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1 - Presentation of the Project
In April 2018, Senator Randolfe Rodrigues (REDE - AP) filed Senate bill 151/2018 amending Law 8,078 of September 11, 1990, the Consumer Defense Code, to consider as a practice the price of insurance due to the dissolution of the marriage or of a stable union. The rationale is that the change in the insured's marital status should not influence the price of insurance. He argues that considering marital status in pricing would be an invasion of the consumer's private life. And what marital status does not determine the adoption of heavier lifestyles.
Having recently been introduced, the Senate Bill - PLS 151 - will be forwarded to the following Senate Committees:
Committee on Economic Affairs - CAE
Commission on Transparency, Governance, Supervision and Control and Consumer Protection - CTFC
The final decision will be up to the latter.
2 - Legal Analysis
This bill ultimately authorizes state intervention in the private insurance industry to cover damages arising from claims involving divorced, separated or severely unmarried persons without, however, specifying which insurance lines would be affected. It does not seem to us to be a right decision, for leaving this information open would give rise to the most varied interpretations by the interpreters of the law.
In this sense, we understand that such intervention would not fit, via CDC - Consumer Protection Code, because the existence of Decree-Law 73/66, would prevent this change by legal means chosen.
Another point to be discussed is the competence of SUSEP - Superintendência de Seguros Privados, a federal agency linked to the Ministry of Finance and responsible for
regulation of the Brazilian insurance sector, pursuant to Circular 239/2003, as well as Circular 306/2005, which informs:
11.3. The Insured is obliged to inform the Insurance Company as soon as possible of any fact liable to aggravate the covered risk, under penalty of losing the right to indemnity, if it is proven that it has been silenced in bad faith.
Thus, even in the face of a possible change in the consumer law, it would not be possible to withdraw SUSEP's primary responsibility for insurance and premium payments.
The wording of the Civil Code makes clear the intention of the legislature to preserve the free contracting, due to the wording of articles 765 and 766, the consequences of the freedom to contract and the declarations of the parties coming from the conclusion of an insurance contract:
Art. 765. The insured and the insurer are obliged to keep in the conclusion and execution of the contract, in the strictest good faith and truthfulness, both regarding the object and the circumstances and statements that concern him. Art. 766. If the insured, by himself or by his representative, makes inaccurate statements or omit circumstances that may influence the acceptance of the proposal or the premium rate, he will lose the right to the guarantee, besides being obliged to the premium due.
Therefore, it is not possible to conceive an excessive intervention of the State in the relations between the insurers and the insured, with an obligation in the making of decisions that exclusively belong to those who contract with each other, something that depends on risk factors and therefore, uncertain , to its conclusion and that they should always observe good faith in existing contractual relations.
3 - Political Analysis
The right to divorce was not part of the Brazilian civil law until 1977. Its approval was considered an increase of civil rights and, consequently, of individual freedoms. It is also important to emphasize that this approval occurred during the recent Brazilian dictatorial period when there were strong restrictions on the full use of the political and civil rights of the population.
The political, economic, cultural and social consequences of this law are enormous. The case that we are discussing here, PLS 151/2018, relates, albeit indirectly, to the alleged consequences found in this law.
The political analysis of PLS does not focus on the issue of civil rights or behavioral changes, but on the analysis of latent political objectives in the justification used. The presentation of a change in legislation, as well as in all political actions of politicians, aims to meet the demands and demands of the electorate that forms the electoral base of the politician.
In addition, the objective may be to broaden the electoral base in order to guarantee support for possible reelection or for the contest of other political positions. The presumed political goal may be to meet the demands of divorced citizens who do not necessarily focus on a specific social class. The presentation of bills that do not focus on a specific economic sector or group can be explained by the position held; Senators take the entire state as an electoral base, which explains the scope of the bills. A situation different from that of Members who may be elected on the basis of a specific social group or the interests of a locality or region within the state.
