1 Rules Governing Insurer Disputes

1.1 Statutory and Procedural Regime

Sources of Insurance Law

The law

Insurance law is structured from a normative complex, involving several areas of the law. There is a plurality of laws governing the resolution of disputes involving insurance – both by private law rules (civil, consumer and commercial) and by public law rules (administrative and constitutional).

It can be said that the sources of insurance law are articulated around two poles.

•             Institutional insurance law, which deals with the regulation and supervision of business insurance operations, with Decree-law 73/1966 as its main source, which regulates the national system of private insurance and insurance operations in the country and, furthermore, a series of regulatory administrative rules issued by the National Council of Private Insurance (CNSP) and the National Superintendence of Private Insurance (SUSEP).

•             Substantive insurance law, which deals with the legal relationship of the insurance contract. The main source of substantive insurance law is the Brazilian Civil Code (Articles 757-802). Also, depending on the nature of the insurance contract, consumer law (Brazilian Consumer Defence Code) and commercial law may apply.

The Brazilian General Data Protection Law (GDPL) also applies to insurance law.

For reinsurance and retrocession, Complementary Law No 126/2007 establishes the main rules.

Furthermore, the recent Brazilian Law No. 14,430/2022 is also applicable to regulate the securitization of risks by Special Purpose Insurance Companies (SSPE), through the issuance of Insurance Risk Letters (LRS).

Finally, the insurance contract can also be governed by several special laws, such as the Mandatory Insurance for Personal Injury Caused by Motor Vehicles on the Land (DPVAT), or Law 8.374/1991, which provides for the Mandatory Insurance for Personal Injury Caused by Vessels or their Cargo (DPEM), and Law 9.656/1998 applies to health insurance.

Usage and Custom

In addition to legal and administrative rules, usage and custom are a source of insurance law, playing an important role in eliminating gaps.

Case Law

Case law also stands out as a source of insurance law, especially with the active role of the Brazilian Superior Court of Justice (STJ) both in the editing of precedents and in decisions issued in the stage of repetitive special appeal on the subject (eg, 278, 529, 537, 610), without disregarding the issuance of legal opinions in nonconstitutional matters, which are binding for all present and future disputes on the same topic. The same holds true for the Brazilian Supreme Court (STF) when formulating thesis applicable to cases with general repercussion (eg, 2011), declaring the (un)constitutionality of norms, and formulating legal precedents. It integrates the system of mandatory precedents, the decisions extracted in Incidents of Resolution of Repetitive Demands (IRDR) and Incidents of Assumption of Competence (IAC), which may have effects throughout the Brazilian territory.

The National System of Private Insurance (SUSEP and CNSP)

In view of the economic and social function of the insurance activity, the insurance sector is largely regulated by the state.

The National Council of Private Insurance (CNSP) is the body responsible for establishing the guidelines and norms of the private insurance policy. The Superintendence of Private Insurance (SUSEP) is the limb of the Brazilian Federal Public Administration responsible for authorising, controlling and supervising the insurance, open private pension, capitalisation and reinsurance markets in Brazil.

Between 2019 and 2022, SUSEP has undergone relevant changes, with the adoption of liberal guidelines and the declaration of the objective of simplifying the normative structure, fostering innovation, increasing competition between insurance companies, and reducing premium values for insurance consumers.

Among the regulations already edited, those worth highlighting are:

•             CNSP Resolution 451/2022, which regulates reinsurance  assignment and acceptance operations and its intermediation; co-insurance operations; transactions in foreign currency and insurance polices contracted abroad;

•             CNSP Resolution 439/2022 and Circular SUSEP 672/2022, which outlines the general features regarding operations of coverage in personal insurance policies;

•             Circular SUSEP 670/2022, which establishes the criteria that insurance companies must observe when implementing stop loss insurance operations, which aims to ensure the operational stability of the insured party in relation to the commitments undertaken by them towards the users.

•             Circular SUSEP 666/2022, which provides for sustainability requirements to be observed by insurance companies, open supplementary pension entities (EAPCs), capitalisation companies and local reinsurers; and

•             CNSP Resolution 447/2022, which establishes the applicable rules for home insurance;

•             Circular SUSEP 621/2021, which provides the operating rules and criteria for operating damage insurance coverage;

•             CNSP Resolution 407/2021, which provides the principles and general characteristics for the preparation and marketing of damage insurance contracts to cover major risks.. It is important to outline that the legality of this regulation is being discussed in the Brazilian Supreme Court in the Direct Action for the Declaration of Unconstitutionality No. 7.074/DF, the judge-rapporteur of this case is Justice Gilmar Mendes.

•             Circular SUSEP 637/2021, which provides for liability insurance;

•             CNSP Resolution 388/2020, which establishes the segmentation of insurance companies, capitalisation companies, local reinsurers and EAPCs for the purpose of proportional application of prudential regulation.

