Commercial insurance covers:

• Transportation
• Financial insurance
• Fire insurance and multirisk

Transportation
Premium income for cargo insurance in 2000 was US$211m (R$401m), up from $203m in 1997. Coverage provided is for cargos in transit throughout Brazil.  The majority of transport through this enormous country is by road.

The transport sector will provide insurers with increasing number of opportunities, particularly in view of the current privatization program, which is transferring assets from the public sector to the private sector. Many of these assets were previously either underinsured or self-insured. The privatization of the IRB and the opening of the reinsurance market is also likely to improve efficiency and margins within the sector.

In addition to transport insurance, aircraft insurance is growing. Brazil has a fleet of approximately 11,000 aircraft of which 8,000 are operational. Of that total only 15% have hull insurance while others operate with third party cover. This has been due to prices that are generally higher than comparable international levels. New products are being developed along the lines of European products.

Net premium income for marine (hull) insurance in 1998 was US$30m. Brazil’s shipping industry is likely to see a boost through new investments that the government is planning through the BNDES (Brazilian Development Bank). Ships are typically insured through consortia and recent deals point to a reduction in insurance and reinsurance premiums.

By law every significant public contract now needs some form of fidelity guarantee insurance and this is becoming increasingly enforced. Bank guarantees have become more expensive as an alternative as capital adequacy regulations tightened for banks, and this is stimulating performance bonds. Following some high profile property company failures, this principle is now also being applied to the private sector.

Although ten companies are licensed to operate in the sector, only 4 insurers in Brazil are active in the area. The privatization program is likely to boost activity, as companies plan heavy capital investments and more stringent rules are applied to the newly privatized telephone and energy companies. The sector will also benefit from the liberalization of the reinsurance market in Brazil.

Insurance guarantees remain a specialized area, and despite their rapid growth are in the early stages of development in Brazil. Local firms lack experience and knowledge of insurance guarantee products, and this provides opportunities for the expertise that foreign firms can bring into the sector. Insurers are more likely to be successful if they have a good knowledge of industrial customers and can anticipate specific insurance guarantee trends before they develop.

Fire insurance
Companies have until now tended to be underinsured, particularly in the public sector. The current privatization program is transferring assets from the public sector to the private sector, often to foreign owners. With very few exceptions, businesses have to buy insurance from an insurer that is incorporated in Brazil.

Fire insurance is becoming attractive to a number of insurance companies, particularly because of the prospect of deepening commercial ties with corporate customers, enabling them to sell other products such as group life and retirement insurance for employees.

When it comes to pricing, insurers consider aspects such as location, usage and construction of premises. The major cities in Brazil such as Sao Paulo and Rio tend to have the lowest rates because of the availability of emergency services.

Insurance in Brazil - Workplace Accident Insurance
Insurance for accidents in the workplace in Brazil has been the monopoly of the Government via the INSS (Social Security System) since the 1960’s.

The Brazilian government has indicated its intention to end the INSS’s current monopoly on insuring workplace accidents. The area is attracting the attention of domestic and foreign insurers. 

Brazil has a high level of work-related accidents compared to other industrialized countries, and the current model of insurance is criticized for not focusing accurately on risks. Still, in 1999 the INSS collected the equivalent of US$2.3bn in premiums from employers and paid out US$1.3bn in benefit payments. With privatization and a trend towards increased cover, we envisage a market of as much as US$4bn per annum by 2003. There is also scope for those insurers who do operate in the sector to market other services to corporate customers, including such as group life and health insurance policies.

The INSS charges between 1% and 3% of the total payroll of a company depending on the nature of work. However, this method has come under criticism because of the widely varying types of risks involved and the fact that measures such as accident prevention and safer working environments are not reflected, rewarded or encouraged by the pricing structure.

At the beginning of 1998 a new system of export credit insurance was set up in Brazil. The only organization so far to be licensed to carry out this type of insurance in Brazil is the SBCE (Brazilian Export Credit Insurance Company). The recently created firm is owned by Coface (the French export credit insurance specialist) and jointly by a number of Brazilian insurers.

In previous years, export insurance had been the preserve of the IRB, Brazil’s outgoing reinsurance monopoly. Coverage was only generally provided for high-value, or high-risk items.

The SBCE estimated that it had insured a total of US$700m in exports by the end of 1999. The SBCE focuses on loss prevention, collection risk and indemnity, and on average provides cover for 80% of commercial risk losses and 90% of political risk losses.

Despite the solid start to operations, the amounts insured represented only about 4% of total exports. We estimate that by 2002, as much as 7% of the country’s exports could be insured. This compares with a level of 20% in European countries.  According to data provided by the SBCE, exports to other South American countries accounted for 58% of insurance carried out by the company from Brazil.

The Brazilian regulator, SUSEP, partly guarantees the operation of the SBCE through the FGE (Export Guarantee Fund). Premiums represent on average 1% of the value of items insured.

Exporters’ main criticisms of the SBCE so far have been that it offers a lack of diversity of options.  There have also been some concerns about the speed of claims settlement . Another problem faced by the SBCE has been the government’s delay in drafting legislation that will allow export insurance to be sold by brokers. The participation of brokers is considered to be vital in the Brazilian market, because of the size of the country.  Without brokers, the SBCE will need to set up branches or representative offices around Brazil.

In 1999, the Spanish Export Credit Insurer (CESCE), a company owned by the Spanish government and a number of banks (among them Santander and Banco Bilbao Vizcaya) entered the Brazilian market by buying 20% of Aurea Seguros, a Brazilian insurer specializing in insurance guarantees. Aurea underwent substantial restructuring during 1999.