New legal framework: Debate on insurance clarifies doubts and impacts of legal treatment
On November 17, insurance market specialists and representatives took part in a debate called “Updating the Legal Treatment of Insurance in Brazil.” The aim was to analyze Bill 29 of 2017, which seeks to establish a new legal framework for insurance contracts.
Among the debaters, there was a prevailing concern to clarify doubts and offer solutions to some of the controversial impacts of the bill, presented by Senator Jader Barbalho on November 21.
The bill aims to create a general insurance law, defining new parameters for the relationship between insurers and their customers. With the aim of strengthening consumer rights, the text features additional restrictions on insurance operations in Brazil and repeals some articles in the Civil Code that refer to the sector.
Interfaces between insurance regulation in Brazil and Bill 29 of 2017
Solange Vieira, a former head of the Brazilian Private Insurance Regulatory Agency (SUSEP), noted that the subject has been debated since 2004. “Nearly 20 years have gone by. We’ve had a technological revolution and a revolution in labor relations. The world has evolved toward different possibilities for labor relations, implying different types of insurance. We went through the Economic Freedom Act, aimed at trying to regulate as little as possible. SUSEP has also been increasingly seeking to minimize regulations in order to give more freedom for contracts to be negotiated, thereby increasing the supply of products, which will tend to reduce prices,” she said.
According to her, the impression is that the bill will strengthen customers’ position. “However, we have to think about whether the suggested measures will really protect consumers or whether they will push up prices for these same consumers. Price is a sensitive issue, especially given that insurance coverage in Brazil is very low,” she said.
Professor Luciano Timm of the FGV Sao Paulo Law School added that consumers are already protected by the Consumer Protection Code. Likewise, according to lawyer Marcelo Mansur Haddad, there is no need for a specific law to regulate the insurance sector, as it already has its own legislation via a chapter in the Civil Code. “If there is a law, the first thing that will happen is an inflationary effect, and all prices will be affected, because insurance is a fundamental part of the economy,” he warned.
The legal vice president of Prudential do Brasil, Antônio Rezende, highlighted concerns about legal certainty in relation to the bill. “We have an important theoretical discussion. At the same time that debate is the great driving force for improving the quality of legislative, regulatory, consumer or investment decisions, this bill fails to consider the real impacts on each part of the market,” he said.
Thinking about how this law meets the objective of extending protection was also a point raised by the Prudential representative. “If there are gaps that warrant improvements, it is our duty to contribute to these specific points to ensure that this process of improvement happens. If there is a social goal of expansion and there is a settling period, we will have to work on sub-legislative regulation, which is very important but hasn’t happened in Brazil yet. The discussion has to deal with how this impact mitigation can be carried out quickly, so that we have an instrument for progress, because the purpose of the law is to benefit society as a whole,” he concluded.
Lawyer Juliana Pela believes that the bill will enhance the Civil Code by dealing with some regulatory issues. “It’s very relevant to the discipline of insurance companies. The bill aims to fully regulate the insurance market,” she said.
In her view, the bill will impact the insurance market by establishing more favorable rules for policyholders, many of which are similar to those in the Consumer Protection Code. “However, the bill also includes rules that could give rise to a certain discretion in judgments, and this could bring instability to the market until certain matters have been defined,” she added.
She also pointed out restrictions on dispute resolution contained in the bill, such as a requirement for arbitration to take place in Brazil and the mandatory application of domestic law, as well as the absolute jurisdiction of the Brazilian courts to resolve insurance disputes. “These rules seem to me to be more restrictive than what we have today and they could hinder Brazil’s involvement in the global insurance market,” she warned.
Reform of legal treatment of insurance contracts in Civil Code
Another topic discussed at the event was “Controversial Aspects of the Insurance Bill.” Lawyer Thiago Junqueira identified greater flexibility in the risk aggravation regime in insurance contracts as a problem. “If this balance is upset, policyholders may end up losing their guarantee,” he explained.
With regard to life insurance, Junqueira said that insurers will be obliged to pay for everything, with significant social impacts. “Prior legislation has an incentive structure to avoid opportunistic attitudes. However, this type of legislative treatment goes against this principle,” he warned.
Finally, the lawyer criticized the way the bill has advanced in the Senate. “Several institutions have drawn attention to the need for changes. It seems to me that a public hearing is required in order to have a debate,” he said.
Consultant and arbitrator Walter Polido said that he was in favor of this bill at the time when there was a monopoly in the reinsurance sector in Brazil. “I’ve always been in favor of a micro-systematic law. Insurance ought to be removed from the Civil Code, which is outdated. However, I’m going to continue to criticize the bill as it currently stands,” he said.
According to him, Brazil has a transparent arbitration law. “We don’t need another law to deal with arbitration for reinsurance and insurance specifically. That is unquestionable,” he argued.
Polido also pointed out that the Consumer Protection Code is 33 years old and it is well engrained in society. “Consumers are already more than protected. The insurance law shouldn’t be in favor of insurance customers, insurers or the government. It has to be impartial, without ideology,” he said.
Guadalupe Nascimento, director of internal controls at reinsurer Allianz Commercial, questioned the direction the bill has taken. “Is it aimed at people who take out car insurance, or large risk policyholders?” she asked.
“This increase in costs will be passed on. The premiums will take into account the loss ratio, so the higher loss ratio will be passed on to customers. It will have a cascading effect and in the end the policyholders will foot the bill,” she added.
Austral Holding’s legal manager, Daniella Lugarinho, pointed out the need for a study of the approved version of the bill. “One year will be a short time to adapt and we know the cost this will impose on those we want to protect as well,” she said.
Closing the event, Professor Andre Correa of the FGV Sao Paulo Law School asked whether the regulatory differences may bring about any benefits that could offset the increase in management costs. “Through legislation, regulation or other incentives, we need to achieve an optimum level of cooperation between economic agents, which doesn’t lead to collusion, as well as cooperation between public and private regulators, which doesn’t create obstacles for new entrants, somehow allowing us to have healthy competition in the market,” he concluded.