In front of a live audience (remember them?) at the MiN’s 2019 June Member Meeting (JMM), Pedro Pinheiro painted a gloomy picture. “Brazil has been somewhat neglected as an inclusive insurance market on the global scene in recent years,” said Pedro, then leading on Consumer Relations and Sustainability at the Brazilian Insurance Confederation CNseg. “Lack of knowledge, income, education, trust, a dearth of offerings, financial literacy, and consumer protection concerns all play their part. Educating the public and modernising the regulations on microinsurance are key.”
For all its potential, Brazil’s inclusive insurance sector has largely failed to take off. As MiN Executive Director Katharine Pulvermacher told the 1st Brazilian Conference on Microinsurance in November 2020, insurance penetration hovers around four percent, and only 13 million people out of a total population of 213 million have microinsurance cover. That could be down to a lack of digital awareness – just four percent of women and five percent of men have a mobile money account – but overly-complex regulation has also had a negative impact.
By 2012, millions of people in Brazil had effectively emerged from poverty and into the ‘new middle class’ consumer market – for the first time, representing a share of 50 percent of the Brazilian population (around 100 million people at the time). The projected demand for microinsurance was estimated at 40 million policyholders and premium projections ran to R$ 6 billion (more than US$ 1 billion) a year. “Those were times of hope,” says Pedro.
“The regulator had a pressing concern about how these consumers, new to the insurance market, would be treated,” says Pedro. “The microinsurance framework provided for a long set of rules concerning market conduct – including for example sending compulsory financial education messages to digital policyholders. The regulatory approach restricted microinsurance product design and made it commercially unviable. There were maximum limits on the insured capital for each line, reduced time limits for claims adjustment and payment, limited contract periods and other impositions. The regulator created a set of ‘boxes’ into which microinsurance products had to fit.”
That’s not to say all regulation was bad – policymakers had to start somewhere and Pedro acknowledges that early attempts to innovate in the microinsurance sector – such as allowing digital sales channels – did pave the way for changes in the traditional market later on. Overall, though, companies not only felt there was little space for innovation, but there were insufficient incentives for adapting existing products to the new rules, even if those products already targeted low-income consumers and small businesses. The result was a mere R$ 335 million worth of premiums in 2020 (US$ 60 million) – a fraction of what had been predicted.
Faced with these challenges, in 2020 the Brazilian regulator Superintendência de Seguros Privados (Susep) undertook a public consultation and embarked on a sweeping programme of cutting red tape and – hopefully – getting rid of the ‘boxes’ which have constrained microinsurance for the past decade. In addition, Fitch Ratings believe the regulatory changes promoted by Susep should help to increase competition – at present, just ten percent of insurance companies hold about 80 percent of the total premiums issued in the market.
Over the past year, the regulator has published 16 new resolutions and more than 20 circulars amending previous regulations and resolutions. Susep has also revoked several regulations that had become obsolete, paving the way for a more competitive and innovative market. The changes now proposed to the microinsurance regulation, which include relaxing strict rules on product design and claims processing aim to reduce costs for insurers and lower prices for consumers.
“By applying innovative aspects of traditional insurance, Susep’s new approach transforms the microinsurance regulatory framework from a prescriptive regime to one based on principles and basic values,” says Pedro. “It will encourage companies to innovate in order to address their customers’ demands. Instead of trying to force microinsurance products to conform to pre-defined parameters, companies will have to make it clear which of their products are designed to serve the specific needs of low-income consumers and small businesses.”
Susep is also aiming for greater transparency – insurers and reinsurers will be asked to register in a new digital Operations Registration System (SRO), partly to help digitalise the market, but also to promote transparency and to aid in fundraising processes. It is hoped this new regulatory approach will not only expand the market for specialised microinsurers but also allow traditional insurance products aligned with microinsurance principles to be better positioned in the inclusive insurance market.
“The new rules proposed by Susep bring an innovative approach, based on principles which highlight customer-centricity and sustainability,” says Regina Simões, Regional Coordinator for Latin America at the Access to Insurance Initiative (a2ii). “They provide insurers with greater freedom in their operations, while imposing more responsibility on them. Considering that the target segment is mainly made up of vulnerable customers, who are likely first-time policyholders, this will require the supervisor to continuously monitor operations and, above all, the impact and value of products for consumers.”
The recent Brazil country workshop co-organised by MiN and CNseg and sponsored by AM Best was a chance to discuss the new regulatory landscape in the country and to explore opportunities for tapping into that all-important middle-income market. “There are still challenges around regulating microinsurance, but regulators have evolved greatly,” CNseg President Márcio Coriolano told workshop participants. “This is especially important when we are dealing with insurance products for the poor and vulnerable. The challenges are not restricted to regulation and we cannot only blame the government. There have been barriers around distribution, payment of premiums, and distribution costs – it is crucial to remove these if microinsurance is to be more relevant in Brazil.”
“The development of restrictive products within a complex regulatory framework impacts operational costs, which is key to effective microinsurance penetration and reaching low-income segments of the population,” says Solange Beatriz Mendes, Director of Consumer Relations and Communications at CNseg. “CNseg is optimistic that Susep’s proposed loosening of such complex regulatory measures will make the microinsurance model more appealing to insurers and incentivise them to focus further on this target segment which is so crucial to both the sector’s and country’s development.”
“The main difference with the new regulatory framework is that we will no longer have excessively prescriptive rules,” Mariana Arozo, General Coordinator of Regulation of Mass Insurance, People and Pension Plans at Susep. “Instead, we now have basic values to promote microinsurance. We want to promote inclusion to cover the more vulnerable populations.”
Beyond national borders, these ‘winds of change’ were also greeted with palpable enthusiasm. Camyla Fonseca, Knowledge and Capacity Building Officer at the ILO’s Impact Insurance Facility believes that the new regulatory regime will stimulate innovation, whilst also ensuring protection of the end-consumer. “We are excited to see the development of new products focused on reaching microentrepreneurs and the low-income segment of the Brazilian population, through simple and easy-to-understand distribution and claims processes, as well as increased insurance education and awareness for customers,” says Camyla.
Two years on from his call to action at the 2019 JMM, Pedro Pinheiro – now Regulatory Leader at StoneCo – is still a champion of inclusive insurance. “Insurance regulation is a product of its time,” says Pedro.
As Brazil continues to battle with one of the highest rates of COVID-19 in the world, this latest transformation cannot come soon enough.