Insurance - updated on Mar 30 at 12:42 pm
Impacts on Insurance Premiums
COVID-19 has given rise to discussions about insurance contracts. These discussions include insurance coverage and exclusions, as already mentioned in our newsletters Coronavirus and Insurance and Release of Exclusions by Insurers.
In the past few days, we have seen concerns from insurers related to the need to renegotiate insurance premiums resulting from:
- the reduction of the insured risk in the policies in force derived from the interruption of businesses or the significant reduction of the insured activities;
- the lack of payment premiums as a result of COVID-19.
Given that insurance is based on contractual mutualism (i.e., the premium is part of a common fund divided among all insured who, when paying the amount, contribute to the compensation being paid in the event of a claim suffered by any of them), each situation has to be analyzed based on the facts of the actual situation.
With respect to the first point, Article 770 of the Brazilian Civil Code establishes that, unless otherwise agreed to in the agreement, the reduction of risk during course of the contract does not result in a reduction in the premium. However, if the risk reduction is material, the insured may request a revision of the premium or the termination of the contract.
Given basic contract principles the ideal situation is that the parties (insured and insurer) negotiate and agree on a solution, as litigating the issue will only aggravate the situation. Such a negotiation, however, is not always simple, as there are other elements to be taken into consideration such as brokerage fees, for instance.
Regarding the second point, policies usually have clear rules about defaulting premiums and establishing a system for the maintenance of coverage based on the period for which the premium was paid.
Although the insurance contract is highly regulated the fact is that we are living through an unprecedented time that can configure force majeure situation that requires flexibility by the parties, discussions and negotiations to postpone the payment of premiums.