Key data

Life insurance represents a relatively small proportion of total insurance activity in Brazil (18%) compared to countries such as the USA (30%) and Japan (40%). This proportion has grown from 12% in 1993.

The sector has been one of the largest attractions for foreign insurers, bringing in firms such as Prudential, Metropolitan Life, AIG, Aetna, Liberty Mutual, and Generali. Distribution of life insurance tends still to be predominantly through brokers, although the sale of this type of insurance through banks is also increasing. The top ten players in the sector are responsible for 58% of total life insurance sales. 

The main catalysts for growth have been the fall in inflation since 1994, and the deregulation of the industry. With the fall in inflation, financial products have become much more attractive, as the preoccupation with inflation has also declined. Added to this, a wider distribution of income and a previously low insurance penetration among the Brazilian population has led to growth.

The Brazilian life sector is dominated by term (temporarily) life insurance, the   majority of which is sold through group life policies, usually to cover employees of businesses. However, in 1998 long term life insurance policies, including endowment policies and some whole life policies began to appear in the market.

Heavy marketing, particularly by foreign newcomers in the Brazilian life insurance industry also helped to boost demand. However, permanent life insurance suffered during 1999 because of the imposition of a value added tax (IOF tax) on insurance premiums.

We believe that the sector shows potential for continued growth, mainly because of its very low penetration within the Brazilian market place, and the very high latent demand for savings products.

A comparison of life insurance premiums per head in Brazil compared to the USA shows the underdevelopment of the sector in Brazil. Premiums per head were $12 in Brazil in 1999, compared to $450 in the USA. Similarly, as a percentage of the country’s economy, life insurance in Brazil represented only 0.4% of GDP in 1999, compared to 1.5% in the US.

Life Pricing is becoming more sophisticated
The way that life insurance contracts are priced in Brazil is less sophisticated than in other parts of the world. Reliable mortality tables are not available for the Brazilian market, and insurers set their prices mainly based on older American actuarial bases such as the AT49 tables.

A move is underway to develop Brazil-specific mortality tables, although this is likely to take at least 3 years. We anticipate that further savings-related life insurance products will be introduced into the Brazilian market place. These will include Universal Life, Variable life and Variable Universal Life products.

We have also found that relatively complex products such as endowments have tended to be poorly marketed and explained, mainly due to the inexperience of local insurers and brokers. The result has been that customers are often confused and return to traditional personal pension plans when looking for a lifetime income product.

Insurers are beginning see the need for differentiation. They are differentiating according to customer focus, product features, added services, price, performance, and security