A positive note for Brazil: A few insurance market developments to follow with interest

A positive note for Brazil: A few insurance market developments to follow with interest

The world seems convulsed these days. No matter where you live, something significant is developing around you or about to burst.

Brazil has not been the exception. Economic slowdown and corruption allegations involving high officers in government and the private sector, have led to massive social protests. The Panama Papers only to continue to build a lack of trust on things changing easily. But Brazil is a huge economy, with very talented people and industries that can compete at world-class level. Some things need to change for sure; with a trusted leadership is just a matter of time for Brazil to come back to the right path.

On a specific note about insurance, some positive insurance market developments in Brazil were top news this week and I thought it was worth sharing with you:

  • SUSEP – Superintendência de Seguros Privados of Brazil approves use of Digital Certificates for regulatory purposes
  • SUSEP resolution establishes new rules and criteria for Vehicle Popular Insurance
  • Project of creating a Regional Hub of Reinsurance to be sent to the Finance Ministry

Brazil writes ~45% of the direct premium of the region and more than triples the Mexican insurance industry premium, the second largest insurance market.; so anything happening in Brazil will have an impact in the Latin American insurance market as a whole.

SUSEP, responsible for the control and supervision of insurance markets, private pensions, capitalization and reinsurance, published in the Diário Oficial da União, Instrução n° 79 which regulates about the use of digital certificates in the standard public key infrastructure of Brazil (ICP-Brasil).

Electronic signatures produced with ICP-Brazil certificates become mandatory for decision-making content documents with external circulation, for regulatory acts of the supervised and for other procedures that require proof of authorship and integrity in an external environment to SUSEP. Electronic files produced within the scope of practice of SUSEP will have authorship guarantee, authenticity and integrity ensured in accordance with the law.

“Insurers have a strong interest in digitization based on their planned budget increases between 2015 and 2016. The increase between insurers’ 2015 and 2016 budgets is reflective of the fact that most insurers are at the basic stage of digitization with much room for growth and innovation” said my colleague Colleen Risk in her recent report: You’ve Got Mail: Two Decades Later, Why Are We Still Talking About E-Delivery Rather Than Doing It?. The research shows that challenges related to e-Signature include compliance, legal, risk management, agency, IT and insurance operations. SUSEP support to the use of digital certificates will have a positive impact in the industry enabling higher levels of digitization and efficiency.

Continuing with SUSEP, its resolution establishing new rules and criteria for the operation of the Vehicle Popular Insurance was well received by the National Confederation of General Insurance, Private Pension, Life, Health and Capitalization companies (CNseg) and the CNSP. The National Council of private insurance (CNSP) adopted, in a meeting held on March 30 2016, the provisions for vehicle popular insurance that will have as primary market the owners of vehicles with more than five years of use. The new insurance policy will primarily feature the use of parts from disposed vehicles at auto salvage yards for vehicle repair, which will be possible thanks to law 12977 of May 2014, which regulated the disassembly of vehicles across the country.

Despite aimed to cars manufactured more than five years ago, the popular insurance will not be restricted to that segment. Any insured can opt for the new product, provided it is advised that the repairs will be made with parts used or second-hand. The rules also provide that these pieces cannot be used when involving the safety of passengers, such as the braking system, suspension, seat belts, among others. The minimum coverage should guarantee compensation for damages caused to the vehicle by collision.

While there are some points that can be enhanced, so as to make possible a greater penetration of the product this comes very handy in order to offset the effects of the country's economic moment by expanding insurance market and protecting the assets of the people that see their purchasing power affected. Some suggested enhancements to the rule could be allowing the use of generic parts, non-original parts, but certified by the manufacturer. Also looking to the effect in cost that working with out of network repair shops could have. Market estimates indicate a potential reduction of up to 10%-30% in value compared to traditional products depending on the age of the vehicle.

