Monday, 12 December 2011
South American risk landscape improving but prepare for big differences warns Gil
Latin America is a much easier place in which to do business than in the past, but European companies are still likely to encounter challenges as they seek to transfer their risks to the local insurance market for some time yet.
Chile, akin to other Andean countries, is prone to earthquake activity
This was one of the key messages given to delegates at Commercial Risk Europe’s Latin America Risk Frontiers seminar in Madrid last month by Juan José Gil Sánchez, a member of IGREA’s board, who focused on the subject of key insurable risks.
Mr Gil is the Risks Finance and Corporate Insurance Director at Telefónica, the Spanish telecommunications firm that has invested heavily in the region for many years.
He noted that the risk landscape in South America is different to Europe, the US and elsewhere and this needs to be taken into account by foreign companies.
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Key insurable risks in the region such as violence and fraud for example are often less of a concern in the US or Europe.
Sudden legal changes, such as the controversies surrounding reforms to the reinsurance market in both Argentina and Brazil earlier this year, is another worrying factor for foreign companies.
Dependence on inefficient judicial systems is another challenge faced by foreign companies and their risk managers, added Mr Gil.
In countries such as Chile and Brazil, US-style class actions are gaining track, a development that creates new risks for companies of all types.
And, European companies that tend to rely on the state to provide welfare for their staff are also likely to find such a luxury is not available in South America.
Private health plans and similar protection tools are needed to mitigate human resource risks in Latin America as in the US.
Concerns over employee welfare and the upkeep and quality of facilities should extend to areas such as fire prevention, said Mr Gil. This is an area that needs to be dealt with carefully in Latin America because the relevant local laws are generally not as developed as in Europe. “At Telefónica we have a whole department dedicated to preventing fire,” said Mr Gil.
European risk managers should also be prepared to negotiate coverages for natural catastrophes, which affect the whole region. “With the exception of winter storms such as we have in Europe, the region is affected by all other kinds of events, although the risk varies according to the country,” Mr Gil said.
Andean countries such as Chile and Peru have been hit by earthquakes in recent times, while Central America and the Caribbean are more prone to hurricanes and tropical storms.
Brazilians like to boast that their country is not so exposed to natural catastrophes, but they have suffered a number of devastating floods in recent times.
Beyond the different risks themselves, risk managers should also be prepared to meet some problems as they implement risk transfer strategies in Latin America, according to Mr Gil.
He said that in most of the countries there are no domestic insurance markets of significance, which can make it more difficult to find the coverages required. “Latin American countries are behind Europe in the incorporation of some insurance coverages that have already been made available in Europe,” he noted.
On the other hand, Mr Gil said that recent improvements in European legal standards can be found in particular areas such as coverages for workplace risks in Argentina.
But firms that are used to working across the single European market could find it awkward to adapt their strategies to the huge variety of insurance rules found in Latin American countries. “There is virtually no coordination between national insurance authorities in Latin America,” Mr Gil pointed out.
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