The insurance industry in Brazil Transformation and growth in a country of opportunities

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The insurance industry in Brazil Transformation and growth in a country of opportunities

Project directionClodomirFélixF.C.Junior

Editorial boardRenatodeSouzaMtb26.563

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PhotographsWalterCraveiro(projectofficialphotographer)NelsonToledo(EnricoDeVettoriandJoãoBatistaPinto)GilbertoAlves(JérômeGarnier)JorgeLuiz–ANS(MauricioCeschin)NiltonSantana(FabioLuchetti)GabrielSales–Photocamera(CarlosAugustoPintoFilho)

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Collaborating companies and entitiesAgênciaNacionaldeSaúdeSuplementar(ANS)AonRiskSolutionsBancodoBrasilBradescoSegurosCaixaSegurosCESCEBRASILSegurosHDISegurosIRB-BrasilReItaúAutoeResidênciaS.A.MAPFRESegurosMarítimaSegurosS.A.MarshBrasilOdontoPrevPortoSeguroSulAméricaSuperintendênciadeSegurosPrivados(Susep)

•• Thestatisticsmentionedinthisbookreflectthelatestavailableinformationattheclosingofthispublication.Thedisclosureofdatabythepressoranyothermarketsourcesupdatingthestatisticsexposedhereindoesnotannultheinformativepurposeofthismaterial,whichistoanalyzethechangesandessentialtrendsestablishedanddevelopedthroughouttheyears,despiteone-offchangesorshorttermeconomicandbusinesscycles.

•• ThecontentsofarticleswrittenbytheguestauthorsinthiscollectiondonotnecessarilyreflecttheopinionofDeloitte.

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TheexcellenceofthefinancialindustryinBrazilistodayrecognizedallovertheworld,contributingtopresentthecountryasamarketattractivetoallinternationalagents.

Thesolidfundamentsoftheorganizationsinthissectortranslateintooptimumlevelsofprofitability,diversifiedoffersofproducts,increasingpenetrationofthelessexploitedtiersofthepopulation,anenviabletechnologicalbaseandadistinguishedriskmanagementstructure.

Theinsurancesectoris,undoubtedly,averyimportantpartofthishealthyfinancialindustryofours.Morethanthat,ittodayrepresentsavibrantmarket,whichisstronglyexpandingandestablishingasignificantlevelofmaturity.

Thepresentsuccessofourinsurancemarketisaresultnotonlyofthepromisingmomentumoftheeconomyandthebusinessenvironmentinthecountry,butaboveall,ofthecapacityofthecompaniesinthisindustrytopermanentlyreinventthemselves.

Deloitte,whichalreadyachieved100yearsserviceinBrazil,isproudtohavehistoricallysupportedtheorganizationscomprisingthewholelocalchainoftheinsuranceandfinancialmarketingeneral.Aswebeginoursecondcenturyinthecountry,weremaincommittedtohelpthisindustrygrowthandcontinuetotransform.

Thiscollectionofarticlesorganizedwiththecontributionsofsomeofthemainexecutivesinthismarketoffersusapanoramicviewofoneofthemostpromisingsectorsofthenationaleconomy.Wewisheveryoneanenjoyableread.

Juarez Lopes de AraújoPresidentofDeloitte

A view of our vibrant insurance market

“As we begin our second century in the country, we remain committed to help this industry growth and continue to transform.”

Carlos Augusto Pinto FilhoGeneralcoordinatoroftheSuperintendenceofPrivateInsurance(SUSEP)’sGeneralCoordinationofSolvencyMonitoring

Cristiano FurtadoCFOofMarshBrasil

Duarte Marinho VieiraTechnicalactuarialsuperintendentofMapfreandProfessorofactuarialsciencesofthePontificalCatholicUniversityofSãoPaulo(PUC)

Fabio LuchettiExecutiveVicePresidentofPortoSeguro

Francisco Caiuby VidigalPresidentofMarítimaSegurosS.A.andMarítimaSaúdeSegurosS.A.

Jérôme GarnierCFOofCaixaSeguros

Leonardo André Paixão PresidentofIRB-BrasilRe

Marcelo Homburger VicePresidentofTechnicalResourcesofAonRiskSolutions

Guest authors

Deloitte•–•local•and•global•leadership

By Clodomir FélixDeloitteleaderinBrazilforfinancialindustry

Joe GuastellaDeloittegloballeaderforinsuranceindustry

Chris HarveyDeloittegloballeaderforfinancialindustry

Marco Antonio RossiPresidentoftheBradescoSegurosGroup

Mauricio Ceschin PresidentoftheNationalSupplementaryHealthAgency(ANS)

Murilo Setti RiedelVicePresidentofHDISegurosandinchargeofthetechnicalareasofInsurance,ReinsuranceandLosses

Ney Ferraz Dias ExecutiveDirectorofItaúAutoeResidênciaS.A.

Patrick de Larragoiti LucasChairmanoftheBoardofSulAméricaSegurosePrevidência

Paulo Rogério Caffarelli VicePresidentofNewRetailBusinessforBancodoBrasil

Randal Zanetti PresidentofOdontoPrev

Valmir ForniCFOofCESCEBRASILSeguros

Deloitte•–•industry•and•business•expertise

Enrico De VettoriDeloittePartnerintheareaofConsultingandanexpertinthehealthsector

João Batista PintoDirectorofDeloitte’sActuarialpractice

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A sector that advances with the new BrazilTo better understand the universe of transformations the insurance industry has gone through, nothing could be more helpful than a collection of articles by executives and specialists who not only have an in-depth knowledge of the sector but also have actively worked for its development.

TheinsurancemarketinBrazilisgoingthroughanunprecedentedtime,markedbyhighlevelsofexpansioninpracticallyallsegments

andtypesofproductsand,mainly,bythesubstantialopportunitiesonthemostdiversifiedfronts.Aseriesoffactorshascontributedforthisindustrytomovequicklytoconsolidatehistoricgainsandrealizeitsrecognizedgrowthpotentialwithinoneofthemainemergingeconomiesintheworld.

Thefirstfacilitatorofrecentadvancesinthissectoristiedtotheveryeconomicstabilityofthecountry,whichoverthepasttwodecadeshasgivenconsumersandcompaniesagreaterabilitytoplan,therebyincreasinginterestininsuranceproducts.

Anotherdeterminingfactorofthisnewreality–perhapsthemostsignificantofall

foritsrange–hasbeentheexuberanceofourdomesticmarketwiththeriseinpurchasingpowerbysignificantpartsofthepopulation.Theso-called“newmiddleclass”,whichhadalreadybeenunleashingchangesinmanyeconomicsectors,isnowlookingforwaystopreservetheiracquiredassetsandguaranteesecurityandamorestablefuturefortheirfamilies.Thus,greatopportunitieswillcontinuetoopenforsomeinsurancesegments.Microinsurance,forinstance,soontoberegulatedinthecountry,isanimportantalternativeinthiscontext.

Fortunately,theexcellentperspectivesfortheinsurancemarketarenotonlysupportedbythesocialandeconomiceventsoftherecentpast.Onthecontrary,therearereasonstobelieveinthecontinuationofgrowthinthemediumandlongterm,asaresultofongoing

Introduction

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ByClodomir FélixDeloitteleaderinBrazilforfinancialindustry

economic,marketandevendemographicphenomena.

Theresumptionofinvestmentininfrastructure,forexample–whetherornotassociatedwiththeholdingofsportsmegaeventsin2014and2016–ispromisingforsegmentssuchasreinsuranceandestateinsurance.Theveryinstabilitypresentinmatureeconomiesshouldcontribute,ontheotherhand,tothecontinuedattractivenessoftheBrazilianinsurancesectortoforeigninvestment,particularlyinlightoftheopeningthatthelocalmarkethasbeenexperiencing.AndtheincreasingrelevanceoftheEconomicallyActivePopulation(EAP)intheBraziliansocietytendstofosterwhat’sbeingcalleda“demographicbonus”withanincreasednumberofpeopleproducing,consumingandgeneratingmoreandmoreopportunitiesfortheinsuranceindustry.

Inviewofthisunprecedentedscenario,theinsuranceindustryinBrazilhasbeenfosteringacontinuoustransformationofthemostvariedscope:Frombusinessstrategiesadoptedtotheintroductionofmoreefficientoperationalmodules,fromnewgrowthmechanismstotheuseofalternativechannelsofdistribution.ItisthentoaddressthisuniverseoftransformationsinanenvironmentfavorableforgrowththatDeloittedecidedtoinviteexecutivesandexpertstopresenttheirviewsonthedevelopmentoftheinsurancemarket.

Therefore,“TheinsuranceindustryinBrazil–Transformationandgrowthinacountryofopportunities”isacollectionofarticlesthatpresentthegreatdeterminingfactorsofchangesandexpansioninthissector.ChapterOneofthebook(“Beyondthestorm”)addressestheinternational

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situationoftheinsurancemarket,withDeloitte’sgloballeadersforthefinancialandinsuranceindustries–ChrisHarveyandJoeGuastella,respectively–discussingthenewdeterminingfactorsofthedynamicsofthesector.ThefivearticlesinChapterTwo(“Thecountryoftodayrevealsitself”)discusshowthenewBraziliansocialscenariobringsunprecedentedopportunitiesforinsurancecompanies.TheChapter“Anendlesshorizon”dealswiththerelationshipbetweentheinsurancemarketandthepathsofcapital,intheworldand,inparticular,inBrazil.

ChapterFour,then,(“Forthehealthofbrazilians”)includesarticlesonhealthanddentalinsurancechallengesandperspectives.Managementaspects,rangingfrompricingandprofitabilitytotherolesofthebrokerandtheactuarialprofessionals,areaddressedinChapterFive“Modernmanagement”.Toconcludethebook,thethreearticlesinChapterSix(“Thenewdynamicsoftheindustry”)addressmovementstypicalofanindustryglobalizedbydefinition,includingcompliancewithregulations,riskmanagement,consolidationandcompetitiveness.

Seenintheirentirety,the20articlespresentedinthefollowingpagesconstituteportraitsofthepresentandfutureofanindustrythathaslearnedhowtopermanentlytransformitselfthroughconstantadaptationtotheneweconomictimes.

A history of transf ormation and growth

1808IntheyearBrazilianportswereopened,thefirstinsuranceorganizationinthecountryisfounded,theCompanhiadeSegurosBoa-Fé

1996Brazilstartstopermittheentryofforeigngroupstocontrollocalinsurers

1855TheEmpireofBrazilexperiencestheorganizationoftheCompanhiadeSegurosTranquilidade,thefirstinthecountrydedicatedtothebranchoflifeinsurance

2006Newrulesforthesolvencyofinsurancecompaniesareestablished,requiringadditionalcapital,resultinginnewconsolidations

1850Withthepublicationofthe"BrazilianCommercialCode",themaritimeinsuranceisfullyregulated,afundamentalactivityforanagro-exportingcountry

2000TheNationalSupplementaryHealthAgency(ANS)iscreatedtoregulatethehealthservicesindustry

1862ThefirstbranchesofforeignbasedinsurancecompaniesappearinBrazil

2008TheReinsuranceInstituteofBrazillosesitsreinsurancemonopoly,favoringthearrivalofforeigncompetitors

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A history of transf ormation and growth

1901CreationoftheGeneralInsuranceSuperintendence,thattakesresponsibilityforregulationoftheindustry

2010Thecountryendsadecadeofstrongcreditexpansionandsocialinclusion,enlargingthedomesticmarketandopeningperspectivesfortheentireinsurancemarket

1939TheReinsuranceInstituteofBrazil(IRB-BrasilRe),whichwouldmonopolizetheinsuranceindustryuntilthebeginningofthe21stCenturyiscreated

2014ThecountrywillhosttheFIFAWorldCup,crowningaphaseofrenewedinvestmentwhichbenefitssegmentsoftheinsurancemarket

1929ThefirstcapitalizationcompanyinBrazil,SulAméricaCapitalizaçãoS.A.,isfounded

2011TheProgramforAcceleratedGrowth(PAC)2,togetherwithprivateprojects,opensopportunitiesforbranchessuchasreinsuranceandestateinsurance

1966TheNationalPrivateInsuranceSystemandtheSuperintendenceofPrivateInsurance(SUSEP)arecreated

1985TheBrazilianinsurancemarketgoesthrougharestructuringwiththegradualderegulationoftheindustry

1993TheRealplanislaunched,providingthebasesforsubsequentBrazilianeconomicstabilization

2020Brazilisexpectedtoreachthepeakofits“demographicbonus”,withitseconomicallyactivepopulationrepresentingthelargestpartofitssociety–moreopportunitiesforinsurers

Source:Susep,ÉpocaNegóciosMagazineandDeloitte(publicdataconsolidation)

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Contents

Chapter 1

13••Beyond•the•storm•A look at the industry’s future in the world

14 The vectors of transformation FourmainfactorstoexplainthechangesinthefinancialindustryChris Harvey

18 New paths to growth Thefocusonemergingcountriesandnon-traditionaldistributionchannelsJoe Guastella

Chapter 2

23••The•country•of•today••reveals•itself•The facets of the growing domestic market

24 A bonus to be conquered OpportunitiesthatwillcomewiththeincreaseoftheeconomicallyactivepopulationFabio Luchetti

28 The new object of desire Afterthesocialrise,theemergingclasseswanttopreservetheirachievementsMarco Antonio Rossi

32 The new needs of the new middle class ThedemandsofclassCthathelptodrivetheinsurancesectorPatrick de Larragoiti Lucas

36 Much more than “cheap insurance” Thepotentialandtargetpublicforpromisingproducts,suchasmicroinsurancePaulo Rogério Caffarelli

40 The next evolutionary stage Thetimehascomeforlife,pensionandhealthinsuranceJérôme Garnier

Chapter 3

45••An•endless•horizon•Doors open to investment

46 Insurance for insurers GreatpotentialforthereinsurancemarketinBrazilLeonardo André Paixão

50 The virtuous cycle of estates AnidealenvironmentforestateinsurancegrowthMarcelo Homburger

52 More protection for exporters ExportcreditinsuranceintimesofintensebusinessglobalizationValmir Forni

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Chapter 6

91••The•new•dynamics••of•the•industry•How to advance in an extremely globalized industry

92 Benefits and challenges of the new standards TheeffortstoadjusttheinsuranceindustrytointernationalstandardsCarlos Augusto Pinto Filho

96 Lessons learned from the crisis ThemanylessonsfromthefinancialindustryappliedtoinsurersFrancisco Caiuby Vidigal

100 The risk that became an opportunity Frompeopletoprocesses,frompartnershipstocompetitors:ThedeterminingfactorsofcompetitivenessDuarte Marinho Vieira

Chapter 4

57••For•the•health•of•Brazilians•Alternatives for the industry of life

58 Growth and inclusion opportunities AccessibilityandperceptionofvaluedrivedentalinsuranceinBrazilRandal Zanetti

62 The challenges of the health chain Theimportanceofconfrontingthesector’sincreasingcostsEnrico De Vettori

66 The health plan of the future ThechallengeofrespondingtoincreasinglywellinformedconsumersMauricio Ceschin

Chapter 5

71••Modern•management•Operations in search of efficiency

72 The information that determines the price ThenewpossibilitiesfortheconstructionofpricingmodelsNey Ferraz Dias

76 Profitability versus cost ThecomplexandessentialprocessofprofessionalmanagementofcostsMurilo Setti Riedel

80 Profession: broker Thepursuitofspecialization,updatingandcustomizedsolutionsCristiano Furtado

84 New roles for the actuaryThechallengesimposedbytheimplementationofIFRSforinsuranceactuariesJoão Batista Pinto

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Beyond the stormA look at the industry’s future in the world

Chapter 1

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The vectors of transformation

The most important changes underway in financial institutions all over the world are happening today in relation to four central factors: Adherence to regulations, capital, customers and competition. The weight of these changes today affects all business areas of the companies in the industry.

Fouryearsaftertheonsetoftheglobalfinancialmeltdown,muchofthedevelopedeconomy’sfinancialservicesindustryremainslargely

unsettled.IntheUnitedStatesandWesternEuropeannations,economic,regulatory,andpoliticaluncertaintyhavetakentheirtollonconsumerconfidence,whichisreflectedinthesloweconomicrecovery.Policymakersinbothregionscontinuetorolloutpotentiallycostlyandcumbersomeregulationsthatconfusestrategicplanningeffortsandmayhaveatrickledownaffectonfinancialinstitutionsindevelopingeconomies.Manyoftheworld’slargestfinancialservicesinstitutionsarestrivingtofindgrowthopportunitiesastheyaddresspressuresfromgovernment,regulatorsandthepublic.Wehaveseenrestructuring

anddivestituresamongthelargestglobalfinancialinstitutionsinordertosurvive.Nowweareseeingthecompaniestheirbusinessfocus,strategiesandmarkets.WhileWesterninstitutionswrestlewithadverseconditions,providersinemergingeconomieshaveseenarareopportunitytocatchup.LargeglobalandinternationalfinancialservicescompaniesinBrazilandChinaaretakingtheirrightfulplaceontheinternationalstage;eachcountrynowhasfinancialinstitutionsrankedamongthetop25worldwideintermsofstrengthandinvestmentattractiveness.Facingstagnantgrowthprospectsathome,U.S.andEuropeanentitiesarebeingdrawntotheseemergingmarkets.Theyareseekinggrowthinlessvolatileeconomiesandbringingwiththemnotjuststandardbankingproductsbutcounter-recessionary

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By Chris HarveyDeloittegloballeaderforfinancialindustry

insuranceproductsforuninsuredandunderinsuredresidentsabroad.Anumberofcountriesarechangingtheirregulatoryandtaxstructureastheybecomemoresureofthestrengthoftheirfinancialsectorsandthusarebecomingmoreattractivetotheseglobalandforeignentities,particularlyinBrazil.Toaddressnewregulationsandexpandtheirpresenceinnewmarkets,financialorganizationsaroundtheglobeareevolvingalongwiththepost-recessionglobalmarket.Muchofthechangewithinfinancialinstitutionsisoccurringaroundfourkeyelements:compliance,capital,customersandcompetition.Thesechangesareaffectingdecisionsinallareasofbusiness–operatingmodels,riskmanagement,governance,strategiccombinations,productdevelopment,staffing,andstrategicobjectives.

ComplianceGlobalgovernmentsandfinancialinstitutionsarebothviewedwithalackoftrustduetothecrisisandbail-outs.Theongoingpoliticaldialogue,thethreatsofregulatorypenaltiesandaggressivelobbyingtacticsbyindustryleadershasresultedinthehigh-levelshake-upoffinancialinstitutionoversightindevelopednations.However,thisongoingactivityhasleftmanyoperationaldetailsvagueandhasincreasedthenumberofregulatorybodiestowhichfinancialinstitutionsmustanswer.WhilewehaveseengeneralagreementamongtheG20aroundfinancialstabilityrequirementsandregulation,therestillsexistsconflictingdegreesofregulationsamongcountries.Theserequirethatcomplianceeffortsbetailoredtotherequirementsofeachjurisdiction.Non-compliancecouldleadtosignificant

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penaltiesandrepresentsasignificantreputationalhazardwhenthespotlightfallsonsensitiveareas,suchasexecutivecompensation.Anumberofkeyadjustmentsarepositioningcompaniestoreacttoregulatorychangeasitunfolds.Financialinstitutionsaremovingtowardanagile,scalablecomplianceprogramthatissupportedbydata-driventechnologysolutionsandahighlyskilledworkforce.Financialinstitutionleadersarealsoaddressingcomplianceproactivelybyanticipatingpenalties,quantifyingcompetitiveadvantages,andanalyzingscenariosthatwouldtriggeramoveinlocation,aproductexit,oranalternativecompensationplan.

