Everyone agrees Brazil needs to revise its legal framework for insurance and this update, while imperfect, may serve the sector’s needs at this historical time.
One of the main goals of the draft law is to protect the insured, (whether a person or business), which at times may prove inadequate. As a matter of fact, Brazil has a consumer protection/advocacy law – no. 8.078, 1990 – and this is often invoked by individuals and consumer protection governing bodies, and consequently the courts.
For commercial policyholders, federal administrative regulation is overseen by the Superintendência de Seguros Privados, a private insurance body reporting to the Treasury. This has been effective in preventing poor practices anddamages’ payouts. The new legal text would therefore not need to protect policyholders,as it may in practice, conflict with pre-existing legislation.
New ruleswithin the draft, state reserves and provisions originating from paid premiumsshall now be considered ‘assets under management’ by those carrying outinsurance activities and, as such, must be defined as ‘allocated assets’. Thenew law requires the assets and rights associatedwith each contract to be held separately from the assets/rights of thebusiness, until the policy expires or its terms are met. If the insurer goesinto liquidation, the businesscan stillmeet its contract obligations.
The draftlaw defines an insurance contract as ‘a contract that obliges the insurer toguarantee the insured’s or beneficiary’s legitimate interest againstpredetermined risks pursuant to payment of a matching premium’ and states theparties, beneficiaries and stakeholders must abide by principles of ‘probityand good faith’ from pre-contract to post-contract stage. This consolidateswhat historically is already embraced by Brazilian society, namely, thecontract of insurance requires good faith and truthfulness on all sides.
The new lawenshrines ‘legitimate interest’ as the primary foundation of an insurance contract;its effectiveness dependent upon the proven existence of such an interest.Legal experts however are concerned the draft law suggests only a superveninglegitimate interest will testthe effectiveness of a contract.
Inpractice, it will be difficult to identify the exact moment when ‘legitimate interest’becomes a tangible situation and this may lead to litigation between contractparties.
There’s arequirement for policyholders to report to insurers any relevant increase ofrisk, as soon as they become aware, including when the cause is outside theircontrol. How many policyholdershave the technical capability to identify a relevant risk increase? Why burdenthe insured with this duty, an eminently technical concept that should only beassessed by insurers – those familiar with the contract’s technical elements? This too, may cause conflict between parties.
There is also an obligation to clearly and unequivocally describe excluded risks and excluded interests in contracts.
While this supports the insurance relationship, in Brazil contract wording is strongly controlled by the oversight authority who, in practice, supplies the text for varying lines of business.
To properly implement this requirement, the oversight authority will have to give insurers more latitude in contract drafting.
These are some aspects of the draft law awaiting approval. Following an overall agreement, it will be possible to further reflect upon and assess its detail.
Conclusion
According to 2017 data, Brazil currently has 118 insurers, 1053 healthcare providers and 90,000 insurance brokers.
In the same year, the insurance sector paid out R$ 277 billion in benefits, damages and redemptions. These numbers clearly demonstrate a new insurance law is very welcome, and necessary for a robust sector that continues to grow, even through economic upheavals.
These numbers evidence the need to update insurance law so it meets contemporary demands and reduces litigation among contract parties. It is the wish of every Brazilian jurist that this draft law will effectively serve the needs of the sector and all insurance policy stakeholders.
Angélica Carlini
Lawyer and teacher. Post-Doc in Constitutional Law. Doctorate in Political and Economic Law. Doctorate in Education. Masters in Civil Law. Masters in Contemporary History. Law graduate. Head of Carlini Partners ("Sociedade de Advogados”), a firm specializing in Insurance Law, Insurance Reporting, Consumer Relationships and Civil Liability.
