On February 17, 2021, the Superintendence of Private Insurance (SUSEP) published Circular No. 621, which provides for the new rules and criteria for operating damage insurance coverage, and which was prepared after a long period of studies and public consultation that started in mid-2020, with important participation of market players.
The published Circular inaugurates a new phase in the Brazilian insurance market, in which SUSEP has started to adopt a posture of minimum intervention in the contractual relations of its supervised entities and of consistency in regulating according to its primary purpose of encouraging competitiveness and protecting consumers, allowing, in contrast, greater market development with freedom to create new insurance products.
This positioning is clearly demonstrated in the changes promoted by the new Circular, when compared with the previous regulation that provided for damage insurance operations (in particular, Circular No. 256/2004 and Circular 239/2003).
An important change concerns the procedure for registering new insurance products, which will now have a much less bureaucratic model, without the need to complete checklists, comply with standardized products and present the actuarial technical note (which should only be maintained by the insurer in the event of a possible request by SUSEP). The registration of products, therefore, becomes automatic, without the need for prior approval by SUSEP, enabling such products to be placed on the market after receiving the relevant registration number.
In this way, and according to the intention already expressed by SUSEP, Article 59 of the new Circular gives scope for the registration of products to become automatic soon, without the need for prior approval by SUSEP. This procedure, however, will still require a new normative rule to regulate it.
Another significant change is related to the structuring of new contracts, which no longer requires the division of contractual conditions into layers (general, special and private conditions), allowing insurers to design their clauses according to their own criteria, observing only the presence of the minimum elements established by the Circular.
With regard to these minimum elements, the Circular introduces the possibility of a reduction in bureaucracy related to damage insurance products, among them, permission to offer coverages of different lines of insurance in the same policy, provided that: specific regulations of each insurance line and the current accounting regulations are observed, the insurance company has authorization to operate all of the related coverages and that it explicitly informs if the coverages can be contracted separately. In addition, the Circular makes it possible to offer all-risks coverages in any kind of damage insurance policy, which was not previously allowed, only in specific lines of insurance.
Regarding the payment of the premium, the rules set out in the Circular allow the parties to freely choose the form of collection, which may be once-off, periodic or by any other structured means, while such rules also provide for the possibility of a pay per use system for insurance with intermittent coverage.
In comparison to the previous regulation, Circular No. 621 innovates as regards the part of excluded risks, by prohibiting the exclusion of risks arising from acts carried out by the insured while in a state of mental insanity, inebriation or under the effects of toxic substances, which may result in the loss of coverage because such conditions constitute risk aggravation scenarios. Such limitation, however, is subject to the demonstration, by the insurer, that the situation was decisive for the occurrence of the claim.
The regulation also presents a new term to be observed by insurers that do not wish to renew the insurance policy. In this case, the insured or the policyholder (in the case of a collective policy) must be notified at least 30 (thirty) days before the policy term ends.
In addition, the Circular ensures the possibility of applying more than one type of deductible in the same claim, as long as it is provided for in the policy and its order of application is specified.
As for coverage linked to the provision of services, the new Circular brings to an end the lack of clarity about its operation, by establishing that coverage of this kind may be linked to the provision of a service by a provider freely chosen by the insured, through a referenced network offered by the insurance company or by both, with only the need for the policy to be clear about the chosen modality.
Another point addressed by the Circular that ends a longstanding market controversy refers to the possibility of including and applying a sanction clause, provided that it is written in a clear and objective manner, highlighted and without generic references.
Finally, in addition to the obligation to include in the contractual conditions that will be borne by the insurer the salvage expenses and those related to the property damage caused by the insured to try to avoid the loss, the policies may also provide specific coverage exclusively to guarantee such expenses.
The practical implications of this new Circular are that SUSEP will have a much more supervisory role based on the identification of conduct harmful to the market or contrary to legal principles, rather than an interventionist stance regarding the structuring of insurance plans to be operated by insurance companies. It is also clear that there is an intention to relax the strict regulations that are currently in place and to promote simpler, clearer and more accessible insurance contracts.
SUSEP Circular No. 621/2021 will come into force on March 1, 2021, and will repeal twelve other regulations.
With the entry into force of the new Circular, insurers that have damage insurance plans previously registered with SUSEP must adapt them to the provisions of the regulations within 180 days, under penalty of the applicable penalties being enforced.
It is expected that, soon, a new Circular providing for the criteria for the operation of large risk damage insurance will be published, establishing a distinction intended by SUSEP in its regulations in comparison to mass market insurance.
Demarest’s Insurance and Reinsurance team is available to provide any additional clarifications that may be necessary and to assist you in adapting existing damage insurance products.