CapitalCapitalisnolongeracommoditythatcanbeeasilyacquired.Themarketforcommercialpaperaloneshrankbyoverone-halffrom2007to2010.TheintroductionofnewcapitalstandardsthroughBaselIIIforbanksandSolvencyIIforinsurershasfurtherincreasedthecostofcapital.Asaresult,thecompetitionforcheaper,morestablesourcesofcapital,suchasinsuredbankdeposits,isintense.Longer-term,though,capitalrequirementsareforcingfinancialinstitutionstofocuson“returnoncapital”measurementsinordertoidentifythebestuseofcapitalandthemostefficientproducts.Thenetresultofthismovementislikelytopushfinancialinstitutionstodiversifyintoretail-styleareasoftheindustrythathavethepotentialtoboostliquidity,andeventoinsuranceproductsthatgeneratepositivenear-termcashflows.

CustomersCustomershavebeenbruisedbytheeconomicinstabilityofthelastfouryears.Economicinstabilityhasforcedcustomerstobecomesavvieraboutriskandtoscrutinizethenatureoffinancialproductsmoreclosely.Economicinstabilityhasalsoincreasedcustomerpricesensitivity,forcingfinancialinstitutionstoeitherreducefeesorlowersalesexpectations.

“Financial sectors are bifurcating into a smaller number of large, leading institutions and a greater number of smaller, boutique firms.”

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Inthefightformarketshare,financialinstitutionsarepreservingmarginsthroughgreaterefficiency,targetingservice-intensiveproductstolessprice-sensitivesegments,andbysheddinghigh-riskcustomerrelationships.Eliminatinglowerqualityproductsandleveragingviablebrandskeepthearrayofproductsandservicesofferedconsistentwithcustomerqualityandpricingstandards.

CompetitionThecompetitivelandscapeisdottedwithnewentrants,consolidations,andemergingmarketplayers.Newentrantsarecapitalizingontheirserviceexpertisetoattractfinancialservicesectorcustomerswhoaredissatisfiedanduntrustingofthecurrentplayers.Consolidationcontinuestobeapathtowardgrowthintoday’sanemiceconomies;bargain-huntingisfinance’ssportoftheday.Inemergingmarkets,playersareusingspeedandagilitytodeveloparegionalpresence,forcinginternationalproviderstotakenoticeoftheirambitiousplanstogrowbrandrecognition.New,morenimbleandcreativecompetitorswithhighcustomerservicestandardsaremotivatingtraditionalproviderstoimprovethecustomerexperienceandserviceresponsivenesstokeepup.Financialsectorsarebifurcatingintoasmallernumberoflarge,leadinginstitutionsandagreaternumberofsmaller,boutiquefirms.

Toaddressthesechanges,financialinstitutionsarereturningtoserviceinnovation,whereimproveduseoftechnologycanleadtoabettercustomerserviceexperience.Also,servicetrainingforfront-linestaffhasbecomeahigherprioritytoprovideacompetitivecustomerexperience.Strategicacquisitionsanddivestituresarekeepmarketpenetrationalignedwiththeobjectivesoftheorganization,includinginvestmentsintoemergingmarkets,suchasBrazil.Despiteheighteneduncertaintysurroundingcompliance,capital,customers,andcompetition,thereisadegreeofstabilityreturningtotheworld’sfinancialsystems.Thefinancialcrisishashighlightedtheimpactthefinancialservicesindustry,andsystemicrisk,havehadoneconomiesandonconsumerappetiteforfinancialservices.Institutionsthatstayfocusedonharnessingopportunitiesinthesefourkeyareasarestrengtheningtheirpositiontosucceedinthenewgloballandscape.

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New paths to growthWith reduced prospects for expansion in the more mature economies, global insurance companies are turning their focus of activity and capital to the emerging markets as well as to the use of non-traditional distribution channels. They, thereby, try to maneuver more effectively in the new conditions of the global market.

Thefinancialcrisisthatbeganin2008hashastenedthepaceofchangeintheinsurancemarketasprovidersstepuptheireffortstoprop

upsaggingrevenuestreams.Althoughtherootcauseofthemeltdowncanbetracedbacktobanksandsecuritiesfirms,contagionfearofnewsetbacksspreadamongallfinancialservicesinstitutions.Insurersarefaringbetterthanmost,though,duetoeffectiveriskmanagementmeasuresandadequatecapitalstoresduringtheheightofthecrisis.Despitewidespreadproblemsamongbanksandsecuritiesfirms,onlyahandfulofinsuranceinstitutions,mainlyUSbased,havebeencrippledbythefinancialsystemmeltdown.Insurersalsocontinuetoratehigherwithconsumersinbrandsatisfactionsurveysthanotherfinancialservicesinstitutions.

Althoughinsurershaveborneupwellthroughthecrisis,theeconomicdownturnhighlightssomeunderlyingproblemswithinsurers’traditionalrevenuestreams,whichhavebeenshrinkinginrecentyears.Insurers’abilitytogenerateincomefromtraditionalunderwritingindevelopedeconomieshasbeenadverselyaffectedbyhighmarketsaturationandthelossofbillionsofdollarsininsurablerisksduringtheeconomicdownturn.Investmentincomestreams,whichconstituteakeysourceofinsurancerevenue,havealsobeenunderpressurefromcontinuingmarketvolatility.Thethreatofglobalrecessionhasdriveninterestrateslower.Persistentlylowerglobalinterestratesreducetheabilityofinsurerstogeneratesufficientincometocoverfixedcostsfrominvestmentproductsandlimitthereturnthat

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insurerscanoffertoconsumersonlifeandannuityproducts.Theregulatory-chargedenvironmentcomplicatesinsurerseffortstoactstrategicallyandmoveinnewdirections.Individualcountriesandstandards-settingorganizationscontinuetorolloutregulatoryactioninresponsetothefinancialcrisis.Internationally,measurestoaddressindustrystabilitysuchasSolvencyIIwerealreadyunderwaybeforethecrisis.TheheightenedfocusonregulatoryreformintheEuropeanUnionandtheUSposesmanychallengesincludingoperationalstructure,tax-planningandcompliance.

TheInternationalAccountingStandardsBoard’sfine-tuningofitsInternationalFinancialReportingStandards(IFRS)islikelytoimpactreportingandtaxburdensforinsurers.Insurancecarriersarefacing

anextendedperiodoftimeinwhichtheywon’tknowwhatwillbeexpectedofthem,whatcompliancedemandsandcoststhey’llface,orevenwhethertheycanremainviableincertainmarkets.Insurersareactingtotakeadvantageofpotentialnewprofitcenterpossibilitiesdespiteregulatoryuncertainty.Withstagnantgrowthinadvancedeconomies,insuranceleadersareshiftingtheirfocusandcapital–financial,technologicalandintellectual–toemergingmarketsandnon-traditionaldistributionchannelswheretheymayhavethegreatestopportunitiestodrivegrowth.Insurersarelookingtoexpandtheirpresenceindevelopingeconomieswhereinsurancepenetrationislow.Brazil’slargenumberofuninsuredandunderinsuredpopulationcoupledwitharesilient

By Joe GuastellaDeloittegloballeaderforinsuranceindustry

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economyandgrowingmiddleclasspresentanattractivenewfrontforhealthierreturns.Inadditiontohavingthefifthlargestpopulationintheworld,Brazilhasanumberofotherqualitiesthatmakesalesprospectsbrightforinsurers.Thesequalitiesincludeopeninternationaltrademarkets,consistentforecastedgrowth,andstableratesofinflation,consumption,tax,andpublicdebt.Brazilisoneofseveralcountriesactivelychangingtaxandregulatorystructurestoattractforeignfinancialservicescompanies.Thedomesticinsuranceindustryhasbeenliberalizedtoallowforeigninvestmentandparticipationintheemerginggrowthofthenation’sindustry.Asaresult,theBrazilianinsurancemarketisforecasttogrowatanaveragerateofalmost10percentthrough2013,faroutpacingtheglobalprojectedmarketaverageofabout3percent.

Beyondnewmarketpenetration,insurersareadjustingtheirproductandservicemixtomeetthetypesofinsuranceproductsconsumerswantinpost-recessioneconomies.Cash-strappedanduneasywithproductstheydon’tunderstand,consumersinadvancedeconomiesaregenerallypassingoncomplexorhybridproductsinfavorofsimpleproductsthatareeasytounderstandandprovidecoverageinareaswherebuyersbelievetheycannotaffordtobewithoutprotection,suchasinflationproofannuitiesandlifeandhealthinsurance.Thisislimitingtheindustry’sopportunitiestomakeheadwaywithinnovativehigher-marginproductsandservices.

Contrasts•and•similaritiesInemergingmarkets,theeconomicsmaybedifferentbutconsumerdemandsarestrikinglysimilar.Businessesandconsumershavemoreassetstoprotectanddisposableincometobuyinsuranceproductsasaresultofexpandingeconomies.First-timebuyers,whichmakeupthebulkofsales,demandsimplecoveragetoprotectassetsandfutureincomestreams.

“In emerging markets, the economics may be different but consumer demands are strikingly similar. Businesses and consumers have more assets to protect and disposable income to buy insurance products as a result of expanding economies.”

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Reachingtheseandotherglobalconsumersinitiallycanbeproblematic.Althoughinsurershaveahighrateofcustomersatisfaction,theyhavehistoricallyhadahardtimeconnectingwithnewcustomers.Insurersarelookingatimprovingthecustomerexperienceandexpandingdistributionchannelstocreatevarioustouchpointsinthevirtualaswellasrealworld.Insurersareexploringnon-traditionaldistributionchannelstoboostincomestreamsandrebuildconsumerconfidenceintheindustrywithbetterserviceresponsiveness.Consumersareincreasinglyaccessingthewebtocomparisonshopforinsuranceproductsonthegoviatheirmobiledevices.Onlineaggregatorsarealsopoppinguptoserveaswholesalersforindependentagentsaswellasmarketsourcesforsmall-businessownersandpersonalinsuranceconsumers.

Indevelopingmarkets,bancassuranceisonekeytoconnectinginsurerswithcustomerprospectsbecausebankingisaninitialcontactpointforthosefirstusingfinancialservices.ThebankingsectorinBrazilisstronglycapitalizedandwell-regulated,thebranchnetworksarewell-establishedgivingbancassuranceatargetaudiencewithaninterestinfinancialhelp.Mostofthelargestfirmsinthelocalinsuranceindustryareaffiliatedwithbanksthathaveextensivedomesticdistributionchannelsthroughbranchnetworks.Bancassuranceallowsinsurerstosellproductsinmarketswhereothercompetitorsmaynotbepresent.Incomestreamshaveinexorablybeenalteredwiththefinancialcrisis,forcinginsuranceleaderstobalanceregulatoryuncertaintyagainstthepursuitofgrowthinnewglobalprofitcenters.Insurersthatleadthewaytoemergingmarketsandnon-traditionaldistributionchannelsaretransitioningmoreeffectivelytonewmarketconditions.Insurersthatconsistentlyreassessandrepositiontheirbusinessmodelstotakeadvantageofprevailingopportunitiesinbothadvancedandemergingeconomieshaveabrightfutureahead.

The country of today reveals itselfThe facets of the growing domestic market

Chapter 2

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A bonus to be conqueredThe increase in the country’s working population with the so-called “demographic bonus”, brings great prospects to insurers able to offer peace of mind and safety, as well as products and means of payment accessible to the less advantaged classes.

ThisperiodofconsistenteconomicoptimismBrazilhasbeenexperiencinginrecentyears–andwhichisexpectedtocontinue–is

relatedtoaphenomenoncalled“demographicbonus”.Thismeansthat,foraparticularperiod,theEconomicallyActivePopulation(EAP)willexceedthatofdependents,madeupofseniorsandchildren.

Therefore,overthenext20years,wewillhaveagreaterconcentrationofpeopleinthe15to60yearagegroup,who,withmoreemploymentandeducation,willbuildgreaterassetsoncetheirbasicneedsaremet–andexpandtheirdreams.Thiscreatesamagicalandoptimisticscenariofortheinsurancemarket,mainlyforthoseprofessionalsandcompaniesthatrealizethatitisnecessarytoprovidepeaceofmindandsafety,inaddition

totheeconomicaspects,offeringtoolsandguidancefortheprotectionofthegainsanddreamsofeachperson.

However,fortheeconomicandsociallybeneficialeffectsofthesocialbonustobefullyrealized,thecountryhastoovercomesomebasicchallenges,knownandwidelydiscussed,butwhichstilllackeffectiveplanningandmoredynamicactionswithtangibleresults.Consistentinvestmentininfrastructureand,primarily,ineducationisneeded.OncethelogisticalbottlenecksareeliminatedandqualityeducationmakesallthetalentofBrazilianprofessionalsflourish,Brazilwillconfirmitscontinentalandglobalimportance.

Withregardtotheinsuranceindustry,wehavethreemaingeneralneeds,inadditiontothosespecifictoeachsegment.First,productsolutionsandpaymentoptionsaccessibleto

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thelessadvantagedclassesmustbecreated.Theimpactsofenvironmentaldegradation,whichhavealreadybeguntobefeltmoreintenselyinsomeregionsandthataffectcalculations,lossesandpremiums,mustalsobeconsidered.AndthereisstillalongwaytogointhesenseofexpandingtheviewoftheimportanceofinsuranceinBraziliansociety.

Specific•needsWithregardtospecificsegments,today,onaverage,only25%oftheBrazilianfleetofautomobilesisinsured.TheSãoPauloandRiodeJaneiromarketsarethemostmature,butthereisconsiderableopportunityforgrowth.Thismarketisexpectedtogrowby9%to11%peryearthrough2013.Someactionscouldmakeautomobileinsurancemoreaccessibletoalargerportionofthefleet,suchas:reductionoftheTaxonFinancialTransactions(IOF)on

financialtransactionsforvehiclesolderthantenyears;legalchangesthatwouldallowuseofgenericorevenusedpartsforautorepairs;andlastly,greatervigilanceincombatingdrivingundertheinfluenceofalcohol,responsibleforasignificantportionoftheaccidentsinvolvingvehicles.

Withregardtolifeinsurance,ononehand,peoplearenotawareoftheimportanceofthisinsurance,orevenoftheneedtopurchasecapitalprotectionappropriatefortheirtrueneeds.WithregardtotheCandDclasses,insurersshouldworkprimarilytocreateproductswithlessexpensiveformsofpayment,avoidingbankpaymentslips.Lifeandpersonalaccidentinsurancecanalsogrowannuallybetween9%and11%through2013.

Withregardtoprivatepensions,theincreaseinthelevelofawareness,with

By Fabio LuchettiExecutiveVicePresidentofPortoSeguro

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efficienteducation,iswhatisgoingtoleadtoincreasedconsumption.Ourcountryislackingintheconsumptionofgoodsandservices,andprivatepensionsarestillnotseenasapriorityinpeople’sbudgets.Itcanalsogrow10%onaverageperyearthrough2013.Peoplearestillunfamiliarwithhomeprotectionandthereismuchroomfordevelopmentsincetheaverageticketismuchlessthanpeopleimagine.Theprovisionofaddedservices,suchas24hourassistanceandconveniencesolutions,canincreasethereceptivityofthisbranchofinsurance.Propertyinsuranceingeneralisexpectedtogrow7%onaverageperyearthrough2013.

InBrazil,shippinginsuranceismandatory,however,itisestimatedthat50%ofshippingcompaniesor50%ofcargoshippedinBrazilisnotcoveredbyinsurance,andthisisbasicallyaresultofpoorenforcement.Theeconomicdevelopmentofthecountryshouldleadtowiderawarenessinthissegment,inadditiontogreaterinvestmentsininfrastructure.Webelievethatthisscenariowillresultingreaterprofessionalizationandmoremarketdemand.Growththrough2013mayreachbetween5%and7%.

Highriskandperformanceinsurancebothhavegreatpotential–withgrowthforecastbetween20%and40%annuallybetween2012and2013–duetotheWorldCupandtheOlympics.Theseformsofinsurancearemorecomplex,offeredbyafewspecializedinsurancecompanies.Onthesideoftheinsured–which,ingeneral,arelargecompanies–,thereisgoodriskmanagementandcompetentinsurancebrokers.BrazilrecentlyeliminatedtheReinsuranceInstituteofBrazil(IRB-BrasilRe)monopolyallowingseveralinternationalreinsurerstoofferappropriateproductstothenationalmarket(read moreaboutthistopiconpages46-49).

Crop-hailinsurancecouldgrowfrom12%to20%peryearthrough2013,seeinghowBrazilisgrowingasalargeglobalplayerintheproductionoffoodandbioenergy.However,consolidationofthisinsurancedependsonincreasesingovernmentsubsidies.

“Insurance is an important tool for peace of mind and protection of people’s dreams and conquests, and it should be spread in the proper way so that the gains of economic development are protected now and in the future.”

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0to4

10to14

15to19

20to24

25to29

30to34

35to39

40to44

45to49

50to54

55to59

60to64

65to69

70to74

75to79

80ormore

5to9

Age

9852 741 6300147 258 369

Brazilian•population••pyramid•in•2010

Millionsofpeople0147 258 369 9852 741 630

0to4

10to14

15to19

20to24

25to29

30to34

35to39

40to44

45to49

50to54

55to59

60to64

65to69

70to74

75to79

80ormore

5to9

AgeBrazilian•population••pyramid•in•1980

The•Brazilian•age•revolution

Source:Reserach–Deloitte(basedonBrazilianInstituteofGeographyandStatistics–IBGEdata)

Millionsofpeople

The•insurance•cultureSothedemographicbonusisafactanditcanprovideaperiodofgreatprosperity–notethatthereconstructionofEuropeandJapanafterthesecondworldwarwasassistedbythehighnumberofeconomicallyactivepeopletosupportgrowth.Nevertheless,socioeconomicconditionsandtheworkofcompaniesneedtobedirectedtobenefitfromthistime.Ithinkweareontherightpath.ItisimportantforBraziltocontinuetodevelopandexpandincome.Asforinsurance,itisimportantthattherulesandresolutionsallowthedevelopmentofproductsthatreachevermoreconsumers,indiversenichesandpopulationsegments.Wealsoneedtospreadtheinsuranceculture,bothinthemajorurbancentersandinlesscentralregions.

