By Ben Tavener, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – A U.S. based insurance company is being prosecuted for selling life insurance policies in Brazil without being legally registered in the country. National Western Life, which is headquartered in Texas, will receive the biggest fine ever imposed by Brazil’s financial regulator: R$11 billion (US$6.2 billion).
Luciano Portal, Superintendent at Brazil’s private insurance industry regulator Susep, says the company hired several “irregular brokers” who sold life insurance throughout Brazil.
“We believe in most cases policyholders […] are unaware the company is operating illegally in Brazil. As the company is from the U.S., it is seen as credible in Brazil but obviously that doesn’t correspond to reality,” Portal was reported by O Globo as saying.
The case came to light after a client filed a lawsuit against the company in Brazil; when the case reached the U.S. justice system, it was shown to involve a company representative which was illegal in Brazil and the case was thrown out.
Susep has warned it is now stepping up checks and, if necessary, legal action against unregistered foreign businesses to fight “illegal insurance” and other financial services.
Experts interviewed by The Rio Times say the case should be seen more as a deterrent, and will unlikely be paid, but that it should act as a wake-up call for those operating illegally – with insurance companies in the first line of attack as they have the “deepest” pockets. But they warn other financial service providers could be next.
Given Brazil’s personal insurance industry swelled some 24.5 percent in the last year alone (with life insurance up 47.5 percent), it is hardly surprising Brazil is being seen as somewhere to “trip in” and do business, particularly given unenforced regulations in the past.
However, an industry commentator (wishing to remain anonymous) familiar with expatriates’ financial planning and investment issues, says that regulation really matters:
“This is often because expats are not well catered for in terms of life insurance and other financial products from within the Brazilian market. Foreign companies seize on this, trip in without the correct certification, and go for maximum commission. They’re glorified salesmen,” he continued.
The situation clearly needs regulating now as, if Brazil’s oil and gas industry takes off, Brazil would have one of the most important expatriate communities in the world.
The financial commentator explains that expatriates in Brazil taking out a financial product with a life insurance company or broker in Brazil should request to see proof that the company is operating legally. Also, one should ideally ask for proof that it has experience of operating in compliance with the rules of that person’s country of origin.
He states: “Dealing with financial planners not registered in Brazil or a major compliant base is a recipe for disaster which deprives the investor of consumer protection.”
For Brazilians, the advice is to stick with a national company – despite many still thinking that investing in a foreign company is a safer option. But taking out a policy with a company based abroad could lead to issues with claims and, at worst, might be completely invalid.
Insurance companies operating within Brazil must be authorized by Susep, requiring companies to meet a raft of criteria ensuring claims can be paid out and contracts implemented. Other financial service providers have to register with Brazil’s CVM if they offer investment advice or broking services, and SUSEP if they are an insurance intermediary.