The history of insurance goes back centuries before Christ, when caravans crossed the deserts of the East to sell camels. As some animals always died on the way, the camel drivers entered into an agreement in which they would pay to replace the camel of whoever lost it.
In the field of navigation, the principle of insurance was also adopted among the Phoenicians, whose boats sailed through the Aegean and Mediterranean seas. There was, among the navigators, an agreement that guaranteed to whoever lost a ship the construction of another one, paid by the other participants of the same voyage.
The concern with maritime transport was caused by economic interests, since the countries’ foreign trade was carried out only by sea. The idea of guaranteeing the functioning of the economy through insurance is still prevalent today. The form of insurance is that it has changed, and is improving more and more.
The first insurance contract along these lines was signed in 1347, in Genoa, with the issuance of the first policy. It was a marine transport insurance contract. From then on, insurance was further boosted by the Grand Navigation of the 16th century, the Industrial Revolution and the development of the theory of probabilities associated with statistics.
Creation of mandatory insurance
With the promulgation of the 1937 Constitution (Estado Novo), the “Principle of Nationalization of Insurance” was established. Consequently, through Decree No. 5.901, of 1940, mandatory insurance was created for merchants, industrialists and public service concessionaires, individuals or companies, against the risks of fire and transportation (rail, road, air, sea, river or lake), and in 1939, the Brazilian Reinsurance Institute (IRB), through Decree-Law No. 1,186. Insurance companies were obliged to reinsure the IRB with liabilities that exceed their own retention capacity.
Since the beginning of its operations, the IRB has adopted two effective measures, aiming at creating competitive conditions for the emergence and development of Brazilian capital insurers: the establishment of low retention limits and the creation of the so-called single surplus.
With the adoption of low retention limits and the single surplus mechanism, companies that are poorly capitalized and less technically instrumented – as was the case for companies with national capital – started to be able to compete with foreign insurers, once they had ensured the automatic reinsurance coverage.
Over time, however, the monopolistic and centralizing model began to show signs of exhaustion, and of no longer fully meeting the new demands of the market.
Idealized to be fundamentally an institution occupied with reinsurance, the IRB was going beyond the limits of its original functions and assuming the character of a supervisory body.
In 1966, with the edition of Decree-Law No. 73, the government instituted the National Private Insurance System, creating the National Private Insurance Council (CNSP) and the Superintendence of Private Insurance (Susep), the controlling and supervisory body of the constitution and functioning of insurance companies and open private pension entities.
Endowed with powers to determine liability and to convict insurance brokers who act guilty or intentionally to the detriment of insurance companies or the market, Susep assumes, for the first time in Brazil, the direct protection of the interests of insurance consumers.
The IRB, which until then had practically exercised hegemonic functions in defining the modes of insurance operation in Brazil, now shares with Susep attributions that, although different in terms of the legislation, for almost two decades ended up overlapping in important aspects.
In the late 1960s, three claims almost broke the market – the fires that destroyed TV Paulista, the Marilu biscuit factory and the Volkswagen factory in Sao Bernardo -, which drew the authorities’ attention to the need to strengthen insurers. Then, a process of mergers and acquisitions began, encouraged by the government, which reduced the number of insurers from 176, in 1970, to 97, in 1974.
Damage from hyperinflation
Between the early 1980s and the year 1994, the insurance market was hit by hyperinflation, especially long-term insurance, such as life and pension plans.
Upon receiving the indemnity, the insured or the beneficiary found that the indemnity’s purchasing power had been greatly reduced. It is not surprising; therefore, that many have given up taking out insurance and that market revenue has not grown.
The overlapping of attributions of IRB and Susep began to be reduced in the late 1980s. Assuming its full functions as regulator of the insurance market, Susep implements the public and open hearing system for all segments, for the formulation of general measures and decision-making. It promotes the gradual deregulation of the insurance activity, and given the expressed desire of the companies, which asked for more freedom for their operations, gives autonomy to the creation of products. The formation of regional companies modifies the criteria and requirements for the application of technical reserves in securities. The requirement for a patent letter for insurance companies to operate would be eliminate. And, to face the reality of inflation that was eating away at insured values, it promotes the indexing of contracts,
In 1992, the National Federation of Private and Capitalization Insurance Companies (Fenaseg), currently the National Confederation of General Insurance, Private Pension and Life, Supplementary Health and Capitalization Companies (CNSeg) publicizes a declaration of guiding principles of insurance activity, the Brasilia Charter, built around three principles: commitment to the market economy and free competition, economic and social responsibility of the insurance sector vis-à-vis the Brazilian population and option for modernity, based on the experience of the market itself.
Shortly afterwards, in a joint action by the IRB, Susep and the Economic Policy Secretariat, the Master Plan for the Insurance, Capitalization and Supplementary Pension System is launched.
This document reaffirmed the importance of deregulation in the sector and presented proposals for the modernization of the insurance activity, such as the release of tariffs, the solvency control of companies, the opening of the sector to foreign capital, redefinition of the role of the broker, end of the reinsurance monopoly, return of occupational accident insurance to the private sector, among others.
In 1996, two important measures marked the history of insurance in Brazil: the release of foreign companies to enter the market and the breaking of the IRB monopoly.
The first made it possible for foreign capital to participate with more than 50% of the capital or a third of the shares of Brazilian insurance company, being the legal support for immediately, more than 20 foreign companies to enter Brazil, as of June 1996.
The second measure is Amendment No. 13 to the Federal Constitution, which put an end to the monopoly on reinsurance by the IRB by giving new wording to Art. 192, item II of the constitutional text. Complementary Law No. 126/07 and its subsequent regulations completed the process of opening reinsurance.
In 2000, through Law 9.961, the National Supplementary Health Agency was created (ANS) and defined its purpose, structure, attributions and revenue, as well as the link to the Ministry of Health.
The institutional purpose of ANS is to promote the defense of the public interest in supplementary health care, to regulate sector operators – including regarding their relations with providers and consumers – and to contribute to the development of health actions in the country. This creation was due to the government’s understanding that, due to the sensitivity and complexity of the product, which deals with the maintenance of human life, the supplementary health sector lacked its own regulatory body.
The opening of the Brazilian market to foreign insurers and reinsurers remains closely in line with the globalization trend in the various markets. It is a process that, due to its scope, enhances productive relations as we are seeing in the successful cases of countries that have developed extraordinarily recently, with the support of capital and foreign markets.
And because of the size of its economy, Brazil is emerging with irresistible appeal to foreign capital and needs to take advantage of this structural advantage it has.