Transitioning from a Tax to a Benefit

World Bank/IFC Global Insurance Conference June 2011

Motor Third-Party Liability (MTPL) Insurance in Brazil

DPVAT Insurance

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HistoryThe Brazilian MTPL system was established in 1974 by a federal law, which created the compulsoryMotor Third-Party Liability insurance named “DPVAT Insurance”

NatureThe federal law no 6,194/74 provides that DPVAT Insurance is a compulsory insurance that must bepurchased every year by all owners of automotive vehicles as a pre-condition to its licensing andregistration under Brazilian laws. This includes individuals, and both public and private entities

CoveragePersonal injuries caused by terrestrial motor vehicles and/or their cargo to victims of the trafficaccident, whether they where being transported or not

LimitsDeath – R$ 13,500.00 (approximately US$ 8,000.00).Permanent disability – up to R$ 13,500.00 (approximately US$ 8,000.00) – proportional to injuries.Medical and hospital expenses (reimbursement)– up to R$ 2,700.00 (approximately US$ 1,600.00)

The Brazilian’s MTPL System: General Overview

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► Insurance policies ranges from January 1st to December 31 of each year. The premium is due indifferent dates set by the Transit Authority from each Brazilian State

► The premium of the DPVAT Insurance varies according to the vehicle category (cars, motorcycles,trucks, buses), regardless model, age or characteristics of the vehicle owner and is established byBrazilian Insurance Authorities

► It covers injuries caused by auto accidents occurred across the Brazilian national territory,independently if the vehicle owners payed the premium or if the vehicle was identified

► It indemnifies each victim individually

► Coverage is not subject to the verification of the vehicle that caused the accident and/orresponsibility (fault) of the driver – “no-fault system”

► 45% of the DPVAT Insurance gross premium is carried to the Brazilian Health System (SUS) and5% is paid to the Brazilian National Transit System

► The instructions for the use of DPVAT Insurance are printed on the back of Certificate ofRegistration and Licensing of Vehicles

Key Aspects of the Brazilian MTPL System

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1,084 Customer Services Centers as March 2011

5th largest and populated country8,5 million square kilometers5,565 Municipalities190 million inhabitants

Brazil in numbers

322 Insurance Companies Offices and Branches605 Insurance Brokers (“DPVAT Partners”)91 Brokers Association Offices and Branches51 Claims Adjusters Offices09 Customers Claims Offices06 State Traffic Authorities Offices

DPVAT Insurance – Customer Service Network

DPVAT Insurance is the only insurance product that is widely available and also

provides coverage for all of Brazil’s population

Key Aspects of the Brazilian MTPL System

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The Brazilian MTPL System Evolution

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Main Features of the Past Model of Management ● Insurance companies operated the DPVAT Insurance independently and competed in the selling ofthe insurance● Automotive vehicle owner purchased the DPVAT Insurance directly with the insurance company of itschoice, which received the premium and adjusted claims● It was necessary to characterize the driver’s responsibility and know which insurer to present a claim● In case of non identified vehicle an “insurers fund” would only pay 50% of the limit for deathcoverage● No indemnities were due in case vehicle owners did not pay for the premium

Main Disadvantages of the Past Model of Management● Compliance with the social purpose of the DPVAT Insurance was affected by decentralization and the need toidentify the insurance company of the insured, in addition to the need to establish the driver’s responsibility● The collection of the DPVAT Insurance premiums was very inefficient because there was no connectionbetween the annual licensing process and the payment of the insurance (high rate of default – 60%)● Improvements to the legislation was hampered by the lack of an organization empowered to properlyrepresent insurance companies on behalf of DPVAT Insurance

Conclusion● Because of the complex requirements for insurance claims, DPVAT Insurance was unknown to thegeneral public, carried a high level of default and was widely considered as an additional tax by thepublic unnecessary and ineffective product, which rendered it both unnecessary and ineffective

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The Brazilian MTPL System Evolution

Main Features of the Current Model of Management

● The Model has been evolving since the enactment of Law 6,194/74 in order to permit broader coverage andmake the process of indemnification simpler and faster

● A pool of 108 insurers (Consortium) was established in 1986 on a joint liability basis to underwrite DPVATInsurance (management of Fenaseg)

● Establishment of operational interaction between DPVAT Insurance and State Traffic Authorities

● Reduction of administrative costs and standardization of operations throughout the country

● Since January 2008 a lead insurer was created to exclusively manage and operate the Consortium ofinsurance companies (Seguradora Líder DPVAT)

● The liability of each insurer was limited to their participation in the Consortium

● The Seguradora Líder DPVAT represents the Consortium on judicial and administrative bases

● The lead insurer made it easier for the Brazilian insurance regulator oversight (SUSEP) to monitor theoperation of DPVAT Insurance, which gave the DPVAT Insurance more transparency and credibility

● The mechanisms of the insurance management were greatly improved as a lead insurer concentrates all ofthe DPVAT Insurance premium collection, reserves management, claims handling and payment

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Number of Policies issued per Year

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Brazilian MTPL System Evolution

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Increase of Insurance Premiums and Losses

* Estimated 2011

Gross Premium Earned Net Premium Losses

The Brazilian MTPL System Evolution

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Thousands

* Estimated 2011

Increase of Claims and Indemnities

Death Disability Medical expenses

The Brazilian MTPL System Evolution

Total

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The Brazilian MTPL System Evolution

Strategy for Development

● The efficient method of organization and management and the expansion of the customer servicesnetwork supports the sharp increase of the number of claims and indemnifications on a timely basisclaims payment

●The DPVAT Insurance is today a widely known product in Brazil, favoring the socialization of risks

● Since 2009, Seguradora Líder DPVAT has invested in institutional campaigns in several media(television, newspapers, outdoors, radio, internet)

● Seguradora Líder DPVAT has also being involved in several actions to prevent and reduce accidentssuch as the campaign on the importance the use of seat belts, the promotion of World Day ofRemembrance for Victims of Transit, the enforcement of a severe Brazilian “non-drinking and drivinglaw”

● The positive reinforcement of Seguradora Líder DPVAT’s image and the expansion of the number ofclaims and indemnities payments is transforming the perception of society and authorities over DPVATInsurance

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Campaign

Results

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Campaign

Film 1

Film 2

Campaign