Insuranceisanimportanttoolforpeaceofmindandprotectionofpeople’sdreamsandconquests,anditshouldbespreadintheproperwaysothatthegainsofeconomicdevelopmentareprotectednowandinthefuture.

Women

Men

AcomparisonoftheageprofileoftheBrazilianpopulationofthreedecades

agowiththatoftodayandthatexpectedattheendofthethirddecadeof

thecenturyshowsthesizeofthesocialtransformation.Weareheadingfor

a“demographicbonus,”whichwilldriveconsumptionofgoodsandservices.

Andalsoinsuranceproducts.

0147 258 369

Age

9852 741 630Millionsofpeople

Brazilian•population••pyramid•in•2030

0to4

10to14

15to19

20to24

25to29

30to34

35to39

40to44

45to49

50to54

55to59

60to64

65to69

70to74

75to79

80ormore

5to9

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The new object of desire

The growth of the insurance market reflects the increase in the purchasing power of the Brazilian population. It embraces the people that, after the first moment of their social rise, start to consume new goods and build assets. They now want to preserve their achievements and protect their families.

TheBrazilianinsurance,opensupplementalpensionschemeandcapitalizationmarketisgoingthroughgreattimes.Inthefirst

half,thesethreesegmentstogether(notincludinghealthinsurance)soldmorethanR$61billion,20%morethaninthefirstsixmonthsof2010.

Thegoodnewsforthepublicwasgrowthof19%intotalinsurancepremiums.ThroughJune,insurersallocatedclosetoR$13.1billionforthispurpose.Thismeansthat,fromthestartoftheyearthroughJune30,themarketreturnedapproximatelyR$72.7millionperdaytothoseinsured,orR$3millionperhour.Theyarefundsthatguaranteethesurvivaloffamiliesintheeventoftheinsuredparty’sdeath,ensurethecontinuityofbusiness,protectinvestorsanddrivenewventures.

Almostallportfoliosmaintainedafastpaceofgrowth.But,itisimportanttohighlightpersonallineinsurance,whichgrew24%inthefirsthalf,generatingR$9.3billion.ThisportfolioreflectswithprecisiononeofthepillarsofthecurrentstageofgrowthoftheBrazilianeconomy,whichistherecoveryofthepopulation’spurchasingpowerand,primarily,theentryofthelowerincomeclassesintotheconsumermarket.

Withmoneyintheirpocketpeopletravelmoreandthisisreflectedinthebehavioroftourismortravelinsurance,whichstoodoutinthehalfwithgrowthof42.3%.Theaverageperson,facedwithafavorableeconomicclimate,alsoconsumesmore,investsineducationandpurchasesprotectionforthefamily.

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Itisnotbychancethatcreditlifeinsurance(whichguaranteespaymentofloansincaseofdeathorunemploymentoftheinsured),educationalandlifeinsurancegeneratedpremiumsontheorderofR$9.3billioninthefirsthalf,anincreaseof24%comparedtothefirstsixmonthsoflastyear.

TheBrazilianmarkethassolidandsolventcompaniestoserviceaneverlarger–andmoredemanding–contingentofconsumers.Proofofthisisthatatthistime,onthewebsiteoftheSuperintendenceofPrivateInsurance(SUSEP)–aself-managedentityundertheMinistryofFinanceresponsiblefortheoversightandregulationofthismarket–thereisnotasingleindicationofanyinsurancecompany,openprivatepensionschemeorcapitalizationfirmundergoingfiscalrevieworevenintervention.Andevenincasesof

companiesundergoingextrajudicialorordinaryliquidationorbankruptcy,onlyveryoldcasesappear,somefiledmorethantwoorthreedecadesago.

Thecompaniesaresoundandthemodeliswellstructured.Thechallengenowistomakeinsurancesimplerandthelanguageclearer.Theclient,regardlessofsocialclass,needstounderstandwhathe/sheispurchasingandwhattheinsurancemaynotcover.

Itisnotanexaggerationtosaythatwearefacingalargewindowofopportunitytomakeaccesstoinsuranceeasierinfutureyears.Wehavegoodproductsandtheconsumeriswillingtobuy.

The•voice•of•the•consumerSurveysshowthattheroadislong,buttheperspectivesarethebestpossible.

ByMarco Antonio RossiPresidentoftheBradescoSegurosGroup

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BradescoSegurosGroup,forexample,frequentlygoesintothefieldtodeterminewhatsocietyisthinkingandwhichproductsareappropriateforeachnicheofsociety.Duringthiswork,theGroupdiscoveredthatinsurancethatmeetstheneedsofpoorcommunitiesinSãoPaulo,maynotworkforpoorerregionsofRiodeJaneiro,inspiteofthegeographicproximityofthesetwomajorurbancenters.

Thisobservationmaybeusefulinthedevelopmentofamicroinsurancelineofproducts,salesofwhichshouldstartin2012accordingtotheSUSEP,following

“It is not an exaggeration to say that we are facing a large window of opportunity to make access to insurance easier in future years.”

Nevertheless,itisnotadvisabletotakeshortcutsanditisimportanttotakespecialcarewithpotentialobstacles.Tobesure,thebestistolistentowhattheconsumerhastosay.

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newregulationinthefinalstageofanalysis(read more on “microinsurance” in the article on pages 36-39).Itisamarketwhichaccordingtoanalystscouldattractupto100millionpeopletotheinsuranceindustry.Peoplewhoneverhadaccesstoapolicy.

However,alevelabovethismicroinsurancetargetpublic,fromthepointofviewoffinancialcapacity,arethosepeopleinrecentyearswhowereabletorisesocially,gaingreaterpurchasingpowerandbeginconsuming,eveninsurance.

Thisisthenewmiddleclass,madeupofcloseto50millionpeoplewho,accordingtoasurveyconductedbytheGetúlioVargasFoundation(FGV),roseonesteponthesocialscalebetween2003andMayofthisyear,makingBrazilthecountryoftheso-calledBRICs(alsoincludingRussia,IndiaandChina)thatbestcombinedeconomicgrowthandreductionofsocialinequality(read more on “new middle class” in the article on pages 32-35).

Theyarepeoplewho,inthefirstmomentoftheirsocialandfinancialrise,rantoconsumegoodsandincreasetheirpossessionsandwhonowneedtoholdontothisnew status quoandevenprotecttheirfamiliesfrommisfortune.

Theyareconsumerswhoneedtobetreatedwithdistinctionandcaution.Towinoverthesenewsegments,itisrecommendedthatsimplerproductsfirstbeoffered,suchashomeandlifeinsurance,leavingmoresophisticatedproductsforlater.

ThestudyconductedbytheGetúlioVargasFoundation(FGV)furtherdeterminedthatBraziliansarethemostoptimisticpeoplewithregardtowhatthefutureholdsforthem.Onascalefromzerototentomeasurewhattheresearchersclassifiedas“futurehappiness”,theBrazilianpopulationsurprisedbygivingagradeof8.7tohowsatisfiedtheyexpecttobewiththeirlivesin2014.Intheother146countriesresearched,theaveragewas6.5.

Itisanextremelyfavorablesituationforthosewho,liketheinsurancemarket,wanttobeatthesideofthisoptimisticpersonatthemomenthe/shegoestobuy,forexample,acarorhome.

Thus,aprocessiscreatedthatresonatesonthemoodofallsocietyand,consequently,ontheeconomicandsocialdevelopmentofthecountry.Inthisway,Brazil,inhabitedbyanessentiallyoptimisticpeoplewhoalsofeelprotected,isnolongerthecountryofthefuture,butratherthenationoftoday.Acountrywherethesocialpyramidhasturnedintoabarrel,withtheflatteningoftheendsandtherelentlessgrowthofastrongmiddleclass.

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The new needs of the new middle class

Brazilians who have gained greater purchasing power in recent years have become players in the national economy and today represent the major factor driving the insurance industry in the country.

FormanydecadesbusinessmeninthemostdiverseindustriesusedthelackofastrongconsumerclassinBrazilastheirexcuseforthemodest,and

oftenlow,growthratesfortheirmarkets.BusinessmenyearnedforagroupofpeoplewhowoulddemandlargeamountsofproductsandservicestodrivethenationalindustryandreduceBraziliandependencyontheexportofcommodities.

Thesituationwasnodifferentfortheinsuranceandpensionindustry.Webelievedthatoneoftheenginesthatwoulddriveexpansionofthissegmentwouldbegreateraccesstoincome.TheargumentthatBraziliansdidnothavean“insuranceculture”wasonlypartlytrue.Afterall,howcouldtherebeapracticeofinsuringiftherewasnopropertytobeprotected,nostandardoflivingtobeconserved?

Consequently,insurerslongedforatimeinwhichthecountrywouldfinallyformamassofpeopleinclinedtoconsume.

Well,inrecentyearsitseemsthatthedesireofBrazilianbusinessmenandentrepreneurshasbecomereality.Between2003and2009,almost30millionpeopleenteredtheCclass,agroupthataccordingtotheBrazilianInstituteofGeographyandStatistics(IBGE)hadafamilyincomeofuptoR$4,854.00inthelastyearofthisperiod.

TheyarepeoplethatemergedfromtheDandEclassesandleftmiseryandpovertybehindbygainingformalemployment,byobtainingincomethroughgovernmentprogramsandthroughaccesstocreditandeducation.

Thisphenomenon,whichdidnothappenovernight,isaresultofvarioussocial

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policiesandnumerousprivatesectorinitiativesanditdrasticallyalteredtheprofileofBraziliansociety.Theso-called“middleclass”gainedbodyandformandtodayitrepresentsmorethanhalf(50.5%)ofthecountry’spopulation,atotalof94.9millionpeople.ThedataIcitearefromtheGetúlioVargasFoundation(FGV)study,“TheNewMiddleClass–TheShiningSideofthePoor,”basedondatafromtheIBGE’sNationalHouseholdSamplingSurvey(PNAD).

Astheyrosesocially,thiscontingentofmillionsofBraziliansbeganconsuming.Andalot!DatafromtheInstitutoDataPopularshowthatovereightyears,from2002to2010,spendingbytheCclassonproductsandservicesincreased6.8times,reaching41.3%oftotalspendingbyBraziliansandalmostequalingthecombinedspendingoftheAandBclasses.

Inotherwords,thepeoplewhobelongtotheBrazilian“newmiddleclass”aretodaythosethatconsumethemostinthecountry.

ThesefactshavemadetheCclassthemajorplayerinthenationaleconomy.Thecountrywassupportedbythisnewinternaldemandandwasabletopasspracticallyunscathedbythe2008internationalcrisis.ThelargemultinationalcompanieshavecometodependmuchmoreontheresultsoftheirBraziliansubsidiaries.AndforeigninvestorshavenothesitatedtodepositmillionsinBrazil,countingonreturnscominginlargepartfromthisnewmassofconsumers.

The•response•of•the•insurance•marketAshaveotherindustries,theinsurancemarkethasnotignoredthissocialmovementinBrazil.Wehaveasanadvantagethefactthatsecurityisabasic

ByPatrick deLarragoiti LucasChairmanoftheBoardofSulAméricaSegurosePrevidência

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humanneed.Theoriesonthemotivationandbehaviorofpeopleshowthattheneedforsecurityorthestabilityorpreservationofwhatonehas,issecondinimportanceamongallhumanneeds,behindonlyphysiologicalneeds.Thisneedgoesfromthesensationofbeingsafewithinone’shometothefeelingofbeingprotectedbyahealthplan,automobileinsuranceorevenlifeinsurance.

Fromthisperspective,thesocialriseoftheBrazilianmiddleclassappearsasthegreatdriveroftheinsuranceindustry.Astheyacquiregoodswhichtheypreviouslyhadnoaccessto,thenewBrazilianconsumerswillbecomeconcernedaboutprotectingthem.

“In coming years, Brazil will have an insurance industry with a greater number of participants, greater diversity of consumer profiles, more diversified products and greater income generation.”

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lowervaluegoods,equallyrepresentativeofthelivesofBrazilianfamilies,likehouseholdappliances.

Itisalsoworthhighlightingthenumerousopportunitieswhichwillresultfromanewmarketthatisopening,thatofmicroinsurance,focusedonthelowincomesegments,withproductsdevelopedtoprotectpeopleinthemorehumblesociallayersagainstriskssuchasdeath,personalaccidents,illnessesanddisasters,amongothers(read more on this topic in the article on pages 36-39).

FacedwiththesedoorsthathaveopenedwiththesocialchangesoccurringinBrazil,theinsuranceindustryhastakenstepstocreatenewproductsandcoveragesappropriateforthisnewconsumerprofile.Testprojectsofcompaniesandinstitutionsthatrepresenttheindustryhaveoccurredinseveralcitiesinthecountry.

Incomingyears,Brazilwillhaveaninsuranceindustrywithagreaternumberofparticipants,greaterdiversityofconsumerprofiles,morediversifiedproductsandgreaterincomegeneration.AndwhathasbegunwithachangeinBrazil’ssocialstructurewillcertainlybeverypositiveforeveryone.

Self-actualization(personaldevelopment,

achievements)

Esteem(self-esteem,recognition,status)

Social(relationships,senseofbelongingtoagroup)

Security(protection,shelter,defense,employment)

Physiological(food,water,sleep,etc.)

The Maslow Hierarchy of Needs

Security,•the•new•basic•need•of•BraziliansIntheclassichierarchyofneedsproposedbythetheoreticianAbrahamMaslow,thesearchforsecuritycomesrightafterphysiologicalneeds,thosemostbasictohumanbeings.Itisexactlythissearchforsecuritythattheinsuranceindustryworldwideseekstoaddress,offeringpeoplethesensationofbeingprotectedbyahealthplanorlifeorpropertyinsurance.ThenewBrazilianmiddleclass,astheygainaccesstogoodstheydidnothavebefore,nowalsoworriesaboutprotectingthem.

Togiveyouanidea,2.8millionnewautomobileswerelicensedin2008andby2014thenumbershouldreachcloseto4million.Inaddition,theforecastoffundsforhousingcreditin2014isR$500billion.Theyarethousandsofhighcostgoods,automobilesandhomesthatwillrequireinsurancetoguaranteepreservationofthisproperty.Andthisdoesnotinclude

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Much more than “cheap insurance”

The rise of new consumers has led to the development of products like microinsurance in Brazil, however, in order to succeed in markets such as this, it is necessary to dive deep into the social universe of the potential consumers and create high quality solutions.

SincethelaunchoftheRealPlan,closeto45millionBrazilianshavejoinedtheconsumermarket.From2002to2010,theBrazilianpopulationgrew10%whilethe

middleclassexpandedbymorethan30%.

Aconsequenceofthissocialrisehasbeenareductionofmortalityrates,expandingthepopulationofseniors.Atthesametime,thebirthratehasdropped.Thecombinedresultisa“demographicbonus”whenthelargestconcentrationofthepopulationisintheagegroupconsideredeconomicallyactive,between15and64yearsofold.Thisconditionisbeneficialforeconomicdevelopment,improvementinthequalityoflifeandgrowthintheconsumptionofgoodsandservices.

InsurancecollectioninBrazilwasaboveR$112billionin2010,withreserveson

theorderofR$178billion.Inthisperiod,theratioofinsuranceandBrazilianGrossDomesticProduct(GDP)reached3.1%andthetrendisforthisproportiontoincreaseinfutureyears.Itisimportanttoemphasizethattheinsurance/GDPpenetrationindexinBrazilislowerthaninothercountries,suchasIndia(5.1%),Chile(4%),China(3.8%)andVenezuela(3.5%),afactthatshowshowmuchroomthereisforgrowthintheindustry.

Inspiteoftheinternationalcrisis,theperspectivefortheBrazilianeconomycontinuestobepositive.Growthof15%to20%ininsurancepremiumsisexpectedfortheperiodfrom2011to2014.

Homeownersandhousinginsurancewillincreaseduetoexpansionoftherealestateindustry,whosecreditreachedR$100billionin2010andisexpectedtohitR$500billion

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in2014.Ofthatportionofthepopulationclassifiedaslowincome–whoearnuptotwominimumsalariespercapita–50%alreadyownorarepayingfortheirownhomesandarepotentialcustomersforthetwotypesofinsurancementioned.Lifeandpersonalaccidentinsuranceandcreditlifeinsuranceareprojectedtogrowontheorderof60%overthenextfouryears.

A•concept•to•be•understoodThechangeinthedemographicprofileofBrazilhasbroughtdemandforthedevelopmentofmicroinsurance,consideredpartofthemicrofinancepolicyoftheBraziliangovernmentandavaluableinstrumentforreducingthevulnerabilitytheeconomicallylessfavoredpopulationisexposedto.

Theoretically,microinsuranceisdefinedas“financialprotectionprovidedbyauthorized

providerstothelowincomepopulationagainstspecificrisksinexchangeforpaymentofpremiumsproportionaltotheprobabilitiesandthecostsoftherisksinvolved,incompliancewiththelawandgloballyacceptedinsuranceprinciples.”

Agrosssimplificationleadssometoconsidermicroinsurancecheapinsuranceandnothingmore.Nevertheless,theissueismorecomplexsinceitdealswithapublicwithspecificeconomic,socialandculturalcharacteristicswhichresultinvariedneedsandexpectations.Creatingaprotectionoption(andensuringitssale)forthissegmentrequires,therefore,adiveintothesocialuniverseofthesenewconsumers.

Who•the•new•consumers•are•and••what•they•thinkThenewconsumershavelargefamiliesandlivepredominantlyinurbanareas.

ByPaulo Rogério Caffarelli VicePresidentofNewRetailBusinessforBancodoBrasil

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Ingeneral,theyhavelittleeducationandhighratesoffunctionalilliteracy.Thefamilyisthecenteroftheirlivesandthesourceofsupport.Familylifeandfinancialstabilityareamongtheirbasicvaluesandtheirownhome,acarandtravelaretheobjectsmostdesired.

Accesstofinancialgoodsandservices–amongwhichinsuranceisincluded–isseenasanachievementofcitizenship,especiallywhentheyhavecreditintheirname(“acleanname”).Nevertheless,theyarecautiousofbanksandfeelmorecomfortablewithretailchains.Protectionoftheirfamiliesandthegoodstheyhaveacquirediswelcome,buttheyfeeltheneedforevidenceofanimmediateadvantagetoinvestininsurance.

Appropriate•insuranceThedevelopmentofthemicroinsurancemarketassumesthestructuringofhighqualitysolutionsthatcombineaffordablepricesandeconomicviabilitywithcostreductionandsimplificationofthelossadjustmentprocesseswithoutharmingtheinsurers.

Somesolutionsanddifferencesthatmeritmentioninginclude:Lifeandpersonalaccidentinsurance;theinclusionofdrawingsamongtheinsuredparties;anemphasisonfuneralaidasassistance;financialprotectioninsurance;anassistancepackagefocusedonthefamily,leisureandhomeandautorepairs,inadditiontodiscountsonmedications;andhomeownersandhousinginsurancetokeepupwiththeexpansionoftherealestatemarket.

Withregardtothedevelopmentofsolutionsthatconsidertheneedsofthesenewconsumers,themomentrequiresfurtherthatpricingbedevelopedbasedoncalculationformulasthatconsiderthedifferencesofmicroinsurance,combiningaffordablepriceswiththecommoditizationofsales.

