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
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The insurance industry in Brazil Transformation and growth in a country of opportunities
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Project directionClodomirFélixF.C.Junior
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PhotographsWalterCraveiro(projectofficialphotographer)NelsonToledo(EnricoDeVettoriandJoãoBatistaPinto)GilbertoAlves(JérômeGarnier)JorgeLuiz–ANS(MauricioCeschin)NiltonSantana(FabioLuchetti)GabrielSales–Photocamera(CarlosAugustoPintoFilho)
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Print run1,700copiesinPortugueseversion300copiesinEnglishversion
Collaborating companies and entitiesAgênciaNacionaldeSaúdeSuplementar(ANS)AonRiskSolutionsBancodoBrasilBradescoSegurosCaixaSegurosCESCEBRASILSegurosHDISegurosIRB-BrasilReItaúAutoeResidênciaS.A.MAPFRESegurosMarítimaSegurosS.A.MarshBrasilOdontoPrevPortoSeguroSulAméricaSuperintendênciadeSegurosPrivados(Susep)
•• Thestatisticsmentionedinthisbookreflectthelatestavailableinformationattheclosingofthispublication.Thedisclosureofdatabythepressoranyothermarketsourcesupdatingthestatisticsexposedhereindoesnotannultheinformativepurposeofthismaterial,whichistoanalyzethechangesandessentialtrendsestablishedanddevelopedthroughouttheyears,despiteone-offchangesorshorttermeconomicandbusinesscycles.
•• ThecontentsofarticleswrittenbytheguestauthorsinthiscollectiondonotnecessarilyreflecttheopinionofDeloitte.
•• AllrightsreservedtoDeloitte.Nopartsofthisbookmaybereproduced,includingcitationsofinformation,exceptifpriorauthorizationfromDeloitteandguestauthors,uponrequest,isgrantedinwritingandcommitmenttosourcecreditisbinding.
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About DeloitteDeloitteprovidesservicesinaudit,consulting,taxavisory,corporatefinance,outsourcing,toclientsspanningmultipleindustries.Withaglobalnetworkofmemberfirmsinmorethan150countries,Deloittebringsworldclasscapabilitiesanddeeplocalexpertisetohelpclientssucceedthebestperformance,wherevertheyoperate.Deloitte’s182,000professionalsarecommittedtobecomingthestandardofexcellenceandtheyareunifiedbyacollaborativeculturethatfostersintegrity,outstandingvaluetomarketsandclients,commitmenttoeachother,andstrengthfromdiversity.DeloittehasbeeninBrazilsince1911.Nowadays,theFirmisoneofthemarketleadersanditsover4,500professionalsarerecognizedbyintegrity,competenceandcapabilitytoturntheirknowledgeoutinthebestsolutionsfortheirclients.Deloitte’soperationscoverthroughouttheBrazilianterritory,withofficesinSãoPaulo,BeloHorizonte,Brasília,Campinas,Curitiba,Fortaleza,Joinville,PortoAlegre,RiodeJaneiro,RecifeandSalvador.
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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.”
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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
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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.
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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
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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.”
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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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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
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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.”
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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.