It is crucial to emphasize, however, that since 2023, the Brazilian federal government is under the administration of a more interventionist political party, potentially leading to alterations in the previously embraced liberal policies.

Nevertheless, the new head of the Superintendence of Private Insurance (SUSEP) assured that the goal of the new administration is “to ensure a trustworthy environment among policyholders, insurers, and reinsurers”  .

1.2 Litigation Process and Rules on Limitation

Jurisdiction in Brazil

The resolution of disputes involving the insurance contract can occur through state jurisdiction, arbitration or mediation. There are also administrative state bodies, especially in relation to insurance involving consumers, such as the Consumer Defence and Protection Programme (commonly known in Brazil by its Portuguese initials – PROCONs) and the consumidor.gov online platform, the latter of which oversees a significant historical volume of dispute resolution cases in contractual matters.

Furthermore, it is noteworthy to emphasize the existence of private online platforms designed for the resolution of consumer complaints against companies, such as ReclameAqui.com.br. These platforms can address disputes involving insurance contracts in a parallel manner and without the need for state intervention.

1.3 Alternative Dispute Resolution (ADR)

Alternative Means of Conflict Resolution

ADRs are the “alternative means of resolving disputes”. Among the extrajudicial means of conflict resolution, the best known are arbitration, conciliation, negotiation and mediation.

With a sluggish and crowded judiciary, alternative forms of dispute resolution have been greatly stimulated by the state itself as a way of changing the litigious culture currently in place in the country. With the implementation of the “Multidoor Courthouse”, through Resolution CNJ 125/2010, and the reform of the Brazilian Civil Procedure Code (2015), mediation and conciliation gained prominence. These alternative means of dispute resolution have come to represent an initial stage of the judicial process.

In the same sense, Law No 13.140/15 represented the Legal Framework for Mediation in Brazil, with the new public acquisition law (Brazilian Law No. 14,133/2021) encouraging the adoption of ADR methods in public procurement.

According to figures released by the National Council of Justice (CNJ), in 2021, 3,114,462 judgments ratifying agreements were issued, referring to all kinds of disputes.

Arbitration is another alternative means for resolving disputes involving insurance and/or reinsurance contracts, as it can deal with disputes involving extremely complex and technical property rights. In Brazil, however, its use has been quite restricted, considering the total number of insurance conflicts. SUSEP is encouraging the adoption of arbitration clauses, especially in relation to major risk insurance.

2 Jurisdiction and Choice of Law

2.1 Rules Governing Insurance Disputes

Jurisdiction and Choice of Law

With regard to insurance contracts, there is a specific rule in Article 19 of Complementary Law No 126/2007 which provides that mandatory insurance and non-mandatory insurance contracts entered into by a natural person, resident in the country, or by a legal entity domiciled in Brazil to guarantee risks in the country shall be exclusively executed in Brazil.

This rule of Complementary Law No 126/2007 can be interpreted together with Article 9 Section 1 of Decree-Law No 4.657/42, which provides that “if the obligation is intended to be performed in Brazil and depending on an essential form, it shall be observed”.

Thus, in the case of insurance contracts entered into with residents in Brazil, Brazilian law shall be observed. Except for the exceptions of Article 20 of Complementary Law 126/2007, which establishes that, exceptionally, it is possible for natural persons residing in the country or legal entities domiciled in the national territory to contract insurance abroad in some specific situations. Recently, CNSP issued Resolution No. 451/2022 which restricts the acquisition of insurance abroad by individuals residing in the country. Therefore, the insurance contract is usually interpreted in accordance with Brazilian law.

The Brazilian jurisdiction is applicable when the insurance company is domiciled in Brazil or if the obligations shall be performed in the country. Therefore, disputes involving domestic insurance are generally resolved in Brazil, through the Brazilian courts.

Arbitration

There may be some controversy regarding the choice of arbitration for the solution of disputes arising from risks located in the national territory.

According to the Brazilian Arbitration Law (L.9307/96), in addition to choosing the place and arbitration body, the parties can also choose the law applicable to the contract, defining the rules that will regulate the resolution of the dispute.

However, the choice of applicable law must always observe the principle of public policy as a limitation of contractual freedom. For example, Article 1 of the Brazilian Consumer Defence Code expressly states that this is a rule of public policy. In this way, it is possible to choose arbitration as the means for resolution of insurance disputes, but the law to be applied by the arbitrator would still be Brazilian law, except for cases specifically excluded by the national legislation.

2.2 Enforcement of Foreign Judgments

Foreign Decisions

Foreign decisions can be enforced once they are ratified by the STJ, pursuant to Article 105 I (i) of the Brazilian Federal Constitution.

It is important to emphasise that there is no analysis of the merits of the decision by the STJ, and the examination is restricted to formal aspects, especially procedure and the validity of the legal act.