Anotherchallengeistheimprovementandexpansionofdistributionchannels.Inthecaseofthefinancialsystem,theadoptionofcorrespondentbankssignificantlyexpandedthepointsofsaleandbroughttheoffertotheareaswheretheconsumersliveandwork.Butitisnecessarytodiversify

“(...) the regulatory agents also have a job: to regulate the microinsurance market, defining criteria and updating the regulatory framework to support the complete development of this promising market.”

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thechannels:stores,concessionarydealersandprovidersofpublicservicesandretailnetworksareotheralternatives.

Inthesameway,communicationhastobeinnovative.Thelanguagetobeadopted,withalessformaltoneandwithoutthecomplicated“insuranceterminology”,shouldstrengthenbrandcredibility,demystifytheproductandpresentitinaclearandtransparentway,givingthecustomertherighttodecidebetweentheprosandcons.Theinternal

processesandsalesmechanismsshouldbeequallysimplified,withtheadoptionofautomaticsalesdevices,uncomplicatedlossadjustment–withoutthisimplyinggreaterriskfortheinsurers–andtrainingofteams,alwaysfocusedonefficiency.

Toreachthisimprovement,theregulatoryagentsalsohaveajob:toregulatethemicroinsurancemarket,definingcriteriaandupdatingtheregulatoryframeworktosupportthecompletedevelopmentofthispromisingmarket.

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The next evolutionary stageAfter the social advances and the increase in demand, the insurance industry in Brazil has already begun to enter a new stage with a consumer emphasis on life, pension and health insurance. A typical evolution of a growing market with increased penetration of products.

Braziltodayisamarketwatchedandcourtedbygovernments,companiesandinvestorsfromallovertheworld.Importantsocial,

economic,politicalandfinancialadvanceshaveensuredastableenvironmentforbusinessandincomegeneration,whichwhenassociatedwiththesizeofthecountry,hasmadeBrazilanirresistibledestinationforinternationalinvestment.Withtheseventhlargestgrossdomesticproduct(GDP)intheworldofapproximatelyUS$2.3trillion,itplaysamajorroleindecisionsonthepresentandthefuture.

Whenwelookmorespecificallyatthedomesticmarket,weseethatdemandisverystrong,drivenprimarilybythegrowthofthemiddleclass,whichtodayrepresentsconsumptionpotentialofapproximatelyUS$700billion,inother

words,morethantheGDPofSwitzerlandormorethantheGDPofArgentinaandChilecombined.

Therecontinuestobe,however,greatconsumptionneedsstillrepressed,mainlyinthelowerincomesocialclasses.Itiswiththispublicthatthesalespotentialoftheinsuranceindustrywillbegreatestinfutureyears.Consequently,ithasbecomeastrategicchallengetodaytounderstandtheprofileofthisconsumerandgetincreasinglyclosertothisfuturepotentialclient.

ThoseintheC,DandEclasseshavearelativelydifferentanddiversifiedspendingprofile.WhiletheEclassisexperiencingatimeofrecoveryafteralongperiodofrepressedconsumption,moreconcentratedonthecycleofpurchasingbasicgoodssuchasfood,clothingorevenhousehold

41

appliances,theCandDclassesalreadypresentamoresophisticatedbasketofpurchases.TheCandDclasses,generallyconsideredtobethemiddleclass,arealreadythinkingorinvesting,forexample,inmoreexpensiveproducts,suchascomputers,carsandrealestate.

Thetendencyisforalargeportionoftoday’sEclasstoevolveandgrowtobecometomorrow’sDandCclasses,thusjoiningthemiddleclass.Facedwiththis,theseclassesarecreatinganextremelyimportantmarketpotentialfordifferentnichesandsegmentsofthemarket,bothforindustryaswellasforservices.Inthecaseoftheinsuranceindustry,therealityisnodifferent.Thepotentialissolargethatithasitsownregulationunderstudy,thatofmicroinsurance(read more on “microinsurance” in the article on pages36-39).

Thisprojectshouldthuscreate,intherelativelynearfuture,anewsegmentofmorepopularinsurancewithlowpremiumsandimportantsalesvolume,justashasoccurredinotheremergingcountries.

Theobjectivehereistoprovidelowerincomeclasses(C,DandE)withaccesstothedifferentinsuranceproducts,inthesenseofensuringtheirpresentpeaceofmindandtheirfuturesecurity.ThecultureofBraziliansseekingprotectionthroughinsurancecoverageisbeginningtoemergeinBrazilandincreasinglymoreBraziliansarepurchasinginsuranceproducts.Thecreativityofcompaniesintheinsuranceindustryinrecentyearsintermsoflaunchingproductshashelpedconsiderably,butthemajorstep,themostimportant,isbeingtakenbytheBraziliansthemselves,increasinglyinterestedinseekingandpurchasingtheseproducts.

ByJérôme GarnierCFOofCaixaSeguros

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Protecting•lifeWhilesomeyearsagotheprioritywasonprotectinggoods,suchasautomobiles,forexample,todaymoreemphasisisbeinggiventolifeprotectionorfinancialplanning.Thisevolutionistypicalofagrowinginsurancemarketwithincreasingpenetration.Thus,itisusualthatinlessdevelopedcountries,thenon-lifeinsurancesegment,generallyauto,hasthelargestweight.Incountrieswheretheinsuranceindustryismoredevelopedandadvanced,lifeandpensioninsurancegainmoresignificantimportance.

Itisexpectedthen,thatwiththegrowthofactivityandinthemiddleclassinthenextyears,theinsurancemarketinBrazilwillbecharacterizedbystronggrowthofthelifeandpensioninsurancesegment,aswellashealth,sincethegovernmenthealthstandardisshowingitslimitations.

CaixaSeguros,theCaixainsurancecompany,iswellpositionedtoservicethisnewconsumermarket.Infact,CaixaEconomicaFederalistodaythesecondlargestgovernmentbankinLatinAmerica,consideredthebankoftheBrazilianpeople.ItisoneofthefewbanksthatarepresentineveryBrazilianmunicipality.Inaddition,itsbankingnetworkiscomplementedbyanetworkoflotteryagenciesandcorrespondentbanksalsopresentthroughoutthecountry.Therearemorethan60thousandsalesoutletsinalltoserviceallthediversityoftheBrazilianclasses.Withthis,itspresenceanditsrelationshiponadailybasiswithBraziliansareveryintense.

ForCaixaSeguros,thistranslatesintoimportantmarketniches.Withapproximately9millioncustomers,theinsurancecompanyhasaverylargepotentialtointroduceinsuranceproducts,certainlyoneofthelargestintheBrazilianmarketinthenextyears,consideringthe54millionCaixacustomers,thediversificationofitsportfolio,itsexperienceintermsofproductsand,primarily,theconfidenceoftheBrazilianpeopleintheCaixabrand.ItisimportanttorememberthatCaixaSeguroswasthefirstcompanytolaunchmassivesalesofpopularinsuranceproductsintotheBrazilianmarketin1995,suchasCaixaFácil

“It is important to understand the role of the insurance industry, not only with respect to a person or family or even a company, but to all of society.”

43

AcidentesPessoais(EasyPersonalAccident) andCaixaFácilResidencial(EasyResidential)insurance.Today,thegrouphasavarietyofpopularproductsavailableforBrazilians,suchas,forexample,the“VidadaGente”(OurLife)lifeinsuranceofferedthroughtheCaixanetwork,Amparo(Shelter)insuranceandthe“SuperXCap”savingscertificatethroughthelotterynetwork.CaixaSeguroshas,infact,theabilitytobecomeoneofthelargestinsurersinthissegment.

Itisimportanttounderstandtheroleoftheinsuranceindustry,notonlywithrespecttoapersonorfamilyorevenacompany,buttoallofsociety.Whenthelinksoftheeconomicandsocialchainareprotected,apowerfulnetworkguaranteesaseamlessoperationwithinthisstructure.

“In countries where the insurance industry is more developed and advanced, life and pension insurance gain more significant importance.”

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An endless horizonDoors open to investment

Chapter 3

46

Insurance for insurers

The economic scenario, infrastructure projects and large events are driving the reinsurance sector in Brazil, whose current legislation contributes to the strength of the national market by protecting insurers from the financial instability abroad.

TheeconomicscenarioforBrazilisquitepromising,despitethenumerouschallengespresentedbytheinternationalfinancialcrisis.

Inflationundercontrol,anadequatelevelofreservesandafavorabletrendintheratioofdebttoGrossDomesticProduct(GDP)aresomeofthemacroeconomicconditionsthatpointtothecontinuityoftheeconomicgrowthcycle,thedistributionofincomeandthereductionofregionalinequalities.

Asaresultofthiscontext,theBrazilianpublicandprivatesectorshaveregainedtheircapacitytoinvestininfrastructure–notablyinenergy,transportationandsanitation–andtoholdmegasportsevents,suchastheFIFAWorldCupin2014andtheOlympicGamesin2016.Nottomentiontheinvestmentsneededfortheexploitationofthepre-saltoil

which,duetoitsmagnitude,meritaseparatechapter.

ForBraziliansocietytorealizealltheseachievementsawideofferofwellstructuredinsuranceatreasonablepriceswillberequired–inadditiontoconsiderableplanning,determinationandwork.

Theinsurancecompanies,inturn,duetothelargetechnicalandfinancialcapacityneededtocoversuchundertakings,havesoughtprotectionfortheirportfoliosthroughreinsurance.

Fortunately,thereinsuranceindustryispreparedforthis.After70yearsofmonopoly,theBrazilianreinsurancemarketwasopenedtonationalandforeigncompetitors.Currentlytherearealmost100companiesregisteredwiththeinsurance

47

regulatoryagencyinBrazil.Thereisplentyofcapacity,knowledgeanddesiretobepartofthispositivetimeforthecountry.

Evenmoreimportantthanthesimpleopeningofthemarketwasthefactthatthe2007legislationensuredthesurvivalofavigorousandfitnationalreinsurancemarketthatisabletoofferreinsuranceprotectiontotheinsurancecompaniesoperatinginBrazil.Thisaspectisessentialsinceaninternationalcrisiscouldsuddenlyremoveliquidityandtheappetiteforriskonthepartofglobalreinsurers,justashappenedattheendof2007andthebeginningof2008,andinthisadversescenario,preservationofastronglocalmarketensuresnotonlythatjobs,expertiseandtaxesremaininBrazil,butalsothatthereisfinancialcapacitytocontributetothedevelopmentofthecountry.

IRB-BrasilRe(ReinsuranceInstituteofBrazil),asastate-ownedreinsurer,ex-monopolycompanyandcurrentleaderoftheopenmarket,hasalsodoneitspart,makingreinsurancesolutionsfeasible,likethecoverageforconstructionoftheAngraIIIplant,forexample,andthelargestdealintheBrazilianmarketin2011.TobetterserveitscustomersinBrazilandabroad,thecompanyisgoingthroughalargetransformation,characterizedbythereviewofallitspoliciesandguidelinesforacceptanceandriskmanagement,bytheupdatingofallitsworkprocessesandbythecompletemodernizationofitsinformationtechnologysystems.

TheactionsofIRB-BrasilRe,thecreationofBraziliancapitalreinsurersandthearrivalinthecountryofdozensofglobalreinsurersdemonstratethesuccessofthenewruleswhichdisciplinereinsuranceinBraziland

ByLeonardo André PaixãoPresidentofIRB-BrasilRe

48

reaffirmtheconfidenceofprivateagentsandtheBraziliangovernmentinafuturefullofopportunities–notonlyforreinsurers,butforallthosewho,directlyorindirectly,areinvolvedintheprocessofimprovingourinfrastructureand,inawidersense,intheconstructionofacountrythatiseconomicallystrongerandsociallymorejustandsupportive.

“Even more important than the simple opening of the market was the fact that the 2007 legislation ensured the survival of a vigorous and fit national reinsurance market that is able to offer reinsurance protection to the insurance companies operating in Brazil.”

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“The actions of IRB-Brasil Re, the creation of Brazilian capital reinsurers and the arrival in the country of dozens of global reinsurers demonstrate the success of the new rules which discipline reinsurance in Brazil and reaffirm the confidence of private agents and the Brazilian government in a future full of opportunities.”

2008

2009

2010

*2011

38

67

82

94

Greater•competitionFollowingtheopeningofthedomesticreinsurancemarkettotheentryofdomesticandforeigncompetitorsin2007,thenumberofactivereinsurancecompaniesinBrazilhasgrown.

Evolution of the number of reinsurance companies

Source:Research–Deloitte(basedonSUSEPdata)

*DatathroughOctober

Note:tworeinsurershadnotprovidedthedateofregistration/authorization

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The changes that have taken place in the economy and in the business environment with a new investment cycle, the arrival of foreign companies and the opening of the reinsurance market, today offer a solid base for expansion of estate insurance.

The virtuous cycle of estates

TheBrazilianinsurancemarkettodayissupportedonpillarsthatcansustainpowerfulgrowthofestateinsurance.Weare

experiencingperfectcircumstancesforBrazilianeconomicgrowthtoreflectandreinforcetheacceleratedpenetrationofthistypeofinsuranceinthecountry.Startingwiththestructuralframeworkofthemarket,whichwentthroughalargetransformationin2008withtheopeningofthereinsurancemarket–thuscreatingamorecompetitiveandfreeenvironment–throughtheconsequencesofthe“newdiscoveryofBrazil,”withanewcycleofinvestmentandthearrivalofforeigncompanies.Theinsurancemarketneedsfinancialresources,dispositiontotakerisksand

creativityasthebasisforitsoperation.Thisopeningbroughtnewenergytothemarket.Ontheotherhand,Brazilianeconomicgrowthoverthesepasteightyearshasbeencharacterizedbyaveryinterestingcombinationoffactorsthathascontributedconsiderablytothestronggrowthoftheestateinsurancemarket.Infirstplace,widerdistributionofincomehasallowedtheB,CandDclassestoacquiregoodsandproperty.Theyneedinsurancetoprotecttheseassetsandmeetthedemandsofcreditsupplierswhoneedthistoolinordertomitigatetheexposureoftheseoperations.Thistypeofinsurance,betterknownas“commoditized”,offersinsurersinthemarketacomponentvitaltotheiroperations,sinceitistheso-called

51

ByMarcelo HomburgerVicePresidentofTechnicalResourcesofAonRiskSolutions

“cushion”thatallowsthemgreaterdilutionoftheirrisks,sonecessaryfortheoperationofthesecompanies.Ontheotherhand,justasimportant,regularinvestmentintheBrazilianindustrialpark,whetherbyBrazilianorforeigncompanies,representsanimportantpillarfortheinsuranceindustrysincegrowthoftheactivityrequiresanswersandsolutionsfromthismarketduetothecomplexityoftheinherentrisks.Withthisheatedactivityandtheneedtooffersolutionsforthemostdiversetypesofproducts–thatrangefromasimplestandardizedprogramforfinancedrealestate,forexample,tothecomplexstructureofmultiplecoveragesforindustrialunits–theBrazilianinsurancemarketisgoingthroughatransformation

withoutprecedent.Numerousforeigncompaniesareopeningoperationsorstrengtheningtheirexistingstructures,investmentfundsarecreatinginsuranceandreinsurancecompanies,andinsuranceintermediationisbecomingamoreadvisoryandcreativeactivity.Asaconsequence,thevisibilityofthismarketismuchmoreintense.Itisbecomingamoreinterestingoptionforbusinessmen,entrepreneursand,andprimarily,foryoungpeoplelookingforcareeropportunities.Aslongasthecountrymaintainseconomicbalance,keepsinflationundercontrolandcontinuestodistributeincomeandpromotethegrowthoftradeandindustry,forceswillconspiretofavortheBrazilianinsurancemarket.

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More protection for exporters

With the intense globalization of world trade, export credit insurance is expected to increase in importance in the relations of Brazilian companies with the foreign market, helping the first to protect themselves against potential risks.

Exportcreditinsuranceisasignificanttoolbothtohelpcreatenewmarketsandmakebusinesspossiblewithbuyersthatuntilthenwereoutof

reachforexporters.Itprovidesamechanismthatfacilitatestheassessmentandassumptionofrisks,thatis,itmakesitpossibletochoosebetweenfavorableandunfavorablerisks,thuscreatinggrowthpotential–notonlyforexportersbutfortheeconomyasawhole.

GrowthinBrazildependsgreatlyonthedevelopmentofinternationaltrade.Thecountryneedstoexportandimportproducts,eitherprimarycommodities,servicesormanufacturedgoods.However,creditisnecessaryfortheproduction,distributionandconsumptionofgoods.Theexporterisexposedtoriskofnonpaymentduringthecreditperiodandinsuranceisanintegralpartoftheexportfinancingprocess.

Inordertocontinueinbusiness,companiesmaybeforcedtograntcreditfortheirexports.Exporters,asawayofprotectingthemselvesfromtherisksinvolved,mayoffersecurecreditlines,increasingtheirsalesand,withthat,gainingacompetitiveadvantage,astheyputthemselvesinastrongpositiontograntcredittobuyers.

Theuncertaintiesoftheinternationalmarketimplyadditionalrisksandhigherbusinesscoststhanthoseexistinginthedomesticmarket.Creditinsurance,ontheotherhand,guaranteesthecontinuityofthecompanyagainstexternalfactorsand,indoingso,functionsasatooltofacilitateinternationaltrade.

Approximately5%oftheBrazilianGrossDomesticProduct(GDP)isestimatedtohavecreditinsurancecoverage,whileincountries

53

wherethecultureforthistypeofinsuranceismoredeveloped,thepercentagereachescloseto60%ofGDP.It’sworthmentioningthatincountriessuchasFranceandGermany,theirrespectiveadministrationstakeadvantageofinsuranceasoneoftheirmaingearforeconomicdevelopment.

The•principles•behind•this•type••of•insuranceTheinsurancecoversthecapacity,nottherefusaltoactuallymakepayment.Theexportermayfilealossclaimresultingfrominsolvencyorlatepayment,thatis,immediatelyafteritisevidentthatthebuyerisinsolvent(declaredbankrupt)orpaymenthasnotbeenreceived(unlessthereislitigation)afteragraceperiodasprovidedforintheinsurancepolicy.

Exporterscanobtainthroughinsuranceapolicyforturnoverorshort-termglobal

activitycoveringbusinessorpoliticalrisks.Inaddition,theturnoverfeatureofthepolicyiscompulsory,requiringtheexportertoinsuretheentireactivityorpartsofitasobjectivelydeterminedbytheexporter,inordertogainareasonabledispersionoftherisk.Withthis,theexporterrequestsaspecificcreditlimitforeachofitsbuyers.Arenewablecreditlimitisissuedasanamendmenttothepolicyafterrisksofthebuyerandcountryhavebeenassessed.

Policiesusuallyhaveastandardtermof12monthsfromtheirissuedate,coveringamaximumof90%oftheshippinginvoicevalue.Thepolicyofferspost-shipmentcoverage,andtheuseofthepolicyendorsementasafinancingguarantee,aswellasaguaranteeforreceivablesadvanceoperationsisapracticethatisbecominggraduallymorecommoninthemarket.

