On December 29, 2020, the National Council of Private Insurance (CNSP) published the Resolutions Nos. 398, 399 and 400, providing for new rules on Mandatory Insurance for Personal Injury Caused by Motor Vehicles (“DPVAT”) for the fiscal year of 2021.
After a period of uncertainty surrounding DPVAT insurance due to the changes brought by Provisional Measure No. 904/2019 and the subsequent suspension of its effectiveness, followed by mass requests for the exit of several insurers making up the DPVAT Consortium which culminated in its recent dissolution by the very shareholders of the DPVAT Lead Insurer, the Superintendence of Private Insurance (SUSEP) repealed several rules that regulate mandatory insurance and defined new guidelines for its operationalization that will already be effective from January 1, 2021.
Among them, CNSP Resolution No. 398 establishes that monthly technical provisions must be set up for (i) covered losses that are Incurred But Not Reported (“IBNR”); (ii) claims to be liquidated (“PSL”); (iii) related expenses (“PDR”); (iv) technical surpluses (“PET”); and (v) administrative expenses (“PDA”); excluding the provisions related to unearned premiums and amounts to be regularized that were previously regulated by the now repealed CNSP Resolution No. 377.
This Rule also provides that the PDA and PET technical provisions must be updated on a monthly basis according to the profitability obtained by the investment portfolio that guarantees them, and that the DPVAT Lead Insurer must prepare a set of accounting statements of the Consortium and submit them to SUSEP by June 30 and December 31 of each year, accompanied by the corresponding independent auditors’ reports on the accounting statements, which must be disclosed on its website and submitted to SUSEP by August 31 and February 28, respectively.
CNSP Resolution No. 399 determined that the DPVAT Consortium will be responsible for the management and operation of the DPVAT insurance run-off in relation to claims occurring up to December 31, 2020, including future lawsuits involving them.
The Rule also determined the amount of BRL 59,280,297.00 to cover the administrative expenses of the DVPAT Lead Insurer in the first quarter of 2021, highlighting that the amounts allocated for these expenses in subsequent months will be defined later by CNSP, as well as any amounts necessary to liquidate the asset account of amounts to be offset by the DPVAT Consortium.
Lastly, CNSP Resolution No. 400 granted SUSEP the right to hire, on an emergency and temporary basis, a new public or private entity to manage and pay the claims reported from 2021 onwards, considering the recent dissolution of the DPVAT Consortium and the run-off of the DPVAT Lead Insurer.
In order to carry out such duties, the new managing company will set up a fund to manage provisions for future claims and will also receive a transfer from the Lead Insurer of the amounts related to the payment of claims for 2021, based on the technical provision held until then.
Another innovation for 2021 brought by the Rule is that there will no longer be the requirement to issue the DPVAT insurance certificate, nor to pay a premium for any of the categories of motor vehicles, whereby all vehicles that are duly licensed will be automatically insured, in accordance with the legislation of each state, and all indemnities related to 2021’s DPVAT will be guaranteed by the fund constituted by the DPVAT Lead Insurer over the past years.
It is our understanding that, even though these changes have opened a new phase in the history of DPVAT insurance, there are still controversial points about this new model of operation, such as what would happen if the technical provision allocated for claims for 2021 were exhausted, since there will be no payment of premiums this year to cover any claims that would eventually exceed it.
Also, there is uncertainty of the extent to which the DPVAT Lead Insurer and its shareholders would be liable regarding the new risks that were taken out after the formal closure of the Consortium.
Demarest’s Insurance & Reinsurance team will monitor the implementation of the new DPVAT insurance rules and is available to provide any clarifications on the matter.