In the same line of looking to expand the insurance market, the President of the National Federation of Reinsurers (Fenaber), Paulo Pereira, announced on April 5th at a news conference during the 5th Reinsurance Meeting of Rio de Janeiro, the project of creating a Regional Hub of Reinsurance that must be sent to the Finance Ministry before early June. If the hub is implemented, he said, could help double the size of the Brazilian reinsurance market. "We are creating conditions for reinsurers to settle in Brazil to sign out-of-country risks, mainly from Latin America. The Brazilian reinsurance market today is $ 2.5 billion, and that of Latin America, of $ 21 billion. So if we can attract 10% of this market, we will be doubling in size" he estimated.

Pereira pointed out, however, that it will be necessary to provide a good reason to appeal to great players to the country. He believes changes need to be made to the labor environment, to regulation and to taxes so they become an important incentive for bringing the world's largest reinsurance companies to the hub.

Efficiency and market growth are two underlying principles in these market developments. It’s good to see that from the insurance perspective, Brazil does not stay arms crossed waiting to see what happens. This is a positive note for Brazil, at a time where the good news does not abound.


The turn for Brazilian IT companies to march upstream?

The turn for Brazilian IT companies to march upstream?
Most of the discussions around the potential of Latin America are related to how insurers can take advantage of a relative immature market, with a growing young population and increasing wealth and investment. The other side of the coin is how vendors can take advantage of a more attractive market as insurers interests grow in the region. You might not all be aware that there was a booth in the exhibit hall at recent Acord Loma trade show showcasing some Brazilian IT companies such as i4PRO which is starting its internationalization program, others such as Stefanini which already has presence beyond Brazil and other that are just in the initial phase of feasibility analysis for their internationalization programs. The offering of the Brazilian IT companies is based on a large and developed internal market that stimulates the generation of creative solutions and a talented human capital pool, that will enable them to compete in more mature and larger marketplaces. In this initiative they have the support of SOFTEX. Founded in 1996, it is the Association for the Promotion of Brazilian Software Excellence, which is priority program from Brazil´s Ministry of Science, Technology and Innovation (MCTI). The focus of this program is the development of markets and the sustainable expansion of the competitiveness in the Brazilian Industry of Software and IT Services. This program has a nationwide scope and comprises SOFTEX itself coordinating a broad network of Regional Agents with around 2,000 software and IT services companies. These companies receive support through a series of initiatives conceived and executed by SOFTEX. Among these actions and projects deserve special mentioning: PSI-SW (Exports); MPS.BR (Best Practices); PROSOFT (Funding); PAEMPE (Best Practices) and Observatório SOFTEX (Qualified Information). Brazilian companies have another vital aid when aiming for internationalization: The Brazilian Development Bank (BNDES) which has played a fundamental role in stimulating the expansion of industry and infrastructure in the country. The BNDES also finances the expansion of national companies far beyond the borders of the country and seeks to diversify the sources of its resources on the international market. These market development initiatives, that receive full attention from the government, are one of the reasons why Brazil is a leading case in the Latin American region not only as a receptor of foreign investment but also as a serious player in the global marketplace as they enable local companies to compete worldwide. While it will take some time until these companies can pose a serious risk to established North American players I would keep a close eye on them, especially considering the successful cases of Brazilian players in other industries that have gone the path of internationalization under similar programs.

Looking past the functional arms race

Looking past the functional arms race

In our recent work in Latin America, it is clear that in the process of selecting core systems for countries such as Argentina, Brazil, Chile, Colombia, Mexico and Peru, Insurers have been more focused on delivery and support capabilities than in the product.

All vendors claim quick time to market, low TCO, quick ROI, strong product configuration capabilities and more. And when dealing with the top vendors, there is little material difference in features and functionality. Although functional requirements account for most of the items in a RFP the weight of non-functional requirements including delivery and support capabilities has matched and even surpassed the first. This is an approach that we have been advocating in other regions.

Functionality is now an arms race. Insurers, even in emerging regions like Latin America, must invest more in evaluating service and delivery capabilities.

