When the Brazilian Central Bank began studying a competition and innovation agenda, starting with the opening of the acquiring market in Brazil and the implementation of the four-party model, a series of possibilities for the development of the fintech sector in Brazil opened up. Mauro Levi D’Ancona experienced this moment of a regulatory environment conducive to new entrants also with the creation of Direct Credit Companies and the law on payment institutions, which is where Nubank, the neobank giant he started working on in 2016, features.
But while Brazil‘s fintech environment developed and was regulated quickly, the insurance market lagged. Regulated by Susep (Brazil‘s Superintendence of Private Insurance), which did not have as progressive an agenda as the Central Bank, the sector remained concentrated in the big incumbents until three years ago.
“Historically, Susep is more politicized than the Central Bank, it was just that at a certain point it was very clear to see how the insurance market lagged,” says D’Ancona, now CEO and co-founder of insurance 180 Seguros.
“When we look at the insurance protection gap, which is how much insurance a country should have concerning its level of development, if we cover this deficit of insurance penetration in Brazil, we will double the market,” says the entrepreneur.
The insurtechs movement (the insurance-focused startups, according to the sector’s jargon) in Brazil began about 10 years ago when Minuto Seguros and 15 other companies in the market were created.
Today, as VP of Insurance at the fintech, Blay says that the emergence of a “new wave of insurtechs” is a replication in Brazil of what is already happening in a global scenario.
“Investors – whose focus is on fintechs – decided to look for other niches that are less congested with financial sector companies and found the insurance market. This market, until then for being out of the spotlight, brings great opportunities,” he ponders.
Brazil‘s Central Bank’s Open Banking has boosted Open Insurance, which directly affects the insurance industry, according to Blay. But while Open Banking aims to democratize access to customer information and increase competition in the banking sector, the insurance market is much less concentrated, with just over 100 companies active, while a large portion of the banking market is concentrated in five large banks.
“An insurance customer may have his auto policy with one insurer, his life policy with another, his home policy with a third, and his health policy with a fourth. Generally, a bank customer concentrates his products like current accounts, savings, and investments in a single institution. In the case of the insurance industry, the broker plays the role of making the customer’s information available in the market to obtain various quotes and be able to select the options that best meet their cost/benefit needs – with the proper support from an expert,” said Blay.
The so-called “Open Insurance” is an environment with rules and procedures that enable the standardized sharing of data and services through the opening and integration of systems, according to Susep.
“With the possibility of consumers sharing their data in an agile, efficient and safe way, the companies participating in the sector will be able to develop increasingly innovative and customized products to meet the specific needs of each client profile,” the regulator said.
Susep expects that the insurance market as a whole will benefit from the potential expansion of the reach of insurance services and the promotion of financial citizenship made possible by this new ecosystem.
In practice, Open Insurance operationalizes and standardizes the sharing of these data and services through the opening and integration of systems. The idea is that Open Insurance will be interoperable with Open Banking, forming a broader ecosystem, called Open Finance.
According to Susep, the implementation schedule of Open Insurance was defined seeking alignment with the deadlines defined for Open Banking. “With Open Finance, all the benefits provided by Open Insurance will be enhanced in a broader and more integrated ecosystem,” said the agency.
The sandbox and Open Insurance are two Susep initiatives that seek to foster innovation in the Brazilian insurance market. According to the entity, although they are not directly related, due to the recent launch of the second edition of the Regulatory Sandbox, Susep established that the innovative projects that provided adherence to Open Insurance would guarantee points in one of the evaluation criteria by the judging committee. This fostered the participation of insurtechs in the open data ecosystem.
According to Susep, the growth in the number of insurtechs has the potential to offer insurance consumers standards of better solutions and the flexibility necessary for innovation.
“The application of technology in the insurance market is essential for the expansion of insurance coverage in our country and for consumers to have access to increasingly customized and efficient products and services. This movement has already been occurring in the insurance market and the second sandbox notice published by Susep is an example of this,” said the authority.
In this second edition of the sandbox, 25 proposals of innovative projects for the insurance market were received.
Data from the innovation platform Distrito show that Brazilian insurtechs raised $49 million in investments up to July this year. Last year, the amount raised by the sector was $92 million – three times the 2019 volume. In market size, there was an equal jump in five years, going from 37 insurtechs in 2015 to 109 in 2020.
But why then does the Brazilian market still not have high insurance penetration when you compare premium divided by the country’s GDP?
“I think it has the cultural aspect because Brazilians are an optimistic people, since we don’t have [so many] [natural] catastrophes here, and the other aspect is the regulatory aspect. It was very difficult to be an insurer in Brazil,” said D’Ancona.
If on the one hand, the extremely regulated and closed insurance sector did not make room for companies that broke or defaulted, it was difficult to have new entrants and launch new products in the country, according to D’Ancona.
Since 2019, when Susep created a new regulatory framework and established rules for the first insurance sandbox, this has changed. “This movement has sparked great interest from startups that until then had difficulty coping with the minimum regulatory capital required to start operating an insurance company and now, with the sandbox, they can start operating with fewer requirements,” recalled Blay.
This is the case of Pier, which was the first in the country authorized to operate under Susep’s simplified regulatory regime, and recently received a $20 million contribution. “I think [this opening] is a path with no return,” D’Ancona added.
Why do companies want to offer insurance now?
Just as digital banking drove the big banks to innovate, today’s incumbent insurers are moving toward innovation. “It’s just that they are slower for organizational reasons, and that’s where we see the big opportunity for companies like 180,” D’Ancona said.
180, unlike most of the companies in Susep’s sandbox, operates in a B2B model. So, instead of offering home insurance directly to the consumer (in Brazil the penetration of this type of insurance is around 12%), 180 offers insurance to those who buy the property through proptech Loft, one of its clients.
This is because 180 believes it is “strategically expensive” to sell insurance directly to the customer, as the consumer acquisition cost is high and it is a product of little interaction with the customer.
“At Nubank, people used the card on average 12 times a month. With Stone’s POS, for example, the shopkeeper uses it every day. The insurance, after it is contracted, does not interact much with the client”, said the 180 executive.
Thus, Brazil‘s property startup Loft, for example, adds value to its client with the partnership with 180. This movement of companies that do not have insurance as their main business offering the product as an aggregator has been growing in the country. Creditas works with financial products and solutions in three ecosystems: vehicle, property, and salary, and now offers insurance products to strengthen the auto vertical with the acquisition of Minuto.
“The auto insurance market is under-penetrated in Brazil. Only a third of the circulating fleet has car insurance and something around 10% of people have a home or life insurance,” Blay recalled.
According to him, if more people started buying insurance in Brazil, the cost would be reduced for everyone, “since the risk would be spread among more people”.
But when looking at car insurance, the new insurtechs still lag behind traditional insurers in terms of product. Many only offer cover for theft, for example. “At Nubank, for many years we only had one product, which is the credit card. David Vélez [CEO and co-founder of Nubank] was talking about starting with a credit card, which was where the biggest pain was, creating a very good brand, and from there start launching other products. I think insurtechs are doing something similar, with the idea of making a very good product and then start to expand the offer and go head-to-head with the biggest insurers”, D’Ancona said.