Year after year, Brazil has been facing a number of natural disasters that challenge the resilience of its population. In particular, the recent tragedy in the State of Rio Grande do Sul has provoked several relevant discussions, including on the role of the insurance and reinsurance market in the country.
According to Fitch Ratings, owing to the intricacy and nature of the situation, the impacts of floods on insurance companies are not yet fully clear and, despite the tragedy most likely becoming the largest coverage case in the history of Brazil for a single event, the expectation is that the Brazilian industry will manage it effectively, given its strong robustness, liquidity, and resilience.
In addition, despite the growth of the insurance market over the past two decades, one should not take its low adherence in the local culture for granted, given that only 30% of vehicles and 25% of households are insured, which compared to the US market is an infinitely lower quantity.
In the US, for instance, insurance is deemed an integral part of personal and/or business financial planning, which is why about 87% of drivers have some type of auto insurance, and around 85%-95% of homeowners have home insurance, including, in many cases, a contractual or legal obligation.
The relevant role of reinsurers should be considered, within such an intricate scenario. In short, one reinsurer provides protection for other insurance companies. Essentially, the reinsurer assumes part of the risks that an original insurer (or assignor) has in its policies, helping to distribute and manage these risks more efficiently, sharing, diversifying, and stabilizing the risks inherent in the business.
What is more, if a reinsurer does not have sufficient capacity to fully absorb a certain risk, it may reinsure it to a reinsurer via a process called retrocession, further improving the certainty of the entire market.
Therefore, within this context, a robust and absorbing insurance sector is capital for the society. This is because a solid insurance culture creates an environment suited to the efficient allocation of financial resources, considerably increasing the level of productivity and well-being of the population, since it mitigates the risks of an entrepreneurial activity that is challenging by nature, as well as increases market liquidity.
This is because the positive effects that the insurance market brings to the society that stems from its conservative savings component cannot be taken for granted, insofar as it prevents allocating the total risk to policyholders. In other words, an insurance contract frees the policyholder from saving the total amount of risk, thus facilitating the investment into their business or economy via consumption, since the amount paid for the premium is only a small fraction of the risk covered by the contract.
Therefore, although figures point to an annual growth in the issuance of policies in Brazil, we are still very much lagging behind more developed economies, so that it is precisely critical moments like this that should serve as a turning point, by leading to discussions about the importance of this market for the country’s development and how, from structural changes, adherence can be encouraged. After all, in critical situations such as those faced in Rio Grande do Sul, of instability and uncertainties, insurance takes on a very relevant and unique role, of protection, encouragement, and certainty.
Available in: https://jrs.digital/guilherme-pignaneli-a-tragedia-do-rs-e-sua-repercussao-no-mercado-de-seguros-e-resseguros-do-brasil/
Autor: Guilherme da Costa Ferreira Pignaneli • email: guilherme.pignaneli@ernestoborges.com.br