ByValmir ForniCFOofCESCEBRASILSeguros

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Thepolicyitselfisonlyaframeworkthroughwhichtheactualcoverageisimplemented.Itstartswhenthecreditlimitisgrantedtoindividualbuyers,withtheirrespectivecountriesincludedinthepolicy.

Key•featuresInshort,thefollowingdistinctionsmaybemadeamongtypesofcreditinsurance:

••Short, medium and long-term credit –Short-termcreditisthatuptooneyear.Mediumtolong-termproducts,suchascapitalgoodsandconstructionworks,arenormallynotconsiderednegotiableinthereinsuranceprivatemarket.Consequently,themostcommontermfortheseoperationsisoneyearatmost;

••Specific transactions insurance –Oneofthemostimportantprinciplesisthatinsuranceshouldbeofferedtocovertotaltransactionactivity,bringinginalleffortstoavoidanyanti-selectionofrisks;

••Business and political risks–Businessrisksarethoseconnectedwiththebuyeranditsabilityoftopay.Politicalrisksarethoseinconnectionwitheventsorsituationsthatmayariseinthebuyer’scountry,preventingitfrompayingortransferringpaymenttotheexportingcountry;

••Pre and post-shipment risks–Theexportermayhavefinancialriskinconnectionwiththebuyerorthebuyer’scountryevenbeforeshipmentofgoods.Suchrisksarisewhenthegoodsarespeciallymanufacturedforagivenbuyer(pre-shipment).Aftershipment,theexporterawaitspaymentofitsinvoices(post-shipmentrisk).

Policy•managementDailymanagementcontrolbytheinsurancecarrierandtheinsurediscriticalforadequatecoverageofthetransactionsincecreditlimitsaregrantedbasedoneachbuyer’ssalesvolume.Turnovermustbeshownandpastduepaymentsshouldbenotified.Therefore,thereissharedmanagementofrisksbetweentheinsurancecarrierandtheinsuredbusiness.

Creditinsurancedirectlyaffectstheclient’sandtheexportcompany’sbusinesses,aspartoftheircommercialprocedures.Itiscriticalthatbothbrokersandinsurancecarriersinvolvedseektoacttogether.

Informationondebtorsandappropriatesubscriptionproceduresshouldguaranteethatonlyordinaryrisksarecovered,althoughthisisnotwhatisactuallyseen.Someoftheserisksmaydeteriorate,givingrisetolossclaims.

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Thecollectionofamountsnotpaidbybuyersissomethingthatthemajorityofexportersleavetotheinsurancecarriers.Besideswhich,theinsurancecarrierinvolvedinthecollectionofpendinginsuredpaymentshastheopportunitytominimizelosses,totheextentthatthecollectionactivityisprofessionallymanaged.Theinsurancecarrierisbetterabletomanagethecollectionactivity,and,dependingontheparticularsofeachsituation,maycollectdirectlyfromthedebtororoutsourcetheprocess.

Competition•and•competitivenessWithinthecurrentscenario,creditinsuranceisfacingcertaincompetitionfromsomebankproducts,butthepredominantsituationiscalled“ownretention”thatis,simplythedecisionofacompanynottocontractinsuranceforitself.Experienceshowsthat,totheextent

thatexportersgettoknowtheirclientsovermanyyearsandunderstandthemas“goodandsound,”theydecidethatcreditinsuranceisnotneeded.Thisattitudeisfrequentlyfoundintheregularsalesprocess,andtechnically,theexporterwillincludecertainreservesontheirbalancesheetstocompensateforpotentiallossesfromdoubtfulaccounts.

Toconclude,competitionisfierceandinsurancecarriersareexpectedtohelptheirinsuredcompaniesintheircompetitiveefforts,offeringaquickresponsetotheirconcernsandneeds.Totheextentthattheinternationalenvironmentbringsmoreemphasisonthespeedoftransactions–combinedwithprecision–,creditinsurancecarriersinBrazilhavebeenprovingtheircapacitytomeetandsupplysuchdemandsatthelevelspracticedintheglobalmarket.

“The exporter is exposed to risk of nonpayment during the credit period and insurance is an integral part of the export financing process.”

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For the health of BraziliansAlternatives for the industry of life

Chapter 4

58

Growth and inclusion opportunities

With accessible prices and high perceived value, dental plans and insurance have all they need to keep their fast expansion going. But the industry now needs to focus on new products, better control and distribution.

Alotisbeingsaidaboutthehistoricaltimethecountryisexperiencing.Expressionssuchas“demographic

bonus”,“emergingmiddleclass”and“strengtheningofthedomesticmarket”havebeenincorporatedtothespeechesandstrategicplanningofnumerouspublicandprivateentities.Thequestionthatcomestomindnowis:whataretherealambitionsofthisnewuniverseofconsumersandwhatisthebestwaytosatisfythem.Itisnotdifficulttoconcludethatthemajorityofcompaniesnavigateonseasneverbeforesailed,teamingwithbothrisksandopportunities,whichfewarereallypreparedtoface.

Itisknownthatinrecentyears,millionsofBraziliansbegantopracticeminimumstandardsofconsumption.Itisnot

onlyaboutredistribution,buteffectivegenerationofwealthwithrealwagesgrowing15%inthe24monthsendedJuly2011,reachingR$35billion.Inthesameperiod,whiletherealaveragesalaryincreased9%,unemploymentfelltoamere6%.Maintainingthistendencyinasustainablemanneristhecountry’sgreatchallengeforthenextdecades.

Thisnewpublic,matchingthesizeofsomeEuropeancountries,presentsbothopportunitiesandchallengesfortheinsuranceindustry.Noonedisagreesonthefactthatthesepeoplewillincreasinglydemandinsuranceproductsappropriatetotheirprofiles,toprovidethemwithprotectionandserviceswhichwerenotaffordabletotheminthepast.Oneshouldexpect,therefore,thattheshareofpremiumsintheGrossDomesticProduct(GDP)isgoingtogrow.

59

However,itseemsthatsomesegmentsshouldfarebetterthanothers.First,becausetheirpricesaremoreconsistentwiththenewlevelofincomeachieved.Thatis,theyaremoreaffordabletopeople.Second,becausetheyfacilitateaccesstoservicesthatwouldotherwisebelessaffordable.Inshort:Affordablepricesandhighperceivedvalue.Dentalplansandinsuranceseemtofitverywellwithregardtothesetwoaspects.

Infact,foramonthlypremiumthatisafractionofotherinsuranceproducts,beneficiariescancountonaservicethat,asrevealedbyvarioussurveys,isoneoftheirconsumptionpriorities,withbroadappealnotonlyforhealthreasons,butforwell-beingandself-esteemaswell.

A•long•way•to•goItisstillasegmentinitsearlystages.Dentalplanstodayreachonly16million

Brazilians,8%ofthepopulation,orclosetoonethirdofthosealreadyinsuredbyhealthplansandinsurancepolicies.Nevertheless,therateofbeneficiarygrowth,an18%annualaverageinthelast10years,aswellastheincreasinginterestfromkeyoperatorsandinsurancecompanies,wellsuggestthepotentialofthesegment.

However,historicallythefocusofthecloseto400companiesintheindustryhasalwaysbeencorporate–theemployer,preferablylargeandsophisticated,whichgrantstheplanasabenefittoitsemployeesandtheirdependents.Atthemost,individualplans(alittlemorethan16%ofthetotal)andthoseforsmall-sizedcompaniesareofferedthroughthesamedistributionchannelsofhighvalue-addedproducts,suchashealthplans,usedtoreachpeoplewithcompatibleincomes.

ByRandal ZanettiPresidentofOdontoPrev

60

meansofdistributionthatisindispensibleisnotyetavailable.Togetherwithachallengingregulatoryenvironment,thesefactsmakeforaverycomplexscenario.

Tobesuccessfulinthisnewmarket,thedentalplansandinsurancesectorwillneedtoadapt.Newproductswillneedtobedeveloped.Re-thinkingexistingdistributionchannelsandexploitingalternatives,aswellasmakingmanagementandcontroltoolsmoresophisticated,willincreasinglyriseinimportance.Growingregulatorydemandswillrequiresounder,dependableandcapillaryassistancenetworks.

“The opportunity to reach the new Brazilian middle class is historic and should not be wasted.”

Thatis,generallyspeaking,themarketdoesnotyethavethenecessaryexperiencetoexploitthisnewopportunity.Forexample,littleisstillknownabouttheeffectsofthegreatercomplexityonthecontrolandmanagementofthehealthassistancerelatedtothispublic.Inadditiontowhich,ingeneral,theappropriateandlowcost

61

Source:Research–Deloitte(basedonSIB/ANS/MSdata)

*DatathroughJune2011

Healthplanwithorwithoutdentalassistance Exclusivedental

30.7

2.8 3.2 3.8 4.4 5.5 6.1 7.3 8.8 10.312.6

14.5 15.7

31.1 31.1 31.833.7 35.0

36.838.6

40.5 41.945.6 46.6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Growth•much•higher•than•the•industry•averageIntheintervalofonlyadecade,theportionofdentalinsurancebeneficiariesinBraziljumpedfromone-tenthtoone-thirdofthetotalpeopleassistedbyhealthplans.

Evolution of the number of health private plan beneficiaries (in millions of people)

TheopportunitytoreachthenewBrazilianmiddleclassishistoricandshouldnotbewasted.Toallowmoreandmorepeopleaccesstoqualitydentalservicesisanimportantfactorofsocialinclusion.Inacountrywithmoreskilleddentalsurgeonsthananywhereelsein

theworld,itisnotreasonablethatlargesegmentsofthepopulationhavesuchlimitedaccesstotheseservices.Thechallengesthatarepresentedarethecorrectunderstanding,planningandstrategicpositioningforthisnewhorizonfortheindustry.

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The Brazilian health insurance market is growing, but it is confronting problems that reflect the very dynamics of the sector – from legal discussions about price adjustments and the reach of coverage to growing costs. The solution will result from the search for sustainability of supplementary health and alignment of all agents in this chain.

The challenges of the health chain

OneofthemostimportantbranchesoftheBrazilianinsurancemarketisthatofhealth.Arising,aboveall,asanoptiontothedecline

inqualityofpublicmedicalassistance,ithasbeenunderdevelopmentforalongtime.Recently,however,successivelegaldiscussions,rangingfrompriceadjustmentstotherealreachofcoverages,havebeencauseforconcern,bothforconsumersandforcompanies.

Thissectorhasalsobeengoingthroughseveralchanges,primarilywithregardtoitsorganizationalandoperationalstructure.Keyplayersinthisenvironmentincludehealthassistanceprovidersandhealthcareoperators.Recentyearshavebeenmarkedbyseveralmergersandacquisitionswhichhaveendedupintensifyingtheprocessofconsolidationoftheprivatehealthmarket

inBrazil.ThisrestructuringphaseisdueprimarilytogreaterinterferenceoftheNationalSupplementaryHealthAgency(ANS).Changessuchastheincreaseintheofferofservices,proceduresandcoveragesareforcingmanysmallercompaniesoutofthemarket,leadingtoaconsequentconcentrationofbeneficiariesinthemorecapitalizedgroups.

Theinsurance,opensupplementarypension,supplementaryhealthandcapitalizationmarketgrewstronglyin2010incomparisontotheprioryear.Thegrosssalesofthegeneralinsurancegroupgrew14.2%,thelifegroup(includingpensions)expanded18%,supplementaryhealth,11%andcapitalization,20%.Theseareverypositiveresults,consideringthattheyexceedtheGrossDomesticProduct(GDP)growthrateof7.5%in2010.

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The challenges of the health chain

ByEnrico De VettoriDeloittepartnerintheareaofConsultingandanexpertinthehealthsector

Anotherfactorintheanalysisofhealthinsuranceisitsseparationintopersonal(orindividual)andcorporate(orgroup)segments.Inthefirstcase,thereisadirectrelationshipbetweenthecitizenandtheinsurancecompany.Here,thereismoreregulation,sincebusinessnegotiationtakesplaceonunequalterms.Thedirectinterferenceofthegovernment(especiallytheANS),withtheparticipationofthejudiciaryaswell,isconcernedaboveallwithissuesofpriceadjustmentandbreadthofinsurancecoverage.

Inthesecondcase,thereissimplyabusinessrelationshipbetweentwocompanies,withmuchmoreflexibilityandperiodiccontractrenegotiation.Thenumbersshowadeclineinindividualinsuranceparticipation,evenwiththeexistinglegalrestrictionswhenthistypeofcontractisterminated.Theinsurers,in

practice,lostsignificantinterestinsellingthistypeofproductandhaverestrictedthemselvestomanagingalreadyexistinginsuranceportfolios.Aresultofthisbehaviorhasbeentheconcentrationofincomeinthehandsofafewcompanies.

The•scale•of•costsIntermsofincome,measuredbymonetaryconsiderationsandpremiumsearned,thefinal2010datashowthesectorexceedingthemarkofR$70billionandrecordinggrowthslightlyhigherthanthatofGDP.Nevertheless,ontheothersideoftheequation,theevolutionofhealthcostscontinuestobeaconcern.Assistancecostscontinuetogrowatrateshigherthanthegeneralpriceindex,whetherduetotheincreasedfrequencyofuseandbytheintroductionandspreadofnewtechnologies,especiallymaterialsanddrugs,orbytheexpansioninmandatory

64

coverage.Theinflationarydynamicinhealthhasnotbeentheobjectofpubliccontainmentpolicies,whichisreflectedingreatercostsandmonthlypayments.

Lossesinthesector,currentlyat80%,arestillatalevelhigherthanwhatisactuariallyrecommended:75%.Themanagementofassistancecostsisincreasinglydecisiveinthesuccessofahealthplan.Itisworthemphasizingthat,in2010,70newprocedureswereaddedbytheANS,thesolvencyruleswerechangedwiththeendoftheProvisionforUnearnedPremium(PPNG)andriskprovision,withrequiredconversionofprovisionsandpro rata die accounting(proportionalcharges,calculateddaily,whentheduedateofacontributionisdifferentfromtheplanstartdate,guaranteeingthebeneficiarycoverage).

Thisregulationcouldhavecausedadeclineinindustryincome,especiallyduringthefirstquarterof2010.Also,in2010,theportabilityofgraceperiodsfornewindividualplanswasstarted,accordingtothegeographicregionoftheplanandtheassistancesegmentation.More

recently,withpublicationofthe252/11regulatoryresolution,theANSexpandedtheportabilityrulestoadhesiongroupplansandeliminatedsometechnicalrestrictionsconsideredimportanttoavoidtheproblemofanti-selection.

Nevertheless,themostimportantinregulatorytermswasthepresentationbytheANSoftheRegulatoryAgendaforthe2011/12biennial,withasetofstrategicactionsimportantforthedefinitionoftheregulatoryframeworkforthisyear.

WithrespecttotheagegrouppyramidsthatcharacterizethebeneficiariesofhealthassistanceplansinBrazil,theportionofthepopulationinsuredisconcentratedingroupsbetweentheagesof20and55years,correspondingtotheeconomicallyactivepopulation.Inspiteofthepercentagerepresentingonly25%ofthetotalBrazilianpopulation,thenumberofpeopleinsuredbyoperatorsisconsiderable,inabsolutenumbers,causingstructuralchangesinthehealthmarketwhichdirectlyaffectthemostvariedtypesofprivateserviceproviders.

The•impact•of•new•technologiesHealthinsuranceisthesecondmostimportantnon-lifebranch,with27.2%ofthetotal.Itgrew33%between2002and2010. Thus,eventhoughnewtechnologiescancontributebothtoincreaseanddecreasehealthcosts,thereisaconsensusthat,asawhole,newtechnologiesraisetotalcosts.

“The inflationary dynamic in health has not been the object of public containment policies, which is reflected in greater costs and monthly payments.”

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Evaluationoftheimpactofnewtechnologyonhealthcostsdependsonvariousfactors.Forexample,theimpactofthetreatmentcostofasinglepatient.Inaddition,itmustbeverifiedwhethernewtechnologycomplementsorreplaces(partiallyorcompletely)existingtechnologyandwhetheritimpactsthecostofotherservices,suchashospitalstays.Inanidealsituation,newtechnologieswouldbeevaluatedindividually,leadingtoobjectivemeasurementoftheircostsandbenefitsandfacilitatingtheprocessofdecidingwhethertoadoptthem.

Anotherimportantfactoristhelevelofuseofthenewtechnology,associatedwithitsabilitytotreatproblemspreviouslyuntreatable,diagnoseagreaternumberofpeopleforalreadyexistingtreatmentsorextendtreatmenttonewconditions.Obviously,therearetechnologiesthatreduceuseofcertainmedicalprocedures.Finally,itshouldbenotedthatthecomplexityofthetopicincreaseswhenthetimeeffectsofintroductionofnewtechnologyareconsidered.Thiscouldincreasepresentcosts,butleadtosavingsinthefuture.Itcouldalsoraiselifeexpectancyforpeopleand,therefore,changetheprofileandvolumeofhealthcostsoverthecourseofitslifecycles.

ItshouldbeemphasizedthatBrazil,onaverage,appliesfewerresourcestohealthresearchanddevelopment(R&D)thando

thedevelopedcountries,orrather,Brazilisanimporteroftechnologyinthehealtharea.Theincorporationoftechnologyinhealthrepresentsanimportantsourceofpressureonourmedicalcosts.Inaddition,thecountryisgoingthroughaquiteaccelerateddemographictransition–muchmoresothantheEuropeancountries,wheretheeffectsofanagingpopulationhavealreadybeenfeltforsometime.This,combinedwiththefactthatnationalincomeisatanintermediatelevel(intherankingofcountries),movingtowardhigherlevels,indicatesthatwewillhaveastrongincreasinghealthcosttrend,suggestingthatBrazilshouldurgentlyadoptmeasurescapableofeffectivelydealingwiththistrendinthefuture.

Inconclusion,tomaintaintheviabilityofthehealthsystem,theaveragegrowthofGDP,generalinflation,incomedistributionandtherealincomegainsofthepopulationshouldbetakenintoconsideration,inotherwords,monitorandforecasteconomicindicatorstopermitfutureprojectionofthehealtheconomy.Simultaneously,reductionofwasteisneeded,encouragingthepromotionofhealth,aswellasthepreventionandrationalizationoftheuseofassistanceandpromotionofthesustainabilityofsupplementaryhealth,withconsequentalignmentoftheinterestsofallthelinksinthehealthchainandmaintenanceofminimumandegalitarianrightsforeveryone.

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The health plan of the future

With consumers ever better informed about their rights and duties, and also more demanding and qualified, companies in the supplementary health field are already being challenged to respond to the needs of a future that will be based on the information-consumption-health trinomial.

SincetheConsumerProtectionCodeissuedinthe1990s,themarketshavebeenimprovingintheexactpaceofthequalificationofconsumption.

