Covid-19: the effect on the Brazilian insurance market

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Luciana Prado
Demarest, São Paulo
lprado@demarest.com.br

Brazil’s insurance market, like others around the world, has been significantly affected by the Covid-19 pandemic. The pandemic has necessitated behavioural adjustments to routine daily activities, as well as revising forms of communication between people, including conducting business by less conventional means.

This entire paradigm shift has had impacts on the local insurance market, both in the execution of its own activities and in the perception of business risks and opportunities.

Regarding the first aspect, Brazil’s mature and professionalised insurance market adapted quickly to working and providing services remotely, with no interruption of business and activity in the sector. Proposals have continued to be examined, insureds have continued to be served and claims have been reported and paid, demonstrating a capacity to use technology to ensure business continuity, reinforcing the sector’s reliability.

The impact on business has been quite diverse, depending on the particular line of insurance. For example, there has been a considerable reduction in the number car insurance-related claims on account of the enforced period of quarantine. This generated a reduction in premiums on renewals and raised a discussion about offering ‘on/off’ or ‘pay-as-you-go’ insurance models for this type of risk.

On the other hand, there has been a significant increase in the rate of claims for some other insurance lines of business, such as those related to events, the majority of which were suspended or cancelled; and cyber risk insurances, since with remote work, data and systems become more susceptible to hacker attacks and subsequent leaks of confidential data.

Cyber risk insurance, although still a niche market in Brazil, has a massive growth potential. This is due both to a greater risk perception by companies (of any industry and any size) in the intensification of remote working post-pandemic. Anticipated growth is also due to the entry into force, on 18 September 2020, of the Brazilian General Data Protection Law (LGPD), which is very similar to the European Union’s GDPR and which elevated the level of protection of personal data exponentially.

With regards to civil liability insurance, especially directors and officers liability (D&O), medical errors and omissions (E&O) and employer liability insurance, the search for contracting such modalities has been very active, since they have become strong potential allies in the management and mitigation of professional risk. E&O insurance taken out by health professionals, for example, has never been so discussed and sought after by doctors and nurses, especially those in the front line in the fight against the virus. D&O, on the other hand, is now considered from the manager’s risk perspective, when making decisions regarding the return of employees to activities that may require greater potential exposure to the virus.

With regard to life insurance, several insurance companies in Brazil have expressly declared that their policies would pay claims related to events resulting from Covid-19, even in the scenario, that there is express exclusion for pandemic events. This has generated doubts as to the whether or not the reinsurer would follow the decision of the ceding parties, since many of the treaties are issued on a back-to-back basis.

Two main health insurance-related concerns have been discussed by the market: the increase in claims and either the delay or default of clients in paying the premiums due.

However, in view of the decrease in elective procedures, there was a balance in the number of claims, which kept the loss ratio at levels similar to the pre-pandemic period. Regarding default, there was an attempt by the local regulatory agency to stimulate negotiations and the non-cancellation of contracts by healthcare operators through the counterpart by way of relaxation of reserves rules, which has not had much practical effect in the market.

Nevertheless, within the health sector, a benefit of extreme importance brought by the pandemic was the use of telemedicine and tele-healthcare processes, previously not legally admitted in Brazil, but now set to become an established practice that will revolutionise the sector.

In general, the current scenario represents a great challenge for Brazil’s insurance market, but also presents many new business opportunities. The post-pandemic world will give rise to product reinvention, innovation and to address and mitigate risks that society will be exposed to. The fact is that, more than ever, the need for the insurance sector for risk mitigation and solutions for business continuity for its customers remains evident. This, in turn emphasises the importance of collective awareness when it comes to the function and objectives of insurance contracts.

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