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Microinsurance

Microinsurance in Brazil


This section aims to provide an overview of the initiatives taken place in Brazil to implement an appropriate regulatory framework to develop microinsurance in our country.

Being responsible for the control and supervision of the insurance, reinsurance, open private pension funds and capitalization markets in Brazil, SUSEP was quick in recognizing this global trend. Since 2003, aligned with governmental directives, SUSEP has been instrumental in facilitating implementation of simple and low-cost insurance products, more adapted to the needs of the low income population and also to the formal and informal micro-entrepreneurs.

Towards the end of 2003 SUSEP initiated internal discussions to design simple and low-cost products. This culminated in the release in 2004 and 2005 of two popular insurance circulars. These are:


Circular SUSEP 267/2004 that creates a popular life insurance category; and

Circular SUSEP 306/2005 that creates a popular auto insurance category.


These circulars aimed to provide the market with standardized popular insurance products adhering to certain cover, premium and benefit standards.

However, this regulatory initiative did not elicit the expected response from the market, since they do not prove to be appropriate enough to ensure registration of products under the popular insurance lines. On the other hand, it may be noted that the rules encouraged the debates on microinsurance, since the subject matter was unknown in Brazil before 2004, sensitizing the insurance industry. Since then, so many insurance products were created focusing on low-incomers, then capturing the interest for this segment.

Another positive point to be highlighted refers to a particular clause of the SUSEP Circular 267/2004. It expanded the distribution channels which could be used to include utility lines, providers and concessionaries of public services, call centers and the internet. This opened up the space for alternative distribution in Brazil.



Parallel Incentives


Another important fact that took place during the same period was the issuing of the Decree 5,172/2004, which lowered the IOF (Financial Transactions’ Tax) for life insurance from 7% to 2%, going to 0% in 2006. This change has been causing positive effects on the commercialization of life products in general, and was the main industry’s claim by the time the rule was elaborated¹.

Moreover, the issuing of the Ombudsman rule (Resolution CNSP 110/2004) established important mechanisms to safeguard the consumers rights, especially of the less fortunate ones, resulting in the creation of ombudsman departments on almost all the insurance companies supervised.

Other changes have had the most profound impact on the opportunity for microinsurance and popular insurance lines in Brazil:

  • The Real Plan in 1994 can be regarded as the watershed in recent Brazilian economic history, stopping the inflation process.
  • The opening up of the market to foreign insurers in 1996.
  • The creation of the PGBL plan in 1998, followed by the VGBL plan in 2001.
  • In 2003, SUSEP started a modernization process to bring insurance in Brazil in line with international best practice, most notably the IAIS Insurance Core Principles.
  • Since 2003, the Central Bank of Brazil (BACEN) requires 2% of banks’ demand deposits to be dedicated to microfinance operations, or else to be deposited with the Central Bank without remuneration. Funds are targeted to microfinance through a national program under Law 11,110 of 2005.
  • Since 2004, legislation also allows consigned credit–loans for salaried workers, including public pensioners, of which the repayments are deducted off the employee’s payroll without the abilities of employers to stop the order. The latter provision has been a major driving force in the growth of the retail credit market.
  • The issuance of CNSP Resolution 107 of 2004 clarified the role of the “estipulante” and its position vis-a-vis the insurer and the insured.



Microinsurance x Popular Insurance


In Brazil the term “popular insurance” is used standing for small-scale mass products. However, popular is not the same as microinsurance since microinsurance targets low-income households whereas popular insurance is for all kind of customers and just means insurance of small amounts.



SUSEP participation in the IAIS-MIN JWG-MI


SUSEP has been involved on the international microinsurance front through the IAIS-Microinsurance Network Joint Working Group on Microinsurance (JWG-MI) since its beginning in 2006. This working group is comprised of IAIS Members and Microinsurance Network representatives (Subgroup on Regulation, Supervision and Policy Issues).

The International Association of Insurance Supervisors (IAIS), established in 1994, represents insurance regulators and supervisors of some 190 jurisdictions and, since 1999, has welcomed more than 120 Observers representing industry associations, professional associations, insurers and reinsurers, consultants and international financial institutions. The IAIS issues globally accepted principles, standards and guidance papers for insurance regulation and supervision, working closely with other financial sector standard setting bodies and international organizations to promote financial stability.