Once ratified, the sentence will produce the same effects as a sentence given in Brazil.

2.3 Unique Features of Litigation Procedure

Legal Proceedings

National legal proceedings tend to be quite slow, given that the judicial system has over 100 million cases pending. Besides this, the court system is complex, with innumerable appeals against many types of decisions. There is an excessive formal rigour employed by case law, especially for procedural issues, and it is not uncommon for cases to be annulled due to formal defects at the beginning, or even at an advanced stage.

3 Arbitration and Insurance Disputes

3.1 Enforcement of Arbitration Provisions in Commercial Contracts

Arbitration and the Insurance Contract

Although arbitration could be a preferable means for the resolution of disputes involving insurance and reinsurance contracts, since these are commonly disputes involving extremely complex and technical property rights, in Brazil its use is still extremely restricted; it is limited, as a rule, to some cases of major risk insurance.

In cases that do not involve adhesion contracts or non-consumer relationships, it is necessary to apply the provisions of arbitration law.

Resolution 407/2021 of the CNSP, which deals with the elaboration and commercialisation of damage insurance contracts for the coverage of major risks, also provides the following.

“The parties involved must formally agree and define, in the contractual conditions of the insurance agreement, whether they will use mediation, arbitration or other means of dispute resolution. When an arbitration agreement is signed, the arbitration clause and the arbitration agreement must be written in a clear and objective manner, preferably providing for the arbitration chamber freely chosen by the parties. ”

Article 18 of the Arbitration Law expressly determines that the arbitration award is unappealable, meaning there is no appeal capable of overturning the merits of an arbitration award. There is the possibility, however, of submitting a request for clarification, which will not have a modificatory effect.

Not infrequently, however, cases that were initiated or resolved in arbitration chambers have their awards challenged before the Brazilian courts, which prolongs the resolution of the conflict for years. Discussions taken to the judiciary include, for example, the mandatory nature of an arbitration, the applicable law, procedural nullity or even the partiality of arbitrators.

3.2 The New York Convention

New York Convention

In Brazil, the domestic arbitration award is immediately effective in the legal system, being considered an enforceable judicial instrument.

After the ratification of the New York Convention, through Decree 4311/2002, foreign arbitral awards, in accordance with the provisions of Article 105 I (i) of the Federal Constitution, must be ratified by the STJ so that they can be enforced in any state of the federation before the courts.

The Brazilian Arbitration Law (9307/96) establishes that the foreign arbitral award will be recognised or enforced in Brazil in accordance with international treaties effective in the domestic legal system and, in the absence of such treaties, strictly in accordance with the terms of Brazilian arbitration law.

With the ratification of international treaties, such as the New York Convention, Brazil endorses the legal recognition of the effects of arbitration clauses and provisions, as well as the principles of recognition of the validity of the foreign arbitral award.

3.3 The Use of Arbitration for Insurance Dispute Resolution

Arbitration and the Insurance Contract

In March 2022, the STJ (REsp 1,962,113/RJ) settled the issue considering that the choice of forum clause entered into between the author of the damage and the insured cannot be enforced against the subrogated insurance company in a regressive action in which it claims reimbursement of the amount paid to the insured.

Institutional and Ad Hoc Arbitration

In Brazil, arbitration can be developed in two different ways: institutional arbitration or ad hoc arbitration. Both are private, however, the first refers to an institution, formally established, which will be responsible for managing the stages and procedures of the arbitration. Jurisdiction, however, rests with the arbitrator, with the institution acting as secretary. In ad hoc arbitration, the parties appoint the arbitrator, who is totally independent and unrelated to any institution.

Please see 3.1 Enforcement of Arbitration Provisions in Commercial Contracts for a detailed breakdown of the use of arbitration in Brazil.

4 Coverage Disputes

4.1 Implied Terms

Extension of Coverage

Many disputes involving the insurance contract arise from the misunderstanding of the extent of coverage defined in the general contracting conditions. The insurance company must provide the insured or the policyholder with information and technical clarifications regarding the scope and extent of the risks guaranteed, whether arising from the duty of good faith or from the insurance company’s expertise in the insurance technique. Article 54 Section 4 of the Brazilian Consumer Code (CDC) –applicable to mass insurance contracts – provides that clauses that imply limitation of consumer rights must be written with prominence, allowing their immediate and easy understanding. In Articles 46 and 47, Section I, of the Brazilian Consumer Code (CDC) it also states that the contract will not bind the consumer if they have not been provided prior access to its terms or if the general conditions are formulated in a way that obstructs the comprehension of their meaning and extent. As a result, clauses are to be construed in a manner that is more advantageous to the consumer.

Article 423 of the CCB also expressly provides that the interpretative doubt must be resolved in a manner favourable to the insured.