Inotherwords:Consumersthataremorequalified,demandingandawareoftheirrightsmakeforbetterpreparedandmorequalifiedmarkets.

Inthehealthfield,thethemehasspecialimportancesinceweliveintimesofimprovementofandreflectiononthepublicsystem,atthesametimethatweseetheconsolidationofthesecondlargestprivatemarketintheworld.Today,wearemorethan62millionconsumersofhealthplansandinsurance,whethermedicalordentalplans.

Therearecertainlydilemmastoberesolved,particularlywhenincreasingtheefficiency

ofhealthspending–ofprivateandpublicsourcesalike.However,citizensaremoreandmoreawareoftheircitizenshipandconsumptionrights.Wethereforehaveagreatchallengeahead:Whatwilltheconsumerofthefuturebelikewithrespecttosupplementaryhealth?Ifwehadtoanswerthisquestionwithonlyoneadjective,wewouldsay:Aninformedconsumer.

Informedaboutwhat?His/herrightsandduties–withregardtopurchasingahealthplanorinsurance?Wouldthatalonebeenough?Inouropinionno,sincedifferentlyfromothermarkets,thesupplementaryhealthmarketdealswithsomethingthatis–andhastoincreasinglybe–partofthedailyaffairsofthisconsumer:thehealthconcernwithhis/herhealth.

Let’simaginehowtheconsumerofthefuturemightbedifferentfromtheconsumer

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oftoday.Currently,ifweneedmedicalassistance,whatdowedo?Wetakeoutourhealthplan’s“participatingphysicianslist”orsearchontheinternetthroughalistofnamesandaddressesforadoctororclinic.

Howmightitbeinthefuture?Basedonwherewearelocated–orevenapointofreference–wewilllookuptheclosestserviceprovidersonageographic-referencedportalinthesamewaywefindtodayarestaurantorashoppingmallusingacellphoneandaGPS.

Exceptthat,sincewearetalkingabouthealth–ourhealth–notaboutrestaurants,itisnotenoughtohaveonlythelocationofaprofessionalthatmightseeus.Itisindispensablethatwealsohaveaccesstoinformationonthisserviceproviderandparticularlyonthequalityofserviceitprovides.

Increasingly•closerThisfutureisnotveryfarawayandthosewithsmalldreamsmayfeelalreadyfulfilled.Butwearenotinthecategoryofsmalldreamers:Ourconsumerofthefuturehas,besideseverytypeofinformationontheassistancenetwork,allthehealthinformationhe/sheneedsthroughanelectronicchartonline–andthisconsumeralonewillauthorizewhowillattendhim/herandhaveaccesstoinformationonhis/herhealthcondition.Thisisrealinformationandthisistheconsumerofthefuture.

Weallknowthathealthcarecannotbethoughtofonlyintimesofillness.Theconsumer’shealthshouldbeapermanentconcernofthehealthplanofthefuture.Istheindividualizedhealthprojectbeingcarriedout?Istheconsumerengagedinprogramsofactiveaging?Istheconsumertakingcareofhis/herlifeenvironment?

ByMauricio CeschinPresidentoftheNationalSupplementaryHealthAgency(ANS)

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Onecannotforgetthat,thankstoadvancesinmedicineandtothebetterlivingconditionsofourpopulation,therehasbeenasignificancechangeinthedemographicprofileofourcountry,whichisexpectedtocontinue.Theproportionofseniorstodayalmostdoublesthatof40yearsago,anditwilltripleinthenext40years.Fromthehealthpointofview,thereisalotofthinkingtocarrythroughsinceweknowthatelderlypeoplespendmuchmoreonhealththanyoungpeople.

Oneofthemainchallengesoforganizedsocietiesatthebeginningofthiscenturywillbethesustainabilityofahealthsystemwhichwilldemandincreasingandcontinuingfunding,andthatwillneed–forthisveryreason–sincefundingisnotinfinite–tobeorganized,consistent,consequentialandefficient.

Companiesinthehealthplansectorwillbeaskedtomakeadealwiththeirconsumers:Adealforhealth,adealforprevention,adealforlife.Lifewithqualityoflife.

In1616,GalileoGalileehadhisheliocentrictheorycondemnedbytheInquisition–thelegendsaysthat,aftertheInquisition’sverdict,hewhispered:“eppursemuove”.Translated:“and,nevertheless,itmoves”.

Almostfourhundredyearslater,weareexperiencingasimilarsituation:Thatofolddogmasbeingquicklyoutdated.Somestilltrytoholdontoanassistancemodelthatisonlyreactive.

However,timehascomeforthetrinomial:Information-consumption-health.Thisisthefuture.

“(...) we therefore have a great challenge ahead: What will the consumer of the future be like with respect to supplementary health? If we had to answer this question with only one adjective, we would say: An informed consumer.”

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“Companies in the health plan sector will be asked to make a deal with the consumer: A deal for health, a deal for prevention, a deal for life. Life with quality of life.”

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71

Modern managementOperations in search of efficiency

Chapter 5

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The information that determines the price

Recent advances in technology and statistical tools provide new possibilities for obtaining information on the insured and constructing pricing models. In this scenario, insurers tend to focus more on understanding the insured than on direct capture of information.

Wearegoingtodiscussthesubjectof“pricing”morepreciselyfromthepointofviewof

theefficiencyoftheinsurancemarketandofmanagementof“loans”.Naturallythisleadstoreflectionononeofthegreatdilemmasweconfrontinthismarket:Thesearchforbalancebetweenthelevelofassertivenessinmeasuringriskandhowmuchthiscouldcostfromvariousperspectives.Believeit,Mr.Insured:Itisnottheintentionoftheinsurancecompaniestoboreyouormakea“joke”atthetimeoftheloss.Knowingasmuchaspossibleabouteachriskweassumeisfundamentalforproperpricing,butitcannotbedeniedthattheprocessesthatleadtothisinformationgeneratecostsandtaketimeforallthepartiesinvolved.Itisessentialtoobservethat

betterriskmeasurementbenefitsgoodriskconsiderably,permittingabalancebetweenexpectedlossesandmakingamoreappropriatepricefeasible.

Butthegoodnewsisthattechnologicaldevelopmenttendstomakeaccesstothisinformation,oreventodatathatallowsustoinferitstatistically,increasinglysimplerandlessdependentonfillingoutquestionnaires,notuncommonlyofreasonablelengthand,notrarely,havingmorethanonepossibleinterpretation.Insuredpartiesleavetrailswheretheypass,andthesetrails,whenwellstudied,aretransformedintopreciousinformationformanagementoftheloan.

Issuesofinformationasymmetryandadverseselectionareinherenttoinsurance.Afterall,itispracticallyimpossibleforaninsurancecompanytohaveaccessto

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anyandallaspectsrelatedtoeachoftherisksitassumes,regardlessofhowhardittries,forexample,usingquestionnairestoevaluaterisk.Thefirstquestionnairesdevelopedwerebasedoncommonsense,involvingquestionsthat,intuitively,seemedtorepresentdifferencesinrisklevels.Manyofthemwereprovenreliableasexcellentindicatorsandtheycontinuetoexistinquestionnaireseventoday.However,themainproblemthenwasnottheselectionofquestions,butknowinghowtomeasuretheirweightinthereductionorincreaseoftheriskevaluated,somethingthatonlybecamepossiblefromthestartofdevelopmentofdatabasesandadequatestatisticaltools.

Iftoday,muchmoreisknownabouttheparticipationofeachfactorinthedifferentiationofrisks,theproblemhasincreasinglybecomehowtoreconcilethe

completionofquestionnaireswiththelimitedtimeavailableinmodernlife.Ontheotherhand,thissetofinformationallowsmeasurementnotonlyofthelevelofrisk,butalsoofthechancesthatthedealwillbesignedandthehighestlevelpossibleofpremiumsareearned,withoutlosingcompetitiveness.

Withautomobileinsurance,forexample,informationlikehowthevehicleisused,itsmodel,whereitiskept,theregioninwhichitcirculatesandtheageofitsdriversarestatisticallycombinedwithotherinformation,suchasincomelevel,relationshipwithfinancialinstitutionsandeducationlevel,allowingdevelopmentofsophisticatedmodelsofpropensityforinsurancecontracting,aswellasmodelsthatallowevaluationofthesensitivityofeachindividualtopricevariations,knownaselasticitymodels.Lessriskexposureand

ByNey Ferraz DiasExecutiveDirectorofItaúAutoeResidênciaS.A.

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higherincome,whencombined,tendtoprovidesatisfactoryresults,guaranteeingoperationalcontinuity.

Simplification•and•assertivenessBasically,thequestionnowishowtocombinetheimportanceofthisinformationtocharacterizerisks–andthedevelopmentofthesemodels–withthedifficultyinvolvedinobtainingthem.However,assaidatthestart,futuretrendspointtothesimplificationandgreaterassertivenessofthesalesprocesses,sincetechnologicaladvancesallowaccesstothisinformationwithoutdirectstatementsoftheinsuredevenbeingneeded,andthetrendistoreducedirectquestioning.Asexamples,wehavecreditscores,bureaus,registrationbasesandrelationshipswithotherbusinesslinesoffinancialconglomerates,sincethisinformationisstronglycorrelatedstatisticallywithriskprofiles.

Telemetrysystemsalsostandout,whichshouldprovideinsurancecompanieswithvehiclemonitoringinrealtime,givingthemdirectaccesstoinformationlikemileagedriven,conditionsofthevehicleitself,streetstraveled,whetheritiskeptinagarage,ifitisdriveninareaswhereautotheftandrobberiesaremorefrequent,evenincludingdynamicpricingsystemsinwhichthepremiumiscalculatedbasedonmileagedriven.

Insummary,regardlessofthefundamentalimportancethatdirectlyobtainingobjectiveinformationoninsuredpartiescontinuestohave-eventoday-forconstructionofinsurancecompanypricingmodels,thesignspointtoachangeinthemannerofoperation.Technologicaladvanceopensroomforotherwaysofaccess,inadditiontothedevelopmentofincreasinglyefficientstatisticaltools.Inthisnewscenario,theinsurancecompanieshavetheroleofreinventinghowtheyoperatewiththeinsured,beginningtoinvesteffortsthatwerepreviouslyspentdirectlycapturinginformation,instrengtheningtherelationshipwiththem,betterunderstandingtheirneedsandofferingthemproductsandservicesthatrepresentnewbusinessopportunities.

“Insured parties leave trails where they pass, and these trails, when well studied, are transformed into precious information for management of the loan.”

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Inconclusion,IhopetohavecontributedtoavisionofwhatthefutureshouldbringusonanissuethathasbeenwithmansincethetimesofBabylon,asshownincuneiformwriting,thefamousCodeofHammurabi.Butthatisanotherstory!Fornow,youwillcontinuetolivewithquestionnaires,sincetheyarestillthebesttoolfordiscriminatingrisks.

“It is essential to observe that better risk measurement benefits good risk considerably, permitting a balance between expected losses and making a more appropriate price feasible.”

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Profitability versus cost

The professional management of costs as a business and profitability variable – a routine already disciplined in other economic sectors – is a complex process, although vital to ensure business strategies generate appropriate returns in the insurance market as well.

Aprocessalreadycommoninmanufacturingactivities,theprofessionalmanagementofcostsasabusinessandprofitability

variableisadisciplinedroutinefortheseeconomicsegments.Thereisnowaytoguaranteestrategiestoprovideappropriatereturnswithoutthecorrectunderstandingofactualcosts,whetherdirectorindirect,involvedinthemanyoperationsofallcompanies.Thereisnodecisionwithoutcosts.Therearenoactionsorstrategieswithoutcosts.Resultscanobviouslybepositiveornegative,but,insomeway,therewillalwaysbeacertainvalueallocatedthattheoreticallysupportsanaction.Someautomobilemanufacturers,forinstance,adapttheirproductsandstrategiessothatthesameplatformandthesamecomponentscanbecustomizedforvariousmodelsand

lines(commonality).Withadvantagesanddisadvantages,thisisanexampleofhowmanufactureshavebeenpursuingproductstrategiesandproductioncoordinationonthepathtoimproveprofitability.

Theinsuranceindustryhastakenthissamepath.Classicinternalquestionsareconstantlyrevisitedwhendesigningalternativesandstrategies,suchashowtodiversifyorspecialize,whethertoopennewfronts,aswellasmanyotherexamplesofquestionsinevitablyaddressedinbusinessplans.Obviouslyeachcompany’sDNAreflectsthestrategyadoptedforitsbusinessand,therefore,decisionswillalsoreflecttheir“geneticload”.However,independentlyofcallings,presentdemandsforprofitabilitycontemplatenewoperationalsafetyscenariosandanewregulatoryenvironment,besidesmodifyingthecostequationsininsuranceoperations,

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generatingnotonlyanewstandard,butanewdynamicoffundmanagementforpurposesofprofitability.

Andwhatarethesenewcoststandardsintheinsurancemarket?Undoubtedly,insurancetechnicians’livesanddutieshavegreatlychanged.Notlongago,thenotionoftheprofitabilityofaninsuranceoperationconsideredalmostexclusivelythedirecttechnicalvariables,leavingtherelatedcomplementaryadditionalcoststothefinancialarea.Notwithstandingtheobligatoryanalysisoffundamentalcosts,newdimensionsofnon-returnablecostsarenowamatterofanalysisforthedefinitionofprofitability.Thesenewdimensionsalterthedecisionflowofoperations,addinganimportantthoroughnesstotheunderstandingofprofitabilitywiththeallocationofactualcostswhichare,however,often“ethereal”.

Thematterofanalysisofthesecostsbreakswiththetraditionaloperationalflow,directlyimpactingtheselectionofstrategies.Itemssuchasfrequencies,averageindemnificationcosts,budgetedreservedevelopmentandadministrativecostswereaddedtoothercoststhat,intruth,havealwaysexistedbuthaveneverreallybeenidentifiedandinterpretedforthecorrectanalysisofprofitabilityininsuranceoperations.Mostofthetime,theeconomicresult,atitsfirstlevel,hasalwaysguidedthestrategiesanddefinedpriorities.Manyoftheseresultsmayfailtosupportananalysisofthecostofrisksthatareimplicitandthatwhenmitigatedandlaterquantifiedarecapableofmodifyingtheresultofoperationswhichtraditionallyareprofitable,andfund-generating.

Inspiteofeffortsmadebytheregulatoryentitiestocontrolfinancialriskexposure

ByMurilo Setti Riedel VicePresidentofHDISegurosandinchargeofthetechnicalareasofInsurance,ReinsuranceandLosses

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fromthemanagementofreserves,thegreatestriskhasalwaysbeenconcentratedwithinadimensionofthebusinessitself.Itis,obviously,difficulttomeasureandquantifythecostofriskinoperations,primarilyinamarketwherethegoodssoldaretheveryriskvariable,andforthisreason,itisdifficulttounderstandthat,besidestheriskasmerchandise,thereisanadditionalrisk,thatoftheoperationitself,andofthewayitismanaged.Asmentionedbefore,thereisnodecisionorstrategythatwillnotinsomewayimpactriskand,consequently,insomeformofcost.Thetaskistoquantifyandallocateit.

Ifitisnoteasytounderstandthattheprofitabilityofanoperationmaynotwithstandamathematicalanalysisofitsrisks,theapplicationofnewgroundsbringsavirtuouspracticeofquantificationandallocationofthedecisionscostoftherisk.Thus,runninganinsurancebusinessmay

notonlydemandreservesandappropriatepricing,butalso,additionalguaranteestranslatedintocapitalneeds.Forexample,aningeniousreinsuranceoperationformitigatingriskexposuremaybepotentiallyexpensiveforthefinancialriskinvolved.Intimeswheninnovativeoperationshavebeenprovenattractivefromthecompetitivepointofview,mitigationandquantificationofriskcostsandtheirfinalimpactsontheneedforcapitalhaveshowntobeanimportantmeasurementfortheirprofitabilityanalysis.

Inthisprocess,someadditionaloperatingcostsrapidlyleftthescopeofriskstobedirectlyallocatedasfunctionalpre-requisites.Consequently,itisunthinkabletodayforaninsurancecompanytooperatewithoutphysicalcontingenciesforoperationalrisksandthesegroundshavealreadybecomedirectlyallocatedcosts,havingtheirimpactsidentifiedintheverystructureofthebusinesscosts.Other

“(...) present demands for profitability contemplate new operational safety scenarios and a new regulatory environment, besides modifying cost equations in insurance operations, generating not only a new standard, but a new dynamic of fund management for obtaining profitability.”

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operationalcostsarealsodirectlyallocated,becomingafundamentalpartofanyinsuranceoperation,suchas,forexample,antifraudunits,workflows,operationalcontrols,acceptancecontrols,etc.

Inotherwords,thesebasicdemands,inadditiontobeingrequiredbyregulations,arealsorequiredbytheessenceofthebusiness,sincethecostofriskinherenttoitsnon-existenceorfragility,directlyimpactstheresults.Inmoderntimes,itisimpossibletodisregardthecostallocatedtosupportappropriatepracticesforconductingoperationsintheprofitabilityequation.

Thequestionwhichnaturallyelapsesthenis,oncethecostsallocatedtosupporttheinsuranceoperationsarenormallyconsidered,whichdeterminingandadditionalcostsshouldbeincludedinthecorrectprofitabilityequationofaninsuranceoperation?Theanswerwouldbeinthecorrectcalculationandallocationofstrategicriskcostsandnotdeterminedbythetraditionalmitigationofoperationalrisks.Thus,riskssuchascredit,financial,assetinadequacy,probabilityerrorsindeterminingreservesandpricing,theeconomicandpoliticalsituation,competitionfactorsandpotentialstrategicerrorshaveanextremelysignificantweightinthemeasurementofprofitabilityofaninsuranceoperation,andforthisreason,needtobemodeledandallocated,having

theireffectsreflectedintheprofitabilityofthedeal.Itiscertainlyamanagementexercise.

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Profession: Broker

In a market as diversified as the Brazilian market, the insurance broker is an essential agent in the industry, required to fulfill the needs for specialization, always connected with the changes and helping to create solutions that meet client expectations.

Independentlyofthefactthatbylaw,thebrokeristherepresentativeoftheinsuredpartywhendealingwiththeinsurancecompany,thebeliefisalreadywellestablishedin

thecountrythatinsurancewithoutabrokerisnotagooddealfortheinsured.Afterall,itisthebroker’sresponsibilitytoactasaspecialistwho,awareoftheclient’sneeds,cansuggestthebestoptionsintermsofproducts,coverageandvalues.

Theinsurancebrokerisakeyplayerwithintheinsuranceindustryforhisroleinidentifyingtheneedsoftheinsuredandseekingthebestcoverageoptionsofferedbytheinsurancecompanies.However,tocontextualizetheroleoftheinsurancebroker,wehavetounderstandthesizeofthemarketanditsrespectiverangeofproductsandservices.Currently,wehavemorethan170insurancecompaniesand

morethan130insurancelines(see table on page 83)and,toprovideexclusiveassistance,thebrokerneedstoactinaccordancewithhistarget-public.

