi nally approved, it would need to be signed by the president, who has some limited veto powers.”

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