The judiciary has resolved such issues by examining the sufficient fulfilment of the insured’s right to information for the frustration of the insured’s legitimate expectation of obtaining contractual protection. For example, in a settled understanding, the STJ found that emotional distress damages would be covered by the guarantee of personal damages.

4.2 Rights of Insurers

Risk Disclosure

The acceptance of insurance proposals by the insurance company is optional, pursuant to Article 766 of the CCB. Circular SUSEP 642/2021 establishes that the insurance company may refuse the insurance proposal as long as this discretion is not exercised with abuse and justifying the reasons that led to such refusal.

The insurance company needs to know precisely the objective and subjective circumstances of the state of the risk proposed by the insured so that it can decide whether or not to underwrite it and under what conditions, especially regarding the premium. Article 766 of the CCB establishes that the insured must declare, prior to the formation of the contract, in a complete and truthful way, the state of the risk. The insured will be subject to the penalty of losing the right to the guarantee if it is proven that they made this declaration falsely. Brazilian courts have limited the loss of guarantee to cases of false declaration in which the insured’s bad faith is duly demonstrated.

The CCB adopts the model of open declaration by the proponent, although the insurance practice adopts the model of declaration by answering forms prepared by the insurance companies, identifying the circumstances it needs to know to form its consent.

Upon receipt of the proposal, the insurance company, in addition to rejecting it in whole or in part, may carry out a prior inspection of the risk or request additional information or documents, such as health examinations of the insured.

The insurance company may also condition the acceptance of the proposal on the implementation of risk containment measures, such as the installation of trackers in vehicles in the event of transport insurance, or the installation of extinguishers and sprinklers for fire insurance.

4.3 Significant Trends in Policy Coverage Disputes

Recent Precedent in Security Disputes

In the last 12 months, important judicial decisions have been issued that could extinguish historical controversies or, on the contrary, stimulate an expansion of the judicialisation of the insurance contract.

•             REsp 1,874,811/SC – The Second Chamber of the STJ ruled, within the context of repetitive appeals, that, in group life insurance contracts, the duty to provide information to insurers rests with the group manager (eg, the employer) rather than the insurance company. 

•             REsp 1,926,477/SP – The Third Chamber of the STJ ruled that in Directors and Officers liability insurance (D&O), the provisions of the Brazilian Consumer Code (CDC) do not apply, as the purpose differs from that of a property insurance. This is because D&O insurance aims to cover the risk of potential negligent wrongful acts committed by executives during their management of a company. As the policy’s acquisition encourages a daring management, which would not occur if personal liability of executives were possible, the company is not the ultimate beneficiary of the insurance but rather employs it as a tool for its operations.

•             EREsp 1,889,704/SP ‒ The Second Chamber of the STJ, in a controversial decision, found that, as a rule, the list of procedures and events established by the National Health Agency (ANS) is exhaustive, and health insurance companies are not obliged to cover treatments and procedures not provided for in this list. In response to the controversial decision of the STJ, the Brazilian Law No. 14,454/2022 was published and determined that health insurance companies may be required to guarantee health treatments that are not on the list of the National Supplementary Health Agency (ANS).

•             REsp 1,303,374/ES ‒ The Second section of the STJ decided that the statute of limitations must be one year for the exercise of any claim by the insured against the insurance company (and vice versa) based on alleged breach of duties (primary, secondary or annexes) derived from the insurance contract.

•             REsp 1,999,624/PR ‒ The Second Chamber of the STJ  confirmed the binding legal precedent No. 620, in which it establishes that the insurance company cannot withdraw a guarantee for personal insurance for an event that occurred while the insured person was in a state of drunkenness..

4.4 Resolution of Insurance Coverage Disputes

Disputes Involving Insurance

The resolution of disputes involving the insurance contract can occur through state jurisdiction, arbitration and mediation, or through administrative state bodies formed especially for insurance involving consumers, such as PROCONs and the consumidor.gov online platform.

Most disputes involving insurance contracts are still resolved within the scope of the judiciary, especially disputes involving mass insurance (eg, vehicle, life, health). This is because, in this type of contract, the arbitration clause inserted in the insurance policy is not binding on the insured, unless they initiate the arbitration or accepts the procedure in a specific document after the dispute has been established. In major risk insurance and reinsurance, the provision of an arbitration clause is more frequent.

4.5 Position if Insured Party Is Viewed as a Consumer

The Insurance Code and the Brazilian Consumer Defence Code (CDC)

If the insured is a consumer, their relationship will be regulated by the CCB and the CDC, a consumer protection microsystem based on the Constitution. For a “consumer” insurance relationship, it is only necessary for the insured to be the final recipient of the service, unlike a professional insured whose insurance contract is only an input in their chain of service provision or production of a good.

Among the CDC principles that apply to insurance contracts are vulnerability protection, good faith, balance and harmony in consumer relations; all of these are listed in Article 4 of the CDC, which establishes consumer protection guidelines.

