Flexibility in Regulation Of Damage Insurance To Cover Large Risks: Public Consultation Notice SUSEP No. 18/2020

SUSEP submitted Notice No. 18/2020 for public consultation, presenting a draft of a new Resolution with the purpose of defining and establishing general principles and characteristics for preparation and commercialization of large risks insurance coverage contracts.

As in relation to the public consultation Notice No. 16/2020, which presented a draft of a new Resolution aimed at regulating mass damage insurance (see here), the changes proposed in this Resolution are in line with SUSEP’s perception concerning over-regulation of the insurance market and reinforce the segregation of regulation of mass insurance and large risks insurance.

In line with the strategy outlined in the 2020 Regulatory Plan, SUSEP’s main objective is to simplify the regulation of insurance market in Brazil, providing a favorable environment for the development of a competitive, transparent and innovative market with a greater coverage.

The draft of the new Resolution classifies as damage insurance contracts to cover major risks those that have the following characteristics:

1. Branches of Civil Liability for Officers and Directors – D&O; Petroleum Risks, Specified and All Risks, Bank Insurance, Aircraft, Stop Loss, Nuclear and Port Operators’ Multiple Peril;
2. Other branches, as long as contracted by legal entities, which have at least one of the following characteristics:
   1. Maximum limit of guarantee greater than R$ 20,000,000.00;
   2. Total assets greater than R$ 27,000,000.00, in the immediately preceding year; or
   3. Gross annual sales exceeding R$ 57,000,000.00, in the immediately previous year

Thus, listing basic principles and values that must be adopted in the elaboration of insurance clauses for large risks, with ample freedom of negotiation between the parties, the draft intends to guarantee ample freedom to negotiate, information clarity and objectivity, equal treatment between contractors and less intervention by the regulator in this field.

The rule only determines the minimum provisions that must be included in the clause, such as geographic scope of coverage, premium payment, covered and excluded risks, definition of the beginning and end of obligations, among others.

In addition, the rule under consultation provides that contractual conditions and actuarial technical notes will not be subject to submission or approval by SUSEP and must be kept under responsibility of insurers.

The new Resolution also provides definition and specific conditions for each of the branches that it classifies as large risks insurance, regardless of other conditions. The question that arises is about compatibility between the content of this resolution with the other specific resolutions of each of the treated branches.

If the proposed regulation is approved, its provisions will be applied to policies renewed or issued from the date of its entry into force.

In our view, the rule submitted to public consultation inaugurates a new phase in the Brazilian insurance market, consisting of making regulation its primary purpose of encouraging competitiveness and protecting consumers, allowing, on the other hand, the greater development of the market with freedom for creation of products and less intervention in large risks.

The full Draft can be accessed at this link. Interested parties may send comments or suggestions on the text through an electronic message addressed to comas.rj@susep.gov.br until October 9, 2020, by filling out a specific standardized form.

Demarest’s Insurance and Reinsurance team will follow-up on the development of this Public Consultation until publication of the final text and is available to provide any clarifications on the subject.