When in Brazil: know your local insurance requirements

Intelligent Energy

Amy Ingram | Aug 27, 2014

   

While the world watched the FIFA World Cup in July, the alternative energy community may have been more squarely focused on the Brazilian wind energy market. Brazil is a country rich with sustainable wind energy opportunities, and many U.S.-based clean technology companies may be targeting this growing market.  

According to The Wind Power, an online worldwide database of wind turbines and wind farms, there are a 157 Brazil-based wind farms and the Brazilian wind energy production capacity jumped from 3 MW (megawatts) in 1997 to 3,399 MW in 2013. This type of movement underscores a rapidly growing business environment. U.S. clean technology companies who offer innovative solutions, including intellectual property, technology or processes, or who already have an operational presence in Brazil, are well-positioned to capitalize on the opportunities presented by this vigorous market.   

However, entering or increasing a company’s business presence in a foreign market is often accompanied by new risk exposures. While there may be strong growth potential for clean technology companies in Brazil, there are also critical insurance considerations. Failure of a U.S. company to understand the nuances of the Brazilian insurance market and comply with the local regulations could lead to a gap in insurance leaving a company under- or un-insured and with a compromised bottom line. 

Brazil’s financial services sector---which includes the insurance industry---is heavily monitored and regulated. Brazilian insurance regulations require that insurance be purchased through an admitted insurance carrier---one that is licensed to do business in the country. Additionally, a company is required by law to work with a licensed local agent to acquire insurance, which is advisable but legally not required in most countries around the world. U.S.-based clean technology executives should check with their U.S. agent or insurance provider to confirm they have an established worldwide network of licensed agents and insurance companies including operations in Brazil.   

Local Brazilian policies typically do not offer insurance as robust as U.S. policies. For instance, in Brazil, property policies usually apply to loss or damage from named perils, offering full limits for some perils and sub-limits for others; whereas U.S.-based companies are more accustomed to property policies that offer so-called “all-risk” insurance. Counting on just the Brazilian admitted property policy for protection may leave assets vulnerable to uninsured losses by perils not named in the policy. 

For example, if a business suffers major property damage from a burst water pipe, a Brazilian admitted insurance policy may not treat that pipe burst as a “named peril” and offer the necessary loss control services and business interruption insurance needed to get the business back up and running quickly, thus resulting in a loss of revenue. If the clean tech company has a U.S. multinational insurance program that includes a difference in conditions (DIC) insurance policy, the U.S. DIC insurance policy may respond to all or any part of the loss that is not insured under the Brazilian admitted policy. Multinational insurance programs offer policyholders an integrated approach to insurance protection, claim handling and loss control---and a greater chance of surviving a serious loss. 

Companies should also familiarize themselves with the local risk environment in order to have an informed risk management strategy. Poverty and corruption continue to threaten stability in Brazil, and the public's intensifying distrust and anger toward business and government continues to create conflict. The media site Mashable reported on June 19 that "violent protesters wreaked havoc in the streets of Brazil's biggest city, São Paulo…with damages totaling more than one million U.S. dollars." According to Drum Cussac, a global business risk consultancy, there is also a high risk for criminal activity in Brazil. 

As a best practice, it is important to carefully and proactively build a well-rounded insurance program. Working with U.S. based multinational agents and insurance carriers who understand how to operate in Brazil’s highly regulated market and its unique exposures is critical to a clean technology company’s success in that market. U.S. insurance agents and carriers can help clean technology companies build a well-rounded international insurance program that complies with local regulations and offer best practices for developing strong risk management strategies---the foundational elements that will help maximize chances for success in this high opportunity country.  

Amy Ingram, a vice president and worldwide clean tech segment manager for the Chubb Group of Insurance Companies, can be reached at aingram@chubb.com.