Under the 2020 Regulatory Plan, the Superintendence of Private Insurance (SUSEP) submitted for public consultation Notice No. 16/2020, presenting a draft of a new Circular that will regulate the rules for the operation and the criteria for the handling of property insurance coverage.
In its statement of reasons for the proposed changes, SUSEP identified that there is a clear perception of over-regulation in the insurance market, defining as one of its objectives in this year of 2020 the revision of the regulations on property insurance, in particular Circular No. 256/2004, noting the need to propose a regulatory distinction and differentiated treatment between mass market insurance and insurance for large risks.
The draft put out for public consultation is intended for the regulation of mass market insurance, while the regulation of insurance for large risks will be dealt with in a specific circular that is currently being drafted.
With this proposal, SUSEP aims to simplify the market regulation by providing a favorable environment for the development of a competitive, transparent, innovative market with greater coverage. In addition, due to consumer bias, the proposal aims at broad access to supervised markets, which will also contribute to the economic and social development of the country. These goals, in addition to meeting SUSEP’s 2020 Regulation Plan, are also in line with the strategy outlined by SUSEP in its Strategic Planning for the three-year period 2020 to 2023.
The draft presented, in addition to proposing separation according to the nature of the insurance, aims to simplify the regulation of mass damage insurance and to grant greater contractual freedom to the contracting parties of these products.
Regarding the insurance of large risks, the regulatory distinction will be applied in the aspect of less intervention by the regulator and that any action is proportional to the need for protection of the agents that suffer the so-called market failures, in this case the asymmetry of information for the acquisition of the products.
In this context, SUSEP highlighted that large companies, the main contractors of large risks insurances, have greater parity to negotiate the contractual terms and conditions with insurers, not needing to exert too much intervention, which would ensure that the contractual freedom of the parties is maintained.
On the other hand, as far as mass market insurance is concerned, the proposal aims to provide consumer protection for these products, as well as to stimulate a competitive and innovative market, with accessible and varied products. The main change raised at this point would be to make the structure of policy layers (general, special and private conditions) more flexible, in order to simplify the creation of products to provide the consumer with a greater understanding of the product he is acquiring, becoming a tool for mitigating information asymmetries, considering that the target clients of mass market insurance are individual consumers and small businesses.
In addition, the draft Circular provides for the insurer to inform its policyholders, through the contractual terms and conditions, that the clauses drawn up comply with current legislation, in order to remove the concept that all products are “approved” by SUSEP and give insurers greater responsibility for the marketing of their products.
Furthermore, the proposal establishes the:
(i) exclusion of reference to standard insurance plans and repeal of provisions dealing with the distinction of procedures for standardized and non-standardized plans;
(ii) waiver of prior registration of the actuarial technical note of the property insurance plan, provided that it remains under the custody of the insurance company and made available upon request;
(iii) possibility of structuring coverage linked to the provision of services with free choice by the insured of service providers and/or indication of a network referenced by the insurance company;
(vi) the possibility of structuring all risk coverage in different insurance lines;
(v) exclusion from the short-term table;
(vi) exclusion of standard policy competition clause; and
(vii) exclusion of provisions limiting, as a general rule, the combination of coverages of different insurance lines, so that any restrictions are dealt with, if applicable, in specific rules.
The draft of the Circular was prepared after in-depth discussions on the subject with various industry experts, international regulatory agencies, insurers, insurtechs, law firms and, finally, with the submission to public consultation, provides for the preparation of a complete rule drafted with the participation of the main market players.
If the proposed regulation is approved, insurers that have property insurance plans previously registered with SUSEP must adapt them to the new rule within 180 days of its entry into force, or applicable penalties may apply.
The full text of the Draft can be accessed at this link. Interested parties may send comments or suggestions on the text through an electronic message addressed to firstname.lastname@example.org until September 9, 2020, by filling out the specific standardized form.
Demarest’s Insurance and Reinsurance team will follow the development of this Public Consultation until the publication of the final text and is available to provide any clarifications on the subject.