In 2023, the revenue of the insurance sector exceeded R$ 600 billion, a penetration rate of 6% of Brazilian GDP. Whilst that may be considered significant, it falls short of the figures for more developed economies, which have an average rate of 10%.
The Brazilian rate is nevertheless steadily increasing, a fact that has led the economic authorities to pay closer attention to the sector. The government has included as one of its economic priorities the securing of congressional approval for Draft Law n. 29, which was first introduced in 2017. The draft law is aimed at overhauling the current legislative provisions on insurance contracts. It has already been passed by the Chamber of Deputies and is now before the Federal Senate. Draft Law 29/2017 deals exclusively with insurance contracts. If it passes into law, it will revoke the current 2002 Civil Code provisions that currently govern such contracts and will introduce a new framework. In its procedural aspect, the Draft-Law is a step backwards for arbitration development as it does not allow the parties to opt for arbitrations based abroad, nor to choose any law other than the Brazilian one. In addition to restricting the autonomy of the parties, this prohibition can make it difficult to take out insurance abroad, in cases where there is no capacity in the local market, if a foreign insurance company is not willing to litigate in Brazil under the local law.
The 2023 approval by the legislature of the Statutory Framework on Guarantees (Marco Legal das Garantias) (Law 14.711/23) is also worthy of note. This law fine-tuned the rules governing credit operations. One of the key innovations in the legislative provisions was the inclusion of counter-guarantee contracts in the list of instruments that can be enforced extra-judicially. This development has been welcomed by insurers, who are, in the main, optimistic about the practical benefits it will bring. The new Law also included provisions enabling recourse to surety bond (guarantee) insurance policies at any stage of court proceedings up to the date on which the final court order becomes final and binding (res judicata). In other words, these guarantee’s insurance policies may be furnished even during the enforcement phase of judicial proceedings.
Another relevant piece of legislation, currently before the Federal Senate having already been approved by the Chamber of Deputies, is Draft Complementary law (‘PLP`) 233/2023 which governs compulsory insurance cover for victims of road traffic accidents involving uninsured vehicles. The law aims to replace the current compulsory insurance scheme known as the ‘DPVAT’, with the introduction of the ‘SPVAT” scheme, leaded by the Caixa Econômica Federal, a state-owned Brazilian bank. This move by the government is constitutionally questionable, in that it will result in a public entity dominating this field of economic activity, being tantamount to nationalization of the compulsory insurance scheme. However, if the law passes it will lead to resumption of compulsory insurance payouts to the victims of road accidents. These DPVAT payouts have been frozen since November 2023.
Constitutional issues are dealt with by the Brazilian Federal Supreme Court. There are presently a number of cases before the Court that are of particular interest to the insurance sector. In particular, the Supreme Court has reiterated its position that State laws introduced to legalize the so-called “vehicle protection associations” are unconstitutional and therefore invalid. These associations have purported to offer insurance-type services, but they are not regulated by law and are not overseen by any regulatory agency. They do not pay tax nor do they furnish any of the legal guarantees required of bona fide insurers in order to ensure that obligations to insured clients can be met. The growth of these players has become a serious problem for the sector, and especially for consumers in the vehicle insurance market.
The insurance sector is also waiting for the Supreme Court’s ruling on whether or not amounts paid out to beneficiaries following the death of the holder of private pension plans are subject to the ITCMD tax (which is a tax on postmortem transmission of goods and on donations). Insurers argue that the ITCMD tax does not apply because the so-called VGBL or PGBL plans that are in issue before the court are in effect life insurance policies, and therefore not subject to inheritance taxation (Federal Supreme Court, Theme 1214, issue of General Repercussion).
In relation to Home Insurance under the Brazilian System of Finance for Purchasing a Home (the ‘SFH’), the Federal Supreme Court has issued a definitive ruling on the matter of jurisdiction to try disputes pertaining to the system. The court ruled that jurisdiction lies with Federal Courts. However, other important SFH-related issues are still pending resolution. In particular, the Superior Court of Justice has yet to rule on the correct determination of the commencement of the statutory limitation period with regard to insurance cover for physical damage to SFH financed properties.
The private-law chambers of the Superior Court of Justice have nevertheless been particularly prodigious in forming solid case law on certain pressing issues of insurance law. In a recent ruling, for example, the Superior Court definitively rejected the possibility of early liquidation of a guarantee insurance policies in tax enforcement proceedings, with the ratio decidendi being based on the provisions of the Statutory Framework on Guarantees (Marco Legal das Garantias) referred to earlier.
Finally, it is important to note that a silent revolution is underway in the Brazilian insurance sector, led by the regulatory agency SUSEP, in the form of implantation of an ‘open insurance’ project. This project is aimed at establishing a marketplace for standardized information for the ultimate purpose of improving the experience of insurance clients that agree to share certain data. Insurance companies that are accredited by SUSEP will be able to access to the consumer profile of these clients, enabling them to offer specific and competitive products and services. The data processing companies involved will be known as ‘Sociedade Processadora de Ordem do Ciente – SPOC’ and the first such company has already been accredited, in early 2024, indicating that the pioneering SUSEP program is at an advanced stage of implementation.
Authors:
André Tavares
Daniel Chacur de Miranda