The Microinsurance Network operating since 2002 includes representatives from donors and international development agencies and other insurance and financial systems development experts. It supports the development of microinsurance through research, tools, coordination and awareness creation.

For these reasons, the active participation of SUSEP in this working group has provided valuable inputs and guidelines for the work being developed in Brazil in its way to promote an appropriate regulatory framework for microinsurance, which culminated in the creation of the Microinsurance Consultative Commission.



Consultative Commission on Microinsurance


On April 2008, under the initiative of SUSEP, a Microinsurance Consultative Commission was constituted. It was comprised of representatives from both public (SUSEP, Ministry of Finance, Central Bank and Ministry of Social Security) and private sector (Insurers Federation, Brokers Federation and the National School of Insurance², a foundation which has SUSEP among its donors), and aimed towards developing and implementing a suitable regulatory framework for the development of microinsurance in Brazil. Another task was to carry out research and studies on technical and operational aspects of microinsurance.

The participation of other Governmental bodies in the process, besides insurance supervisors, made it possible to broaden the consciousness of the authorities responsible for defining the policies of the sector. This also happened to be one basic recommendation of the IAIS-CGAP Joint Working Group on Microinsurance in order to obtain the alignment of the supervisory and regulatory practices focused on the particular characteristics of microinsurance - facilitating dialogue, especially regarding financial and social issues.

In order to give support to the Consultative Commission, acting also as its secretariat, a working group was created: the SUSEP Working Group on Micronsurance, constituted by SUSEP technicians from different sectors (actuary, statistics, on site and off site supervision departments, among others). Besides that, the Working Group produced four partial reports on the following specific issues:

  • Definition  of “Microinsurance” and “low-income population” for specific microinsurance purposes in Brazil
  • Identification of Regulatory Barriers
  • Identification of Stakeholders and their Role
  • Microinsurance Products and Parameters

Under the Commission, a comprehensive Research Program was also approved. Under this Program, more than 10 reports were developed by experts in finance, economics and insurance, about different topics, including a mortality table for microinsurance.

Both SUSEP´s Working Group Partial Reports and the reports developed under the Research Program are available in English at http://www.funenseg.org.br/microinsurance.php.



Commission Main Proposals


The work developed under the Commission was presented and discussed during two workshops. The first one took place in Rio de Janeiro, in September 2009 when more than one hundred stakeholders participated. The second workshop took place in December 2009, in Brasilia, finalizing the Commission activities.

The Commission main proposals include:

Specific Microinsurance Licence. Microinsurance should only be provided by authorised, sound organisations, either as specialised insurers (microinsurers) or as traditional insurers.

Prudential treatment. Allow for different treatment of microinsurance operations whilst still ensuring that prudential criteria, governance and compliance are observed proportionally to the operational risks incurred.

Product parameters. Microinsurance product parameters should be defined by which microinsurance can be distinguished from traditional insurance products.

Microinsurance brokers. with minimum qualification by means of a differentiated technical training, including minimum necessary requirements

Microinsurance correspondents. Create a “microinsurance correspondent” entity, thus allowing for appropriate regulation of the relations between consumers, insurers and distribution channels.



Definition of “microinsurance”


It is a conceptual definition that reflects the main objectives of the Commission and the way to achieve them.

“Microinsurance is the insurance protection provided by licensed entities within the country against specific risks which aims fundamentally to preserve the socio-economic and personal and family situation of the low-income population by means of premium payments which are proportional to the probability and cost of risks involved, in accordance with the legislation and globally accepted insurance principles.”

This definition was included in the microinsurance bill, currently being discussed in the Brazillian Congress.



Microinsurance Bill


The Microinsurance Bill is a parallel political action that coincidently was introduced in the Brazilian Congress in April 2008 by Congressman Adilson Soares aiming to promote insurance for low-incomers, submitted as Draft Bill 3.266/2008.

The Commission immediately supported the Bill and recommended various changes to it that were duly incorporated. Among others, the bill proposes the creation of a special tax regime on MI operations and for employers who contract insurance for their employees that will entail a dramatic reduction in current tax burden on microinsurance. In line with the Commission proposals, the bill also includes the creation of the MI broker and the MI correspondent, and a specific license to sell microinsurance.





¹ The Decree # 6,306, of 14/12/2007, changed by the Decree # 6,339, de 3/1/2008, changed this percentage to 0,38%.





² The participation of FUNENSEG aims to carry out studies about the potential of microinsurance market in Brazil.

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