Wewillstartbyanalyzingthemarketforindividuals,whichisnotablydrivenbythepersonalautomobileinsurance,inwhichpriceisthechieffactorinthepolicychoice.Inthismarket,thebrokerisrequiredtounderstandwhattheinsuredislookingfor,sincethereareinsurancecompaniesthat,besidesofferingautomobileinsurancewithtraditionalcoverage,alsoaggregatealargerangeofservices,suchasplumbing,electrical,locksmith,andothersalike.Afterunderstandingwhattheinsuredislookingfor,thebrokerwillchoosewhichinsurancecompaniesbestmeethisclient’sneeds.Thebroker’scredibilityisoftenasimportantasthatoftheinsurancecompaniesparticipatinginthecompetitionprocess.

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Profession: Broker

Sincethismarketrequiresquickassistanceresponseandabilitytoactpromptlyintheeventofloss,thebrokershouldhelptheinsuredcommunicatewiththeinsurancecompany,butcannotslowtheprovisionofsolutionstotheinsured.Themarketforindividualsrequiresautomatedprocesses,efficiency,scaleandproductivity,andthebrokershouldleavethistasktotheinsurancecompaniesthatinvestmillionseveryyearintheenhancementoftheirproductsandservices.

Itiswithinthecorporateframework,however,thattheroleofthebrokerisevenmorechallengingbecauseinadditiontobetechnicallyknowledgeableaboutcommercialterms,coverages,exclusions,deductibles,limits,terms,lossesetc,thebrokerhastobeaspecialist,understandingtheindustryandthemarkettheclientisdealingwith,whatmacroeconomic

variablesimpacttheclient’sbusiness,howtheseimpactsaffecttheinsuredvaluesandhowthisinfluencestheinsuranceindustry,locallyandinternationally.

Specializationis,therefore,necessary,sinceeachcompanyneedstohaveasingularizedvision,adeepknowledgeoftherisksinvolvedandchiefly,tofindwaystomitigatethem.Thisishowtheavoidableriskswillbemappedandtheclient’sinsuranceprogramwillbepriced(underwriting).Anexperiencedbroker,withup-to-datehistoricaldataandidentifiedmarket(localandinternational),willmakeallthedifferenceintheprocessofriskplacement.

In•tune•with•changesBesidesthecharacteristicsmentionedpreviously,theinsurancebrokermustbeconnectedwiththeworld,sinceinthe

ByCristiano FurtadoCFOofMarshBrasil

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globalizedmarketinwhichwelive,allnatural,business,financial,political,andsocialandeconomiceventscaninfluencepriceformationand,therefore,theabilityofthebrokertomaketherisksubscriptioncapacityoflocalandinternationalmarkets(reinsurance)available,willbevitalforofferingclientsthebestcost-benefitratio.

Tobuildclientloyalty,thebroker,inadditiontoofferingaclearandtransparentvalueproposition,shouldplayadeterminingroleinthelossadjustmentprocess.Onecansaythatthelosseventisthemomentoftruth,thetimeatwhichtheworkofthebrokerisputtothetest.Thisdoesnotmeanthatall

“The insurance broker is a key player in the insurance industry for his role in identifying the needs of the insured and seeking the best coverage options offered by insurance companies.”

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damagesufferedbytheinsuredfromanunexpectedeventmustbepaidforbyaninsurancecompanyandthatthebrokerwillonlybesuccessfulifindemnificationispaid,buttheprocessoflossadjustmentwillshowwhetherthecoverageanddeductiblesrecommendedbythebrokerwereadequate,whethertheclauseswerepreparedtoreflecttheclient’soperationsandwhethertheriskmitigationalternativesrecommendedbythebrokerwereactuallyfollowedbytheinsured.

Inadditiontotheaspectsaddressedabove,theinsurancebrokerhasthecapacitytohelpthemarketcreatenewsolutions,adaptproductsandservicestoclientneeds,designnewcoveragesandpromoteindustrydevelopment,sinceinsurance,besidesguaranteeingthebasicprincipleofrisktransfer–theeconomicprotectionindividualsseekagainstrandomneeds–canalsobeasourceandanalternativefortheeconomicviabilityoffundingthatwillsupporttheconstructionofourcountry’sinfrastructure.

IfwetakeintoconsiderationthefactthatBrazilwillhostthetwomajorsportseventsintheworld–FIFA’sWorldCupin2014andtheOlympicGamesin2016–theneedforinvestmentsininfrastructure–

roads,railroads,high-speedtrains,portsandairports–andthedemandtoquicklydeveloptheBrazilianoilindustry,wecometotheconclusionthattheinsurancebrokerwillbeakeyagentinthedevelopmentofthecountry,addingexpertisetomaketheseprojectsviableand,atthesametime,actingasacatalyzertomobilizethefinancialcapacityoflocalandinternationalmarkets.

The•market•and•the•brokerThesizeoftheinsurancemarketandthediversityofitsproductsandservicestodaydeterminethedimensionofthechallengeandtheveryroleoftheinsurancebroker,whoneedstoactinaccordancewithhistarget-public.

Main competitors in the insurance market Number

Insurancecompanies 115

Capitalizationcompanies 19

Privatepensionentities 25

Insurancecompaniesspecializedinhealth1 13

Insurancebrokers 69,672

Registeredreinsurancecompanies 94

Authorizedreinsurancebrokeragecompanies/brokers 32

Note:lastavaibledata1UntilJune2011

Sources:NationalFederationofPrivateInsurance,ReinsuranceBrokers,Capitalization, PrivatePension,andInsuranceandReinsurance BrokerageFirms (Fenacor),BrazilianAssociationofReinsurers(Aber),TheSuperintendenceofPrivateInsurance(SUSEP)andtheNationalSupplementaryHealthAgency(ANS)

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New roles for the actuaryThe gradual implementation of the IFRS, the global accounting model, has brought new challenges and opportunities for actuaries in the insurance area, who have now gained strategic importance in the determination of business risks and greater weight in insurance company decision making.

WiththegradualimplementationoftheInternationalFinancialReportingStandards(IFRS)

intheBrazilianmarket,manychallengeshavearisenandwillcontinuetoappearforactuariesintheinsurancearea.ThefirstofthemoccurredinPhaseIofthe“IFRS4–InsuranceContracts”,thatestablishedaspecificdefinitionforinsuranceandreinsurancecontracts,presentedvariouschangesininsurancecontractaccountingandrequiredgreaterdisclosureoffuturecashflowandriskexposure.

Theintroductionofthespecificdefinitionofaninsurancecontractresultedinthereclassificationofcertaincontractsasfinancialinstruments.AmongthemainchangespresentedinPhaseIaretherequirementsthatinsurancecompanies

accountforembeddedderivatives(example:guaranteesforreturnofpremiums,offeredaspartofalifeinsurancepolicy)andrecordthemat“fairvalue”,aswellastheeliminationoftheequalizationandcatastropheprovisionsusedinsomecountries.

PhaseIoftheinsuranceprojectalsorequiredgreaterquantitativeandqualitativedisclosurewithregardtoriskexposure–forexample,explanationofamountsrecorded,includinginformationonaccountingpolicies,significantassumptionsandrelevantchangesrelatedtoinsuranceliabilities,reinsuranceassetsanddifferedacquisitioncosts(DAC).Inaddition,itrequiredthedisclosureofriskmanagementpoliciesandthetermsandconditionsthathavearelevantimpactontheamount,thetimeandtheuncertaintiesofinsurancecompanies’cashflows.Bymeansofthese

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New roles for the actuary

changes,PhaseIallowedusersoffinancialstatementstobetterunderstandthenatureoftheinsuranceandhowthechangesinassumptionsandexternalfactors,suchascreditexposure,mightaffecttheevaluationofassetsandliabilities.

Thedifferencesinthewayinsuranceisaccountedforvaryfromcountrytocountryandthesedifferencesarequitesignificantinsomecases.Consequently,usershavedifficultycomparingandunderstandinginsurancebusinessresultsonagloballevel.Thisfact,togetherwiththecomplexityoftheindustryandtheattentionthatisbeinggiventoaccountintegrity,imposestheneedforacommonbasefordisclosureoffinancialinformationbycompaniesintheinsurancesector.

PhaseIIoftheprojectintroducescomprehensivestandardsthatdealwith

recognitionandmeasurementofinsurancecontracts.

Themainpropositionisthatallinsuranceliabilities–includingdirectinsuranceandlifeandnon-lifereinsurance–shouldbemeasuredusingthe“CurrentExitValue”(CEV),bywayofthreebasicblocks:••Current estimates–explicit,non-biased,consistentwiththemarket,basedonprobabilitiesandoncurrentestimatesofcontractualcashflow;••Time value of money–discountratescurrentinthemarketthatadjusttheestimateoffuturecashflowsconsideringthetimevalueofmoney;••Margins–anexplicitandnon-biasedestimateofmarginthatmarketparticipantsrequiretodecidewhethertoassumerisk(riskmargin)andwhethertoprovideotherservices,ifany(servicemargin).

ByJoão Batista PintoDirectorofDeloitte’sActuarialpractice

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TheapproachproposedbytheInternationalAccountingStandardsBoard(IASB)forvaluinginsuranceliabilitiesisthebestdiscountestimate(andconsistentwiththemarket)forexplicitliabilitiesandmarginsofriskandservices.

Ifadopted,thisapproachwillmeanasignificantchangeinthewayliabilitiesarevaluedandwillintroducemoresubjectivityandvolatility.Itshouldraisecostsrelatedtodisclosureoffinancialinformation,sincenewactuarialtechniquesandsystemswouldbenecessarytoestimatetheCEV.

However,thebasicblocksoftheCEVapproacharebeingincreasinglyusedbyinsurancecompaniesintheirbusinessmanagement,suchastheevaluationof

“The detailed disclosure of assumptions and methodologies used to calculate risk and service margins will be essential for the disclosure of financial information when trying to promote the development of established market practices that favor the consistent estimate of these margins.”

creditandmarketrisks,andspecificallyinBrazil,legalrisk;therefore,thevaluationbasesforreportpreparationandbusinessmanagementshouldconverge.

Themainobjectiveistomakethedisclosureofnumbersandrisksbyinsurancecompaniesmorerealistic.Asaresult,financialperformancewillbecomemoretransparent.Theproposaltoincluderiskandservicemarginsaspartofliabilitymeasurementisanewapproachthatdiffersfromthepredominantbusinessmodel.

Themarketrecognizesthelackofobservableevidenceforcalculatingthesemargins,andevolutionoftheindustrywillbeessentialforapplicationoftheseproposalsinawaythatincreasestheconsistencyofthefinancialinformationtobedisclosed.

Thelevelofuncertaintyinvolvedininsuranceoperationsgivestheactuaryconsiderableindependencetodeterminethesemargins,nevertheless,goodsenseandskepticaljudgmentintheadoptionofthesemarginsshouldbetheleadingfactors.Inaddition,thelackofobservabledatatodeterminetheriskandservicemarginswillleadtoasignificantdegreeofsubjectivity.Thechallengeforactuarieswillbetodocumentandjustifythejudgmentapplied.Thedetaileddisclosureofassumptionsandmethodologiesusedtocalculaterisk

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andservicemarginswillbecrucialforthedisclosureoffinancialinformationwhentryingtopromotethedevelopmentofestablishedmarketpracticesthatfavortheconsistentestimateofthesemargins.

Fromthere,theactuaryloseshisroleasexecutorwithintheinsurancecompanyandbecomesstrategictothecontinuityofitsoperations.

PhaseIIoftheprojectdeterminesthatinsurancecontractsberecordedattheirCEVortheamountthatwouldbereceivedtodayiftheentireobligationwassoldtothirdparties.TodeterminetheCEV,insurancecompanieswillneedtoprovidecurrentestimatesoffuturecontractcashflows,applyanappropriatediscountrateforthetimevalueofmoneyandestimatethemarginthatmarketparticipantswouldrequiretoassumetherisk(riskmargin)andprovideotherservices,ifany(servicemargin).Inaddition,thecashflowsshouldbeexplicit,asconsistentaspossiblewithobservablemarketprices,aswellasincorporatealltheinformationavailableonthetimeanduncertaintyrelatedtothecashflowsresultingfromcontractualobligationsinanimpartialway,andbeupdatedbasedonconditionsattheendofthedisclosureperiod.

ThisPhaseIIcertainlypresentsagreatchallengeintheareaofactuarialmodelingformanyinsurancecompanies.Incomparison,inEurope,themovementtocalculatefairvaluebasedontheEuropeanEmbeddedValue(EEV)ledinsurancecompaniestodevelopstochasticmodels.Thesemodelsrequireadditionalassumptionsforhowmanagementandinsuredpartiesmightreactunderdifferenteconomicscenarios.Theseassumptionsnormallyshouldbetakenintoconsiderationintheabsenceofconcretedataandthey

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introducesubjectivity.Inaddition,whiletheusebytheEuropeaninsurancecompaniesofembeddedvalueinlinewiththemarkethasalreadyremovedalargepartofthesubjectivityfromeconomicassumptions,subjectivitystillremainsininsuranceriskassumptions.Theinsurancecompaniesneedtofeelcomfortablewithprovidingappropriateassumptions,consistentwiththemarketandwiththespecificportfoliocharacteristics.

Forexample,byestimatingmarketvaluesconsistentwithinsuranceliabilitycashflows,thelackofobservabledataforsomeitems(example:thelossfrequencyandtheoccurrenceincertainlinesofinsurance)canforcesomeinsurancecompaniestodevelopmoresophisticatedactuarialmodels.Itisalreadydifficulttoestimateliabilitycashflowsandthesedifficultiesareevengreaterwhentheactuaryneedstoconsiderthepossibilityofextrememarketmovementsanddeficienciesintheavailabilityofobservabledatathatwilladequatelyrepresentfinancialvalues.Thechallengeswillbegreaterforlong-termlifeinsuranceandlinesofcasualtyinsurancethatarecharacterizedbyemergencystandards,possiblyhighpaymentsandgreatvolatility.Theinsurancecompanieswillneedtogetfamiliarwiththesetechniquesandworktocontinuallytestthemodelsundernewconditionsandrefinethem.

A•broad•visionTheactuaryshouldhaveabroadunderstandingofhisproducts,examiningallhisbusinessportfoliostoenableclassificationofproductsasinsurancecontractsorfinancialinstruments.Asinsurancecompaniesbecomeincreasinglyawareofthesefactors,theadditionalinformationresultingfromtheadoptionofIFRSwillleadthemtoadequatelydeterminethepriceofembeddedderivativesand

Impacts•of•the•new•realityBelowaresomeofthechallengesunleashedbytherecentregulatorychangesthathavetakeneffectintheinsurancemarket:

•• Theconvergenceoftheinsuranceliabilitymodeling,fromthepointofviewofaccounting,regulatory,riskandpricemanagement,sothatbasicmodelingtechniquescanbeembeddedinthebusinessandprovideconsistencyinthedisclosureoffinancialinformationandmeasurement;

•• Theintroductionofnewsystems,resultinginhighcosts(thiscostshouldbeworthwhileifthesesystemscanbeusedinallareasofthecompany,forvariouspurposes,andnotjustforthepurposeofdisclosingfinancialresults);

•• Theneedforinsurancecompaniestotraintheiractuariessothattheyarepreparedforthenewtechniquesandmarketdemands.

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makethemat“fairvalue”.Consequently,somelifeinsuranceandpensionproductswillbediscontinued,redesignedorwillhavetheirpricesincreased.

Theactuarywillhavethechancetoprovidecompanieswiththevisionnecessaryforthemtosubstantiallyimprovetheirinternalcontrols.And,aboveall,bettertransparencywillleadtohigherlevelsofresponsibilitywithregardtoriskmanagement.

Hence,theactuarywillalsohaveastrategicroleinimprovingbusinessmanagement.Theneedtoimprovetheinformationavailablewillallowinsurancecompaniestoreviewtheprofitabilityoftheirbusinessportfoliosandwillhelpthemtobetterunderstandtherisksanduncertaintiesassociatedwiththeindividualbusinesslines.

Byreachingwhatcouldbeconsideredamore“realistic”viewofthebusiness,insurancecompanieswillbeabletomakebetterstrategicdecisionsaboutwhetherandhowtocontinuetooffercertainproductlines.

Atthesametime,trendsrelatedtosolvencywillalsostrengthentherelationwithbetterriskmanagementbytheinsurancecompanies.Forexample,inEurope,thesimultaneousevolutionofIFRSandSolvencyIIstructurehasbeencausing

greaterdisclosureofmanagementpracticesandriskmargins,makingthesepracticesmoreconsistentandrigorous,fromtheperspectiveofcapitaladequacy.

Inageneralway,theactuarywillhavegreatstrategicimportanceindeterminingbusinessrisksandwillhavegreatweightininsurancecompanydecisionmaking.Hewillberesponsibleforunderstandingthebusinessrisksandshouldhaveexpertisewithregardtoinvestments,riskmanagement,securitizationand,chiefly,withrespecttocomplexmodeling.Afterall,everydecisionwillaffecttherisksofthebusiness,thevalueofpremiums,provisionsandtheneedforinvestmentreturns.Consequently,theactuaryshouldunderstandtheoperationoftheentireinsurancecycle.

Theactuarywhounderstandstheinsurancerisksandmanageshisbusinessinanefficientmanner,inaccordancewiththenewguidelines,willhaveaclearadvantageinrelationtoothers.

“The actuary will have a chance to provide companies with the vision necessary for them to substantially improve their internal controls.”

The new dynamics of the industryHow to advance in an extremely globalized industry

Chapter 6

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Benefits and challenges of the new standards

The efforts to adjust the insurance industry to international accounting standards and the general principles of Solvency II have assisted the industry’s entrance into the global market, making it more attractive to investors and expanding its potential for funding.

TheSuperintendenceofPrivateInsurance(SUSEP)has,inrecentyears,beenmakingeffortstowardstheadoptionoftheinternational

accountingstandardsissuedbytheInternationalAccountingStandardsBoard(IASB),knownasInternationalFinancialReportingStandards(IFRS),inadditiontoseekingalignmentwiththegeneralprinciplesofSolvencyII,aprudentialandsolvencyregimeoftheEuropeanUnion(EU)forprivatepension,insuranceandreinsuranceentities.

WithregardstotheIFRS,thegovernmentagencyhasbeenactingtogetherwithrepresentativesfromthesupervisedsegments–opensupplementalpension,capitalization,insurance,andreinsurancecompanies–aswellasindependentauditors,forregulationofaccounting

practices,topromoteadjustmentoffinancialreportstoIFRSprinciples.

Initially,culturalchangeplayedabiggerpartthantheaccountingpractices.Accustomedtotherules,thesupervisorandallthosesupervisedhadtoexercisetheartofmakingjudgments.Essenceoverformbecamethenewmetric.Whilethiswasclearlythemajorimpactonourindustry,othersmustbementioned:thegaininthequalityofthepartsinthefinancialreports,therichcontentoftheexplanatorynotesthroughfurtherdetailing,realisticthinkingabouttheeconomicefficiencyofthebusinessandtheincreaseincompetitivenessofdomesticcompanies,amongotherfactors.

