Over the past decade, Brazil has emerged as one of Latin America’s most promising economies. Once plagued by a stagnant economy and runaway inflation, the country has made significant progress, reducing debt and bringing unemployment down. The country is one of the fastest-growing major economies in the world. In 2010, GDP growth reached 7.5%—the highest growth rate in the past 25 years—but that has since slowed as the country took steps to cool rising inflation.
Brazil will also move into the international spotlight in the next few years as it hosts the World Cup in 2014 and the Olympics in 2016. These events are expected to showcase Brazil’s status as an emerging economic power and to make a major contribution to the country’s economy.
Brazil’s torrid economic growth, however, has been outpaced by the growth in its insurance sector. The demand for insurance has grown significantly as businesses expand and new businesses are launched. A rising middle class has also created new demand for personal insurance as the standard of living has improved and consumers have upgraded from motorcycles to automobiles or to newer and more expensive cars. In 2012, the insurance sector grew by 16% to 17% based on premiums and was expected to grow at about 15% to 20% in 2013, according to a May 2013 report by Valor Economico.
Further fueling these numbers is the end of the reinsurance monopoly in the country. For many years, the reinsurance market in Brazil was controlled by the IRB-Brasil Resseguros S.A. (IRB), a company co-owned by the Brazilian government and a group of insurance companies operating in Brazil. In 2007, the country opened its reinsurance market to private companies, allowing new international insurers to enter the market and create new products and provide additional capacity. Since then, the reinsurance market has doubled in size, with $5.7 billion in premiums, according to an April 2013 Terra Brasis study.
SUSEP’s Increased Role
In the last five years, the assets managed by Brazil’s insurance regulator, Superintendencia de Seguros Privados (SUSEP), have more than doubled, according to the July 2012 IMF report “Detailed Assessment of Insurance Core Principles of the International Association of Insurance Supervisors.” The market has also attracted interest from new insurers. Brazil’s insurance industry could see as many as 28 new companies enter the market, according to Luciano Portal Santanna, the superintendent of SUSEP, in an interview with Brasil Economico.
The explosive growth of the insurance market and the entrance of new insurers have put additional demands on SUSEP. In the Brasil Economico report, Santanna said that SUSEP currently only has a staff of about 450, but that by law it could expand to as many as 800 and would have a bigger budget to invest in technology and training.
SUSEP also is working to respond to recommendations from the International Monetary Fund to bring insurance supervision in line with international standards. The agency has developed proposals to be submitted to the finance ministry that would allow it to assume greater powers for market intervention and have more independence.
Locally Licensed Insurers Only
In an environment where regulatory scrutiny may begin to intensify, multinational businesses with operations in Brazil need to pay close attention to their insurance programs to be sure they are in compliance with the country’s insurance regulations and reduce the risk of a problem with insurance payments at a time of an insurance loss.
Brazil has strict regulations that require the purchase of insurance from a locally licensed insurer. Many businesses, however, still carry insurance from insurers that are not locally licensed because of practices established years ago when businesses had no other alternative. Businesses may now have to obtain insurance from a locally licensed insurer to be in compliance with Brazil’s insurance regulations.
Businesses cannot afford to be complacent about this issue. In the event of a loss, insurance coverages often involve the transfer of significant amounts of money. But heightened concerns about money laundering have made regulators keenly aware of any transfers involving large sums of money. Any regulator concerned about an insurance payment only has to ask to see the insurance contract to determine whether the payment is legal. In addition, if a situation arises where it would be illegal for an insurer to make a payment, then the payment would not be made.