With a plethora of new vendors in the region offering solid solutions proven elsewhere in the world, regional insurer have three important questions that vendors need to address:

1 . “Will the vendor have the capabilities to deliver and support the product in this region? “

2. “What will I need to change (people, process) in order to take advantage of these new highly configurable systems that promise to put everything, well almost everything, in hands of the business users?”

3. “How do I really validate that the product will support our lines of business, the products we sell and the channels and processes we want to have in place to better serve our distribution channels and customers?”

In response to these questions, there are several interesting points to make.

It is clear that vendors in the region bring a wide range of different business models. Insurers in most Latin American countries have been used for decades to have local/regional support from vendors which acts as a high entry barrier for new participants. While some of the new players have decided to work through system integrators or implementation partners, they still need to demonstrate how successful those relationships can be to deliver in the short term and to supersede in the long term. Insurers are looking for credible relationships (between vendors and partners) and processes in place in advance for knowledge transfer. Domain expertise, sufficient trained staff and delivery capabilities in similar projects are key aspects they will consider when evaluating the local/regional partner. Finally, how involved is the vendor going to be in the implementation process is also under consideration. Vendors who are amongst the first to prove some track record in the region will be the vendors who succeed in the future.

When it comes to validating the product against the insurer business model, Celent points insurers to the process of the RFP. There are smart ways of validating and engaging with vendors early in the review process to strike a balance between what the solution is capable of and the organizations willingness to change its business model. This new approach focuses more on system review in early stages of the process and making stakeholders and users engage in the quest of understanding what is possible and the transformation required within the organization since start.

This focus on service delivery and business transformation over functional requirements is the new reality in Latin America and one that Celent will continue to support.

Micro-insurance — Thinking innovatively in targeting the uninsured

Micro-insurance — Thinking innovatively in targeting the uninsured
On a recent trip to South Africa, I was interested to see some innovative ideas targeted at the uninsured, currently around 90% of the population. South Africa, along with other emerging economies, face many structural challenges impeding the broad adoption of insurance. Remote areas of the country have poor road and communication infrastructure. Almost two-thirds of the population have no bank account. Accessibility to financial services is low as is the understanding of the value of such offerings. In a bid to rectify this, the government put in place targets back in 2003 for the financial services industry. The banking sector had to introduce a low cost bank account, now in place, and the insurers had to commit to massively increasing accessibility to insurance. The low cost bank account, called Mzanzi, is standard debit-card based account attracting no service fees. The insurers have accepted the challenge and plan to increase current penetration rates by 180% over the next five or so years.

In my conversations with South African insurers, it’s clear that whilst committed to these targets, tapping into the previously uninsured market remains immensely challenging. The innovation is mostly occurring in the area of products and premium collection. Tying product requirements to the needs of the uninsured is a sure-fire way of garnering interest. House, motor policies have little relevance for those who own none of these assets. However, household contents policies, funeral policies and term life are of interest.

One of the constraints for insurers has been and still is the collection of premiums. With many people not having bank accounts, credit/debit payments or direct debits are just not possible. Mobile phones are being used in one or two cases to purchase insurance. Voucher cards, paid for by cash upfront, offering term life insurance can be bought at supermarkets and other consumer outlets.

Technology can play a role in supporting this small but growing market. Low-cost policy administration and claims systems can form the heart beat of such an operation supported by a flexible product configuration tool. There is little need for broker/agent or consumer portal technology. Products in these markets such as shack insurance, life insurance for a month, or crop insurance may seem unusual but can be supported through the use of modern packaged tools. One of the more unusual product characteristics is the method of premium collection. For example, premium paid upfront, or monthly, or paid via a mobile phone account (or other third party collector). This flexibility needs to be supported a modern product configuration tool.

In South Africa, as in some other emerging countries, tapping the previously uninsured is a government enforced social objective and this has focused insurer’s attention on this challenging area. Micro-insurance is unchartered territory and as such it’s not possible for insurers to look to established markets for best practices. Successful insurers in these markets will continue to innovate in areas of product design and premium collection and this analyst will be keeping an eye on how this market evolves.