4 - Economic Analysis
According to data from Lafis [1], Brazil is the 14th largest insurance market in the world, with the sector accounting for about 1.5% of GDP, excluding the important branches of health insurance, capitalization and open supplementary pension. The car industry accounts for more than 40% of insurance premiums. The sector, in its automotive business, is very competitive and has, according to SUSEP data, about 60 companies competing. On the other hand, the claims ratio is high and often exceeds 60% of insurance premiums. High accident rates mean that insurance prices are seen as high by consumers. However, significant market competition is the real factor limiting abusive pricing and practices.
Insurers price the insurance considering statistical studies, profiles and history of the proponents, in addition to their costs (including those resulting from regulation) and margins. This is a heavily regulated sector to which various requirements are imposed, including technical provisions that are guarantors to fulfill their obligations to the insured.
The relationship between insured and insurer is established in an information asymmetry environment. In this context, the individual who hires auto insurance knows more about their behavior - which impacts the risks of theft, theft and collisions - than the insurer. In addition, having insurance creates incentives for riskier behavior (such as leaving the car parked on the street when leaving, instead of putting it in a parking lot and even driving more recklessly), a phenomenon called moral hazard by economists.
Car insurance companies, in turn, observe statistical recurrences involving theft, robbery, and collisions, and attempt to correlate with the behavior patterns of their insured groups. To profile insured groups, insurers, in addition to vehicle data, seek information not only on the marital status of the car insurance tenderer, but also on their gender, age, how many people drive the vehicle if any of the drivers is young people, distances traveled daily, if the vehicle is in a parking or garage at work and in residence, among others. Reducing the degree of information asymmetry is fundamental to the competitiveness of the sector and the more competitive the sector the more the consumer benefits in terms of price and quality of service. It is for this reason that insurers seek to encourage the use of trackers and applications which, using information obtained by GPS, provide
information on the driving of the vehicles used. The more information and the more accurate the statistical model used, the more competitive becomes the insurer's product and the more the insurance price reflects the risk of each insured group, without a lower risk group having to pay a higher price for cover the costs of a higher risk group.
Senate Bill 151/2018, which seeks to amend the Consumer Defense Code to consider abusive practice raising the price of insurance due to divorce or the dissolution of the stable union of the consumer subverts the logic of insurance pricing and creates distortions in the functioning of the market. It subverts the pricing because the higher price of the insurance of those who belong to the group of misappropriated persons derives from the greater risk of this group and, therefore, this component of the formation of prices must be increased. This is the same as the insurance price of a vehicle model most targeted by burglars, which is also higher.
The author of the bill, in justifying it, claims that there are "single and divorced consumers who have less restless social lives than married couples and end up being penalized." It is a fact that an insurer does not have all the information about the individual behavior of each of its policyholders and, therefore, uses statistics and technology to price each risk. Thus, if marital status can be an aggravating factor for a particular group member, the other factors used in assessing their risk may be extenuating. It is worth remembering that risk is an uncertain event whose financial impacts are negative for those who suffered it. In turn, the greater the likelihood of occurrence, the higher the insurance price.
In turn, by categorizing as abusive the charging of a higher price the insurance of a higher risk group, the project creates distortions by forcing insurers to redistribute the cost of that higher risk group among all their policyholders. The effect, in the limit, is to generate some degree of adverse selection. Higher insurance prices for lower risk groups discourage their acquisition, tending to reduce the relative participation of members of these groups in the insurance client's portfolio. Lower insurance prices for higher risk groups stimulate their hiring by this profile, increasing the relative participation of elements of these groups in the insurance portfolio, which, in turn, will imply more expensive insurance for all in the long term.
Thus, by interfering with the specific pricing process of the insurance market and by ignoring the role of competition among insurers to hinder abusive practices, Senate Bill 151/2018 undermines economic freedom. Those who aspire to a freer and more prosperous Brazil must follow closely the proceedings of this bill in Congress, as well as the actions of their parliamentarians.