The pace imposed by Susep, Brazil’s insurance supervisor, was in fact so fast that it generated a reaction from the market, and some of the tightest deadlines were relaxed a little in early November.
Brazil’s Open Insurance project kicked off in December 2021 and, according to the initial schedule, it should be entering its third stage by December 2022.
The first phase, which encompasses the sharing of public data from companies about products, services and distribution channels, is well underway. The second phase, which started in September 2022, comprises the sharing of personal data from clients, including information regarding their insurance transactions. Once this phase is completed, by June 2023, the data will be open for consultation by entities authorized by Susep.
The third phase involves obtaining the authorization from clients to share data about their insurance contracts, including premium payments and claim histories. But the supervisory body was convinced by concerned players to step on the brakes, as incumbents and newcomers strive to adapt their own systems to the forthcoming changes. The start of the third phase was delayed to March 2023.
“As it involves many technological and governance questions, the sector has identified the need to move a bit more gradually, like in the US and other markets,” says Izabela Rücker Curi Bertoncello, a Curitiba-based insurance lawyer. The delay was decided after a change in the leadership of Susep in the end of 2021.
The Open Insurance project establishes that insurance companies must share data from their policies and clients, when duly authorized by policyholders, in most insurance segments. Home insurance should be the first line where data will be made available, in March 2023. Another 23 segments will do the same in the following four months. Telemetric information collected by insurers via Internet of Things gadgets, however, has been excluded from the data set that will have to be shared.
Experts say that the measure will above all impact mass market products such as life, car, home and SME insurance policies, as well as private pensions. At first, the project also mandated data from large risks policies to be shared as well, but the latest regulatory twist by Susep has exempted several large risk segments from the sharing requirements.
The main goal of the programme is to enable the insurance market to reach out to segments of the public that it is not capable of accessing today. This public includes millions of consumers who do their shopping online and a universe of young, up-and-coming potential buyers of insurance products whose needs differ significantly from those of traditional clients.
Hugo Assis, the head of Insurance in Latin America at consultancy Accenture, says that the project also presents an opportunity for the industry to increase insurance penetration in the country. The consultancy estimates that the insurance industry amounts to a mere 3.7% of GDP, which is much lower than in developed economies.
“The size of the insurance market, as a percentage of GDP, has been stable in recent years. It has hovered between 3.5% and 3.8%,” he says. “Open Insurance, in part, is a reaction to the realization that the current situation where insurers can only try to grab market share from rivals leads to nowhere.”
Expectations about the impact of Open Insurance are explained by the fact that Brazilians are avid users of digital channels and have shown a willingness to share their data with online companies. A survey by Accenture estimated that 82% of all Brazilian insureds between 18 and 34-years-old are fine with sharing the data from their contracts.
Assis says that the attraction of the project for underwriters is that, with more data available, they will be able to design products that are customized to individual consumers.
“Insurers will be able to offer products that are more personalized and to access potential clients via the digital channels that they like to use,” Assis says.
Access to data will likely be provided by platforms know as Application Programming Interface, API, which will be managed by third parties. Susep has created a new kind of company, known as Sociedade Processadora de Ordem do Cliente, or SPOC, that will work as an intermediary between users and the data ecosystem.
Insurers will also be able to price their offers more accurately by having access to data on claims. Furthermore, as Open Insurance will be integrated into a broader Open Finance initiative that has already made significant strides in the banking sector, there will be plenty of information about the financial situation of consumers to design creative ways of selling them insurance.
Some products have already been developed by a regulatory sandbox maintained by Susep that aims to maximize the potential liberated by Open Insurance. For example, the first pay-you-go car insurance policies have started to be sold in Brazil, as well as covers for pets that were previously hard to develop due to Susep’s regulatory stronghold on wordings.
“The regulatory sandbox is what will guarantee the viability of Open Insurance,” Curi adds.
The flip side is that it is not only insurers who will have access to this wealth of information. Retailers, tech firms and, particularly, banks, which already answer for a large share of insurance sales in Brazil, will also find it easier to expand their presence in the market, often with the help of up-and-coming disruptive insurtechs.
“Price-based competition may increase, narrowing the margins and increasing incentives for clients to switch insurers over time,” says Laura Maconi, a partner at Oliver Wyman in Brazil. “It is to be expected that Open insurance will promote the entry and growth of insurtechs, as they will be able to access data that they have not had access so far. It will help them develop new business models.”
Curi notes for example that players such as Caixa Econômica Federal and Banco do Brasil, mammoth state-owned banks that have a reputation of being slow innovators, have upped their data privacy and compliance departments in order to integrate a number of insurtechs into their insurance operations.
But fiercer competition is not the only challenge faced by the insurance industry with the project. Many companies will also have to upgrade their IT and analytical capabilities if they want to make good use of the data that will be made available in the new ecosystem. Compliance with data privacy laws is another big deal, as Brazil has implemented a rigid GDPR-like legislation that creates significant liabilities for companies that handle personal information from customers.
Insurers will have to obtain data privacy authorizations from clients by using their apps or other digital tools. But not all insurance companies are equipped to do that, and a large share of policies are sold in Brazil via the broker channel, where digitalization is not generalized either. In that sense, Brazil’s Open Insurance experience presents important differences with the successful Open Banking initiative.
“More often than not, consumers do not have a digital relationship with their insurers, which is different from what happens with banks,” Maconi says.
But she also adds that, once the Open Finance environment is fully under way, not only financial companies, but also consumers will benefit greatly from the opportunities to be created.
“The interoperability between the Open Insurance and Open Banking ecosystems provides great opportunities for clients to consolidate and manage their financial lives in one single place,” she says. “However, there significant challenges in terms of governance and technology, and it all has to be carefully planned.”