In terms of contracts, it is worth noting the rules on offer and advertising, abusive practices, pre-contractual duties of conduct, interpretation of the contract in a more favourable way for the consumer, control of nullity of abusive clauses, review of disproportionate or excessively onerous clauses. Finally, in procedural matters, there is a determination to reverse the burden of proof in favour of the consumer, once specific requirements are met.

4.6 Third-Party Enforcement of Insurance Contracts

Third-Party Victim of the Insured and Third-Party Beneficiary

Although there is no express legal provision in this regard, the STJ case law (binding legal precedent 529) has settled the understanding that in cases of optional civil liability insurance, the third-party victim of the insured can present a claim directly against the insurance company, provided that it does so jointly with the insured in a necessary joinder of defendants.

The third-party beneficiary of the insurance contract, as in the life insurance contract, may present a claim directly against the insurance company, by means such as the executive method.

4.7 The Concept of Bad Faith

Good Faith in the Insurance Contract

Article 422 of the CCB provides in a general clause that the contracting parties are obliged to keep, both in the execution and in the conclusion of the contract, the principles of honesty and good faith. In a particular and specific form for the insurance contract, Article 765 of the CCB establishes that “the insured and the insurance company are obliged to keep the strictest good faith and truthfulness in the conclusion and execution of the contract, both with respect to the object and the circumstances and statements concerning it”.

There is, however, no legal concept of good or bad faith behaviour, and they are indeterminate but determinable legal concepts. Brazilian case law has always examined conduct on a case-by-case basis, bearing in mind not only the conduct of the contracting parties, but the reasonably expected behaviour of the counterparty. In situations in which it is possible to identify the intention to obtain unjust enrichment or in which an intentionally untruthful statement has been made, the courts tend not to accept that the conduct was done by malice (eg, Article 766 of the CCB). On the other hand, negligence, the unjustified and unreasonable lack of care of the parties, is usually not accepted as a contractual breach of good faith. In turn, the intention to increase the risk is considered by a considerable part of the doctrine as an intentional act and therefore not conceptualised as being in good faith (Article 768 of the CCB).

4.8 Penalties for Late Payment of Claims

Claim Adjustment Time

In personal insurance, for example, SUSEP Circular No 667/2022 also provides for a maximum period of 30 days for the settlement of the claim, which begins with the delivery, by the insured or the interested third party, of all the basic documents provided for in the contractual conditions, and may be suspended in case of need for additional documents, and resume after delivery.

In the same sense, regarding damage insurance, Article 43 Sections 1 and 2 of SUSEP Circular No 621/2021 establishes a period of 30 days, counted from the delivery of all documents and with the possibility of suspension, in case additional documents are required.

Despite the determination, especially in major risk insurance, the term is usually exceeded for several examinations that may be necessary during the adjustment or settlement of claims. If there is unjustifiable delay on the part of the insurance company in fulfilling its obligation to indemnify, it will be subject to pay a conventional fine, in addition to monetary adjustments and legal interest (Article 772 of the CCB).

The effects of late payment include the obligation of the insurance company to indemnify what the insured has lost (emerging damages), as well as reasonably expected loss of profits (Article 402 of the CCB). It is not uncommon that, in judicialization, the insurance company is condemned to pay emotional distress damages in favour of the insured, if it has been demonstrated that the delay or refusal of compensation was not legitimate.

4.9 Representations Made by Brokers

Insurance Broker

Decree Law 73/66 establishes that the insurance broker is the legally authorised intermediary to raise and promote insurance contracts between insurance companies and individuals or legal entities. Law 4594/64, recently reformed by the Brazilian Law No. 14,430/2022, regulates the profession and establishes the various attributions of the insurance broker, including identifying the interest to be guaranteed, recommending the type of contract and the insurance company to be hired.

The law does not establish which party would be represented by the insurance broker. In local practice, it is possible to identify situations in which the insurance broker is positioned as a representative of one or the other party presenting insurance proposals, making or receiving communications between the insured and the insurance company, presenting a declaration of risk status or carrying out a claim notice.

Case law mostly recognises the insurance broker as a representative of the insurance company (STJ – EResp No 1,825,716/SC), although there are precedents that considered statements by insurance brokers as made by the insured (STJ – REsp 1,363,735/SP), when, for example, they sign personal statements of health.

4.10 Delegated Underwriting or Claims Handling Authority Arrangements

Delegated underwriting and claims handling authority arrangements are not common.

5 Claims Against Insureds

5.1 Main Areas of Claims Where Insurers Fund the Defence of Insureds

Funding the Defence of the Insured

Recently, SUSEP reformed the civil liability insurance regulation (SUSEP Circular 637/2021) which includes several types, such as D&O, environmental, professional and cyber-risks.

