• Brazil, the Population Aging and the Market of Insurance and Private Pension
  • June 21, 2012 | Author: Ivy Cassa
  • Law Firm: KLA-Koury Lopes Advogados - São Paulo Office
  • Brazil is undergoing changes in the age structure of its population, presenting a rapid aging of population at the beginning of this century.

    The population pyramid is becoming an almost rectangular figure with decreasing number of young people and increasing numbers of the elderly.

    A similar phenomenon was seen in earlier times in other countries, especially those in Western Europe between the late nineteenth century and the second half of the twentieth century, and recently has been occurring at different intensities in most developing countries.

    These changes generated by the new demographic pattern should be seen as a challenge to be faced with new demands created by the elderly population in various sectors, among which the insurance and private pensions market which is the focus of this article.

    It has been only since the 1990s, with the Brazilian economic stabilization plan, so called Plano Real, and the real subsequent stability brought by it, that people could start beginning to plan financially, using instruments such as insurance and private pensions.

    The growth experienced from this economic framework can be illustrated by analyzing the statistical data of the relevant sectors. Our insurance market, before the Plano Real, represented 1.3% of Gross Domestic Product (GDP). Currently, this percentage is about 3.5% of GDP, according to the Brazilian insurance agency (Superintendence of Private Insurance - SUSEP).

    Regarding private pension, the growth was even more significant. Over the past decade, accumulated reserves in benefit plans jumped from $ 16 billion to $ 270 billion in 2011, according to data from the National Federation of Private Pension and Life - FENAPREVI.

    However, although there was significant increase in these two sectors, such numbers are still considered small compared to developed countries and, in particular, when analyzing the economic potential of Brazil at this time.

    There is great growth expectation in these areas for the coming years, which is justified, among other factors, by the start of a transition from a consumer society to a savings society, characterized by the economic and financial planning.

    Given the current demographic scenario and growth projections of the elderly population, there is a great opportunity to create products, particularly those regarding retirement and health.

    However, the Brazilian insurance market still offers few options for this age group. Because there is a high actuarial risk, insurers complicate the sale of  insurance to people over 65 and hardly innovate products and develop coverage focused to this group of people.

    But it is possible to think of creative and efficient solutions, which are not limited only to the traditional life insurance.

    A form of conjugation between insurance and pension coverage is the survival insurance, which allows the withdrawal of the accumulated reserves after the termination of a certain period.

    The private pension market has created a product of great commercial appeal, which already dominates 60.23% of the sector. This is the VGBL - Vida Gerador de Benefício Livre, created in 2002 as a life insurance with coverage for survival. It is a very flexible product that attracts the most varied profiles of investors and its main advantage is that only the income received is taxed.

    This product combines features of an insurance policy with a pension plan and can be offered with coverage of risk. It is an interesting option investment, and has been a great success in Brazil.

    In the last years, the creation of a variation of VGBL temptatively called "VGBL health", has been investigated. It is a modality of product accumulation that allows the insured person to use the resources of its reserves for the payment of health expenses, during deferral. The portability of resources would take place directly between the insurer and the service provider, under specific conditions set by the regulator, and there would be no taxation of the transferred funds.

    This model has been based on the U.S. model of Health Savings Accounts (HSA) that combines deduction of health expenses with the concept of a pension plan.

    The project is being discussed by the Brazilian regulators and the insurance market in the last five years, but has not yet been submitted to the Brazilian Congress for consideration.

    Another product that has an interesting appeal and was not developed in Brazil is the universal life insurance, which allows flexibility for customization of coverage and premiums throughout life, according to the needs of each individual. This insurance provides guarantees for all stages of life, and financial reserves can be used for education expenses, retirement or health, for example.

    Finally, there are countless possibilities for insurance products and pension plans, and there is a vast space for development of the area in Brazil - because of population size, favorable economic times, and now the demand created by a new demographic context.

    The phase in which we are living is a turning point for the implementation of new ideas with the purpose of preparing Brazilians for the longevity risk.

    It is expected that this market, now more mature and in great expansion, can improve its creativity by offering insurance to protect the population in all stages of life. Initiatives in this direction, in addition to fostering the market for insurance and private pension, have a very important function, ensuring the balance of society as a whole.