AsforSolvencyII,thegovernmentagencyhasbeenseekingalignmentthroughgeneralprinciplesestablishedbythethreepillarsthatsupporttheentireprudential

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Benefits and challenges of the new standards

andsolvencyprocess.Thefirst,ofaquantitativecharacter,addressescapitalrequirementsandassessmentofassetsandtechnicalreserves.Thesecond,qualitativeinapproach,addressestheneedsforgovernanceandriskmanagement,inadditiontothesupervisionprocess.Thethird,focusingonmarketdiscipline,addressestheneedfordisclosureandtransparency.

SolvencyIIcreatesasystembasedonrisk,throughwhichquantitativesupervisioniscomplementedbyqualitativeanddisclosureaspects.ByaligningwithSolvencyII,adirectimpactoncapitalrequirementprocessesbasedonrisk,disclosure,internalcontrols,efficiencyinthemanagementofrisks,assessmentconsistentwiththemarket,corporategovernance,supervisionofconglomerates,macro-prudentialsupervision,intra-group

transactionsandself-assessmentofrisksandsolvencyisexpected.

Controls•and•governanceSUSEPhasadvancedconsiderablywithregardstointernalcontrolsandcorporategovernance.Thereareappropriaterulesandafullydevelopedprocessofsupervision.Itisworthemphasizingthatthetwotopicsarealreadypartofthecompanies’culture,togetherwithmanagementofrisks.Furtherwithregardtocorporategovernance,onecannotforgetthatIFRSfinancialreportsarerecognizedinternationallyasagoodgovernancepracticeandthatthesereportshavesignificantlyenhancedthequalityofthedisclosureprocess.

WeshouldnotethecontributionoftheAssetAdequacyTestestablishedbyIFRS4–InsuranceContracts,whichwasusefulforverifying,inarealisticway,

ByCarlos Augusto Pinto FilhoGeneralcoordinatoroftheSuperintendenceofPrivateInsurance(SUSEP)’sGeneralCoordinationofSolvencyMonitoring

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thetechnicalreservesofthesupervisedcompaniesandentities,inanticipationofthechangestobeimplementedinthecalculationofreserves.

Inparticular,withregardtorisk-basedcapitalrequirements,wehighlighttheregulationofadditionalcapitalforrisksforsubscriptionofdamageinsurance,whosecapitalhasalreadybeenabsorbedbythedomesticindustry,andtheregulationoftheadditionalcapitalforcreditrisk,thelatterforthewholeinsuranceindustryandwithadeadlineofJanuary2014forcompliance.

“SUSEP together with the insurance industry should be prepared for the coming challenges of intensive training, in addition to participating in presentations, seminars, technical groups, chambers and technical commissions (…).”

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Inaddition,requiredsurveys,marketdebate,impactanalysisandtheproposalofregulationofadditionalcapitalforlifeandpensionsubscriptionriskshavebeenconcluded.Industryandactuariesarecurrentlydiscussingadditionalcapitalforcapitalizationsubscriptionrisksandthesurveyonadditionalcapitalformarketandoperationalrisks,whichisinitsfinalphase.

TheaccountingrecordsandfinancialreportsfollowingIFRStogetherwithSolvencyIIalignmenthavebroughttheinsuranceindustryintotheinternationalmarket,turningitintoaglobalcompetitor,

makingitmoreattractivetointernationalinvestorsandenablingittoreceivemorefinancialfunding.Asafinalresultofthisprocess,wewillseeademonstrationofthevitalityoftheinsuranceindustrycompanies.

SUSEPtogetherwiththeinsuranceindustryshouldbepreparedforthecomingchallengesofintensivetraining,inadditiontoparticipatinginpresentations,seminars,technicalgroups,chambersandtechnicalcommissionsfordiscussionoftopicsbothwithinthescopeoftheirfederationsandoftheagency.

WeemphasizethatSUSEPhasbeencautiousregardingapplicationofthesolvencyrules:Grantingtimeforthenecessaryadjustments;anticipatingimpactscenarios;discussingissueswiththesupervisedcompaniesingroups,chambersortechnicalcommissions;holdingmeetings-beforepublicationofstandards-withtheaffectedcompaniestoexplainthestandardsandthereasonforthepotentialimpact,includingthepotentialadjustmentsthatwouldreducetheimpactsofapplicationofthestandard.

Finally,thechallengeofdevelopingefficientprocessesforriskmanagement,evaluationconsistentwiththemarket,supervisionofconglomerates,macro-prudentialsupervision,intra-grouptransactionsandself-assessmentofrisksandsolvencyislefttothetechnicaldepartmentofSUSEP,initssupervisionofsolvency.

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Lessons learned from the crisis

The global financial instability has left some lessons that can also be applied to the insurance industry – which is doing well in Brazil, but not immune to the crisis. The list of concerns is long in the new dynamics of the industry: Regulation, risk management, consolidation and much more.

Therecentfinancialcrisishasremindedushowseriouslymarketconditionscanimpactthesolidityofthefinancialsector.The

sequenceoftheburstingofthehousing-bubble,thecreditcrisis,thelackofliquidityandstockdecline,hashitallcompaniesinEuropeandtheUnitedStateshard,inspiteoftheunprecedentedrapidresponseofcoordinatedinterventionbycentralbanksandgovernmentsaroundtheworld.

Clearly,thiscrisiswasprimarilyoriginatedinthecommercialbanksectorandinthebusinessofcredit-connectedderivatives.Sofartheinsurancecompanieshaveweatheredthestorm.Nevertheless,theinsuranceindustryisnotimmunetothecrisisandcaneasilylearnfromtheerrorsandsuccessesoftheglobalbankingindustry.

Eachcompanyshouldreviewitsriskmanagementprocessesandtools,inordertomakeasounderassessmentoftherealrisksthataffectitsbusiness.Theinsurancecompanieshavelearnedtheimportanceofadoptingageneralviewofthebalance–involvingassetsandliabilities–oftheircapitalposition.Theconstantneedtoupdatepolicies,processes,methodologiesandstructuresforriskmitigationshouldbenotedaswell,todealwithanewrealitypresentintheday-by-dayofinsurancecompanies,combinedundertheumbrellaofcomplianceactions,internalcontrolsandriskmanagement.

Theissue,atthispoint,isthecorrectbalancebetweencostsandbenefitsofasolvencycapitalregimeandamarket-basedsystem.Suchadilemmaisdifficulttomeasureandevenmoredifficulttomonitor,sinceitneedstobebasedon

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adeepunderstandingoftheriskseachcompanyfaces.

Highercapitaldemandscertainlycontributetoreducetheinsolvencyriskofaninsurancecompanyindividually,and,thus,helptopromotebetterprotectionfortheinsured.Nonetheless,whenattaching“prudencyoverprudency”theregulationinevitablywillsoonreachapointatwhichthemarginalbenefitswillbelessthanthemarginalcosts.

Changes•in•organization•and•behaviorExcessivedemandsofcapitalaffectthepriceandthedesignofproducts,aswellasthesubscriptionandtheabilitytoinvest.Nottomentionmonitoringandriskmanagementstructuresthatincreasetheinsurancecompanycosts.Morespecifically,theseriesofreactionsresultingfromasignificantincreaseincapitaldemand

threateningtoreducebusinessprofitabilitybelowthecompany’sWeightedAverageCostofCapital(WACC)willpresenttheinsurancesectorwiththefollowingchallenges.

••Operational excellence –Companiesarereviewingtheirtechnologicalandprocessstructuresinordertoimproveproductivity,thusreducingoperationalandadministrativecosts,insearchofmarketshareand/orscalability;••Transfer of demands for additional capital–Throughincreaseduseofreinsurance;••Redesign of products–Toincludegreatertransferofrisktotheinsured;••Reduction of credit risk–Increasedallocationofconservativeassets.

Post-crisistransformationshaveincreasedthedegreeofcomplexityintheglobalbusinessenvironmentandcreatednew

ByFrancisco Caiuby VidigalPresidentofMarítimaSegurosS.A.andMarítimaSaúdeSegurosS.A.

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andbiggerchallenges.However,itisimportanttohighlightthatcompaniescanturndifficultiesintoopportunities,thatis,companiesneedtoincorporateagilityandinnovationintotheircorporateculturesanddevelopflexiblestructurestomanagemarketdemands(some causes of complexity and opportunity for companies in the industry appear on the table on page 99).Facedwithsomanychallenges,theinsuranceindustryisnaturallymovingtowardconsolidation.Thisprocesshasalreadybeentakingplaceforsomeyears,havingacceleratedmainlyinthepasttwoyearsinresponsetodemandsforadditionalcapital.Themarketstillawaitsthepublicationofnewdemandsofcapitalformarketandoperationalrisks,whichwillputevenmorepressureoninsurancecompaniesprofitability,withbroadrepercussionsontheothervaluechainsintheinsurancemarket.

What•is•needed•to•win?Thankstosolideconomicfundamentals,togetherwithgrowthinconsumptionandthemegasportseventsontheway,thevolumeofforeigninvestmentinBrazilhasbeenvigorouslyrising.Theexcessliquidityintheinternationalfinancialsystem,mainlyfrom2001through2008,aggravatedthecrisis,but,ontheotherhand,itbroughtmillionsofnewconsumers,eagertoconsume,intotheworldeconomy–aprocessknownandverifiedinmanycountriesbytheentryofmillionsofpeopleintothemiddleclass.

Thisnewinternationalsituationhasexpandedthedemandforfoodandmineralresources,mainlybenefitingtheBrazilianeconomy,highlycompetitiveinthesetwosectors.ItisimportanttohighlightthehighlypositivepensionbonuswhichbacksupthegrowthofdomesticsavingsneededtosupportthenecessaryinvestmenttoovercometheeconomicbottlenecksrepresentedbytheinadequateBrazilianinfrastructure,whichontheotherhand,willrequiremajorinvestmentsforconstructionandexpansionofports,airports,roads,publicsanitationnetworks,schools,hospitals,etc.

Theentryof30millionpeopleintotheBrazilianmiddleclasswillliftthecriticalandpoliticallevelofsociety,demandingbetterservicesandproductsfromallpublic

“(...) companies need to incorporate agility and innovation into their corporate cultures and develop flexible structures to manage market demands”.

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andprivateentitiesalike.Intheinsuranceindustry,itisnotonlytheopportunitiesfornewbusinessthataredrivingmarketgrowth.Themajorfactorintheincreaseandsophisticationofproductsistheinsuranceculture,themainconsequenceofwhichbeingtheincreaseindemandformoresophisticated,betterqualityandprice-competitiveproducts.

Thesearchfornewdistributionchannelswillrequireinsurersandbrokerstobemoreagileintheemploymentofnewtechnologies,includingwaysofrelating,suchassocialmediaandaffinitygroups.Manybrokers,alreadyreactingtothisreality,areactingasintegrators,teamingwithinsurerstolaunchproductsviatheinternet.Itisclearthattodealsuccessfullywiththisnewmarketdynamics,insurerswillneedtheabilitytoreactquicklyandstrategically–quicklytopositionthemselvesstrategicallytoreducecostsandquicklytoofferproducts,togetherwithqualityandtheincorporationofnewservicesintheinsurancepolicythatexceedconsumerexpectations.

Strategyshouldalwaysmeettheincreasingdemandsoftheinsured,whoareeagertopreservetheincomesandpropertytheyhavegainedthroughthenewwindsoftheBrazilianeconomy,bytheadditionofnewservicesintheinsurancepolicy,inordertocharmthemintheacquisitionoftheirinsuranceprotection.

Tomeettheseobjectives,onemorechallengewillhavetobeovercome,thelackofqualifiedlabor.Humanresourcesinvestmentbytheinsurancecompaniesinordertocompensateforstructuraldeficienciesinemployeetrainingisapriority.

Thenewdynamicsoftheinsuranceindustry,drivenbyeconomicgrowth,willdoublethesector’sshareofGrossDomesticProduct(GDP)inthenextyearsandthesearchforgrowthbyinsurancecompanieswillbeaccompaniedbyeffortstoimproveefficiencyandmitigaterisksforthesafedevelopmentrequiredbytheregulatoryagencies.

Hurdles•and•prospects•

Internal factors generating more complexity in competition:•• Regulation;•• Informationmanagement;•• Increaseinthespeedofinformation;•• Taxpolicy;•• Geographicexpansion;•• Mergersandacquisitions;•• Bureaucracy.

Opportunities to explore in the new scenario:•• Gaincompetitiveadvantage;•• Createnewandbetterstrategies;•• Developnewmarkets;•• Makethecompanymoreefficient;•• Createnewproducts;•• Focusonthecurrentbusinessstrategy;•• Improvecorporategovernance.

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The risk that became an opportunity

Competition in the insurance industry is connected to the ability to measure and analyze risk, in furtherance of new opportunities. In the pursuit of competitiveness, some factors merit a special treat: From people to internal processes, from partnerships to new competitors.

Noriskissobadthatitcannotbepricedandaccepted.”Thisisaneffectivephraseforraisingtheissue

that,sometimes,someinsurersrefusearisksimplybecausetheyconsiderittobebad.Theydonotconsiderthatabadrisk,independentlyofwhatitis,canbeturnedintoanacceptablerisk.Thisshouldbeunderstoodaspartofareflectiononcompetiveness–onhowsomeinsurers,inturn,assumecertainrisksseenasunacceptableandareabletoturnthemintoprofits.

Competitionisbasedontheactionofcompetingforsomething,seeingwhatothersdonotsee;itistobeaheadinsituationsthatonlysomeseeasopportunities.Intheinsurancesector,riskistiedtocompetitiveness.Riskthathastobe

measuredandanalyzedinallaspectsofinterest.But,afterall,howdoesonecreatecompetitivenessinthissector?Therearecertainfactorsthatshouldbetakenintoconsiderationaskeyelementstoensurecompetitivenessininsurance.

People,•people•and•people•Thisisoneoftheleadingfactorstoguaranteethatdealsandimportantpoliciesarebroughttothecompany.Competitivenessislinkedtothebusinessnumbers;everythingismeasuredbasedonthem.Butonecannottalkaboutnumberswithoutkeepinginmindthateverythingstartswithandprogressesthroughbytheactionsofpeople.

Whentalkingaboutpeople,somefeaturesareinseparable:Leadership,CompetenceandDaring.Tobealeader,itisnecessarytobecharismaticand,ifcompetent,it

“

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isintrinsicthatleadershipispursuedinthesegmentofoperation.Competitionissynonymouswithdailylife,andtobecompetitiveistobedaring.Daringtoinnovate;daringtobelieveinwhatisnew.

Internal•processesAwell-managedcompanyhasorganizeditsprocesses,andamongthemisthecontrolandunderstandingofitsdatabase.Effectiveandwellexercisedcontrolcanincreaseproduction,forinstance,throughtheanalysisofclients,checkingforpotentialproductsthatmaybeofferedasaresultofthesynergyfound.

PartnershipsAcompanyisdependentonpartnershipsfordistributionandrepresentationofitsproducts.Withoutthesepartnerships,thepossibilityofreachingthetoprankingofthe

marketdoesnotexist.Informertimes,thesynonymfordistributionwastheinsurancebroker.Manyinsurancecompaniesstillpracticeexclusivedistribution.Today,tohaveandtoachieveleadershipinpremiums(contributions),itisnecessarytocountonarangeofdistributorsofproductsthataresometimessoldinplacesneverbeforethoughtof.

Insurancepoliciesarebeingsoldinretailstores,dealers,churches–thatis,wherevertherearepeople,insurancepoliciescanbesold.Foreachlocalitythereisaspecifictypeofinsurancedependingonthetarget-public.Manyinsurancecompanieshavealreadyrealizedtheimmediateprofitabilityofthesepointsofsaleandthisisdrivingthecompetitivenessamongthem–competitivenessthat,sometimes,iswonbythedifferenceinthecompensationpaidtothepolicyholder.Thisissue,however,like

ByDuarte Marinho VieiraTechnicalactuarialsuperintendentofMapfreandProfessorofactuarialsciencesofthePontificalCatholicUniversityofSãoPaulo(PUC)

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anyother,isnottheonlywaytowinthecompetition,sincesuccessalsodependsonhowandbywhomthecontractisnegotiated.

Pursuitofperfectionintheassistanceandbenefitsprovidedbyapartnership,lookingnotonlyatpresentbutatfutureprospects,makesithardforacompanytoloseadeal.

Defining•the•area•of•operationTobecompetitive,aninsurancecompanymustdecideinwhichfieldofoperationitwilldistributeitsproducts,sinceofferingvariousproductsrequiresmorepeople,thusimplyinganincreaseinfixedcostswithoutnecessarilyincreasingpremiumsandprofit.Ifproperplanningislacking,theproductmaynotbedeliveredwhenexpectedbyademandingclient.Whatisagreedisnotexpensiveanditmustbeprovided.

Tobecompetitive,theinsurancecompanyhastobeanexpertinwhatitoffersthemarket.Theexpansionofoutletswill

happenasaresultofthenaturalgrowthofthecompany,withheadquartersdecidinghowmuchitwantstogrowandprofit,sinceexpansionrequiresinvestmentofcapital,asgrowthdoesnotexistwithouttheso-called“collateralasset”.Thisassetisaguaranteeallocatedtothebusiness,thatis,theinsurancecompanyassumesarisk,andpaymentofthisrisk,ifitoccurs,islegallyguaranteed,whencovered.

ThreatsThinkingofbeingaleader,beingcompetitive,beingahead,beinginnovative–isallimportanttomovingacompanyforward.However,inadditiontothecompetitionalreadyknown,thereisthedangerofnewcompetition.Itisnecessarytopayattentiontothesecompanies,understandwhotheyare,identifytheleveloftheiroperations,andwatchtheircrazyeffortstogainnewclientsatanyprice.Andthisprovidesalesson–itisnecessarytoreflectonhowlongthisinsanitylastsorhowlongonewillcontinuetobesufficientlylucidtoavoidengaginginthesamecrazinessthroughnotthinkingproperly.Muchmaybegainedinamoment,avoidingfuturelosses.

Everythingistime.Decisionsandreflectionmustbequick.Onemomentandtimeflies.

“Competition is synonymous with daily life, and to be competitive, one has to be daring. Daring to innovate; daring to believe in what is new.”

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Juarez Lopes de AraújoPresidentofDeloitte

Deloitte wishes to thank all the companies and institutions represented in this work by their executives for making the collection of these articles possible.

Clodomir FélixDeloitteleaderinBrazilforfinancialindustry

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At the end of its first century of operation in Brazil, Deloitte assembled a group of well-known personalities in the insurance market with the aim of presenting in a single publication their thoughts on the most significant issues for the development of this industry.

With the support of the guest authors representing private companies, government institutions and Deloitte itself, the pages of “The insurance industry in Brazil – Transformation and growth in a country of opportunities” reveal the dynamics of a complex sector experiencing strong growth in the country, within a scenario of significant changes throughout the world.

An indispensible read for those accompanying and participating in the advances of the entire Brazilian financial services industry.