In all these modalities, if there is a claim by third parties for damages allegedly caused by the insured, there is the possibility of contracting a guarantee for costs arising from the administrative or judicial defence of the insured, such as the payment of attorney’s fees, lawsuit costs, expert charges and court guarantees.

For D&O insurance, SUSEP Circular 637/2021 now indicates as basic coverage the payment by the insurance company of court costs, costs arising from arbitration proceedings, legal fees, expenses with expertise. On the other hand, the aforementioned circular determined the inclusion of a clause in the contracts providing for the insurance company’s right to reimbursement in cases where the damage caused to third parties is the result of intentional illicit acts, or in which the insured recognises the illegality of their conduct, determined at the end of the investigation or judicial process.

In terms of insurance against cyber-risks, in addition to the costs of defending against supervisory bodies or customers who are victims of data leakage, it is possible to contract a guarantee to support the costs necessary to recover/repair this data.

In any case, the insurance company is responsible for the costs of salvaging the claim (Article 771 of the CCB), to avoid it or to lessen its severity, which can be agreed to be carried out by reimbursement or in advance.

5.2 Likely Changes in the Future

Civil liability insurance has been growing consistently in Brazil and is expected to continue to grow.

There are five modalities in the civil liability branch – general replacement cost (RC), professional RC, D&O, environmental risks and cybernetic risks.

D&O insurance, for example, in a recent survey published, is present in 16.8% of Brazilian companies. The index is ten percentage points higher than in the 2018-2019 biennium. Among the factors contributing to this growth are a stricter punitive legal environment, relevant changes in legislation (eg, the anti-corruption law), recent changes in the business environment generated by the pandemic and the fact that many companies are going public and entering more regulated environments.. However, it is worth noting that, given the recent scandal of accounting inconsistencies involving Lojas Americanas, a more rigorous assessment by insurers is expected regarding requests for new policies and renewals, along with a increase in premiums. 

Civil liability insurance for cyber-risks, which also includes coverage for the defence of policyholders, has grown 27,2% in the first semester of 2023 if compared to the first semester of 2022. The growth is mainly due to the growth of cyber-attacks, which increases the claim rate, the value of premiums and the need for companies to be careful in underwriting new risks.

5.3 Trends in the Cost or Complexity of Litigation

Legal Liability

Legal liabilities are subject to yearly inflation adjustment, plus 12% interest on late payments, counted from the date of summons of the insurance company to respond to the claim. Additionally, in a recent decision, the Special Panel of the STJ while judging the Resp 1,820,963/SP, within the procedure for repetitive appeals, recognized that any deposit made as a guarantee during the course of the lawsuit does not exempt the debtor from paying late charges. When the funds are actually transferred to the creditor, the remaining balance in the judicial account should be deducted from the final amount owed.

Despite the high inflation in Brazil, with projections showing that it will reach 4.9% in the of 2023 fiscal year, legal liabilities have grown substantially in cost, with the lapse of term functioning as an important factor in the economic analysis of the decision on how insurance companies should conduct the actions proposed against them or against their insured.

For this reason, some insurance companies are reviewing their assessment criteria for reported claims, modifying some positions that may encourage judicialization or promoting settlements in lawsuits with low expectation of a favourable final decision.

5.4 Protection Against Costs Risks

Defence Costs

In Brazil, it is possible to contract a guarantee for defence costs in a judicial or administrative action that the insured needs to respond to the insured risk. The insured, however, will exclusively direct their defence, according to the strategy that seems most appropriate, through lawyers that they freely choose, although specialist professionals may be suggested by the insurance companies themselves.

According to the provisions of Circular SUSEP 637/2021, in the contractual conditions of RC insurance, there must be express mention of:

•             the legal personality of the contracting parties (individuals or legal entities);

•             the possibility of free choice or the use of referenced professionals by the insured, in the event that coverage for defence costs is sold; and

•             the insurance company’s right to reimbursement for amounts advanced to the insured or to the policyholder, in cases of commercialised coverage for defence costs, when the damages caused to third parties have resulted from intentional illicit acts.

For D&O insurance, the policyholders can freely choose their respective lawyers.

6 Insurers’ Recovery Rights

6.1 Right of Action to Recover Sums From Third Parties

Subrogation

Subrogation is the right that the insurance company has to claim from the person who caused damages the amount it has indemnified to the insured (Article 786 of the CCB and, for maritime transport insurance, Article 728 of the Commercial Code). The insurance company, therefore, enters the place that previously belonged to the insured, receiving from them by transfer their rights, actions and claims regarding the fact, up to the limit of the amount they actually paid based on the mandatory insurance relationship.

Through subrogation, multiple functions are taken into account, with repercussions, therefore, for the reduction of insurance costs, preventing those who cause accidents and injuries from being exempt from the effects of their conduct, and valuing the indemnity principle, also making sure the insured does not receive double indemnity, one from the insurance company and the other from the third party who caused the damage.

Subrogation, however, is reserved for damage insurance (Article 800 of the CCB) and does not extend to the strictly personal rights of the insured.

Except in the case of intent, the law prevents subrogation in situations where the damage was caused by people linked by family ties close to the insured, such as nephews.

Once the subrogation is carried out, the insured has the duty to collaborate in the exercise of the insurance company’s right of return, providing information, clarifications and delivering documents that are useful or necessary. Any act by the insured that disturbs the insurance company’s right to subrogation will be considered ineffective.

In March 2022, the STJ (REsp 1,962,113/RJ) solidified the understanding that the choice of forum clause signed between the author of the damage and the insured cannot be enforced against the subrogated insurance company in a regressive action in which it claims reimbursement of the amount paid to the insured.

6.2 Legal Provisions Setting Out Insurers’ Rights to Pursue Third Parties

The right is not explicitly set out in Brazilian law.

7 Impact of Macroeconomic Factors

7.1 Type and Amount of Litigation

Some Post-pandemic Effects of COVID-19 on the Brazilian Insurance Market

There has been a considerable growth in the life insurance sector. In the first semester of 2023, BRL14,29 billion was collected in life insurance premiums, representing a growth of 11,3% compared to the first semester of 2022.

Despite the substantial growth in health insurance beneficiaries during the pandemic, the sector is experiencing a slowdown, with a mere 0.2% increase in beneficiaries during the first quarter of 2023. There is a trend towards a decline in the number of beneficiaries due to the increase in utilizations and costs.

Also due to the introduction of hybrid work, Brazilian companies were more concerned with hacker attacks, increasing the demand for cyber-insurance; in the first semester of 2023, purchases of this type of insurance grew 27,2% from the same period the previous year.

In the same sense, civil liability insurance, especially D&O, also grew considerably. In the first semester of 2023, there was a 14.6% increase in premium collection. This is because the pandemic has brought great challenges to managers, with sensitive topics such as returning to face-to-face work, vaccination, dismissals and financial decisions to ensure the sustainability of the business and, consequently, the need for less exposure of directors.

The contracting of judicial guarantee insurance also expanded as an instrument for litigating companies to replace the use of their own equity to guarantee lengthy defences of lawsuits.

7.2 Forecast for the Next 12 Months

Future of the Insurance Market

The insurance market is a very traditional market, but it is undergoing some potentially significant changes.

Change in SUSEP’s Regulatory Framework

SUSEP reviewed most of the entire regulatory framework by 2023. This is covered in detail in 9.1 Developments Affecting Security Coverage.

There are also initiatives for innovation in the sector, including the sandbox and open insurance. Open insurance comes with the proposal to transform the insurance market in Brazil, allowing consumers the possibility of sharing their information with different companies authorised by SUSEP.

The regulatory sandbox is an experimental regulatory environment to enable the implementation of innovative projects that present products and/or services to be offered within the scope of the insurance market and that are developed or offered based on new methodologies, processes, procedures or existing technologies applied in different ways. The companies participating in the sandbox will be able to test – under the supervision of SUSEP – new products and services or new ways of providing traditional services. The project implementation process is already in the second phase.

Insurtechs and Start-ups in the Insurance Sector

The Brazilian market has seen investments in insurtechs and start-ups in the insurance sector, although at a lower rate than the global market. Traditional insurance companies, on the other hand, have also sought innovation, either in an attempt to reduce bureaucracy in procedures or in the launch of new products (eg, pay per use car insurance, parametric insurance).

Macro-economic Scenario in Brazil: Presidential Elections

With a newly established left-wing government, characterized by a more interventionist stance, an increase in social policies and investment is expected,  especially in infrastructure such as highways, roads, telecommunications, renewable energy and sanitation. All this should drive even more contracting of engineering risk insurance and insurance bonds, in addition to civil liability and others.

On the other hand, in 2023, a reduction in inflation is being observed despite the persistence of high interest rates, inflation and unemployment, which slows down consumption and can reduce the rate of purchase of car insurance, extended and home guarantees, etc.

Insurance Bond

In 2023, the Brazilian Federal Procurement Law will still be in full force, which increases the percentage of insurance bonds for public works to 30%.

Agricultural Insurance

As for agricultural insurance, the insurance market believes that there is a lot of potential for growth. This is because the insurance industry has not kept up with the growth of agribusiness and, still, there is very little territorial insurance coverage.

Life Insurance

Despite the clear growth in the pandemic, the national market is still far behind countries like the United States and Japan. About 60% of Americans and 90% of Japanese citizens have some form of life insurance, while in Brazil only 15% of the economically active population has this type of insurance.

Cyber-insurance

According to National Superintendence of Private Insurance (SUSEP), the demand for cyber-insurance grew by 27,2% in the first semester of 2023 from same period last year, and this trend is set to continue to grow even more. Whether due to hyperdigitisation or the increasing frequency of cyber-attacks, it is believed that, in the coming years, cyber-insurance will be widely known and commercialised.

M&A

There are also prospects for M&A in the insurance sector. Brazilian companies have, in recent years, been investing in M&A operations. It is expected that there may be movement in the same direction in the insurance sector. The acquisition of Sulamérica Seguros by Rede D’Or, valued at approximately BRL15 billion, is an example of a recent M&A operation carried out in the sector.

7.3 Coverage Issues and Test Cases

There are no cases that are relevant to mention.

7.4 Scope of Insurance Cover and Appetite for Risk

Agricultural Insurance

Climate change has caused an increase in claims in agricultural insurance. The Reinsurance Institute of Brazil (IRB) claims ratio – which measures how much the company spends on insurance in relation to what it collects from policyholders – reached 108% in the second trimester of 2023, a decrease of 46% in comparison with the same trimester of 2022. In 2022, the claim rate reached 154% in the same period. It is likely, therefore, that the agricultural producer will find fewer product options and more restrictions on insurance guarantees or higher premiums. Despite the rise in premiums, in 2023, there has been an increase in the search for agricultural insurance.

8 Environmental, Social and Governmental (ESG) Risk

8.1 Impact on Underwriting and Litigating Insurance Risks

ESG (Environmental, Social and Corporate Governance)

To encourage this type of governance in the insurance sector, SUSEP released Circular 666/2022 in June 2022, which provides a regulatory framework for issues involving ESG, stimulating the evolution of this agenda in a standardised way. The objective is to induce the insurance sector to integrate sustainability risk in its risk matrix, especially the impact of climate change.

The new Circular establishes the sustainability requirements to be observed by insurance companies, EAPCs, capitalisation companies and local reinsurance companies, as well as regulating in detail the concepts of risk management, risk measurement and incorporation of losses. This regulatory rule was already expected by the sector in view of the awareness that, for example, climate issues are also financial risks and directly affect the results of companies in the long term. This regulation is in line with the global trend of incorporating climate risks in the portfolio analyses of companies.

The mandatory implementation of such regulatory and environmental standards in the insurance sector in Brazil will be gradual and will take into account the size of insurance company supervised by SUSEP, starting in December 2022 (CNSP Resolution No 388/2020). Among other consequences, insurance companies that do not meet the ESG criteria may find it more difficult to accept their insurance proposals or have higher premium prices, which will stimulate compliance in the medium term.

8.2 Data Protection Law

Brazilian Law N. 13,709/2018 has impacted the insurance market, particularly in the risk subscription process.

Afterall, it introduced barriers to the sharing of policyholder’s personal data among peers which could have been used for risk assessment and acceptance purposes. Now, personal data must be anonymized and cannot be used for discriminatory purposes.

The regulation of claims has also been affected, as it greatly hindered the regulator’s access to personal data and information during the claim process This access is only permitted with explicit consent from the data subject, as outlined in Article 7 of Brazilian Law n. 13,709/2018.

Moreover, the looming threat of sanctions by the Brazilian National Data Protection Authority (ANPD) has propelled a notable increase in the demand for cyber risk insurance, particularly considering the exponential growth of data breach incidents, largely due to vulnerabilities in policyholder’s information security systems.

9 Significant Legislative and Regulatory Developments

9.1 Developments Affecting Insurance Coverage and Insurance Litigation

SUSEP has advocated for substantial changes.

Since 2019, all standards related to the development of products must go through the review process, always based on simplification, flexibility and the elimination of standardised plans, fostering innovation. The objective is to increase the offer of products to policyholders, increasing competition between insurance companies and, therefore, reducing the value of premiums.

Until now, the insurance market’s response to SUSEP’s proposals has been very slow, many of the products and insurance contracting processes are essentially the same as before the regulatory reform.

In 2023, the Brazilian Federal Procurement Law will be in full force, increasing the percentage of the insurance guarantee for contracted public works to 30%, bringing the step-in instrument into the legal system, which allows insurance companies to assume the completion of unfinished public work up to the policy limit.

The Brazilian Law No. 14,454/2022 was approved, which overturns the exhaustive list and establishes that health plans may be required to finance health treatments that are not on the list maintained by the National Supplementary Health Agency (ANS). This means that health insurance companies may be faced with an expansion of the guarantees they need to offer to policyholders, and the impacts on the mutual fund and premium prices still uncertain. 

The most recent development was the revival of the Bill of Law from the Brazilian House of Representatives No. 29/2017, which is endorsed by the government and aims to establish a general insurance law in the country, thereby superseding the provisions of the current Brazilian Civil Code that pertain to the subject matter. The bill is set for consideration in the plenary session of the Federal Senate and, upon approval, will proceed for the presidential sanction, since it has already been approved by the Brazilian House of Representatives.

In the event it is ratified, the law will come into effect one year after its publication.

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