Casualty insurance trends in Latin America

October 2012 - Casualty insurance is still a developing category in Latin America and one that is not well understood or commented on. In an attempt to shed some light on this area, BNamericas discussed the latest trends in the regional industry with Guillermo Eslava, casualty underwriter at Swiss Re.

BNamericas: What are the main issues/pressures affecting casualty premiums in Latin America?

Eslava: As an industry, we need to do further work to demonstrate the benefits to insured of casualty insurance to cover third party liability exposure. Casualty is a line of business that continues to develop in Latin America, but insurance penetration and rates continue to be somewhat low.

Also, due to a lack in litigious behavior - although this is on the rise - certain injuries and events continue to be unnoticed by the public. However, this is slowly changing. Other casualty lines of business, like E&O (medical and non medical) and D&O are seeing increasing demand in selected countries where larger cases have been filed, and this has created a heightened awareness in the consumer classes - for example, [retailer] La Polar in Chile.

In specific industries, we've seen requests to increase insurance limits where exposure is more long tailed. Also, even though the legal environment still has a long way to go in terms of recognizing indemnity sums to the victim or victim's descendants, some awards have recognized damages that just a few years ago were unimaginable. As an example, additional damages for pain and suffering - not traditional - in certain legislations are beginning to be awarded. This leads us to believe that there will be continued increases in the future in the severity and frequency of liability claims.

However, the average consumer is still focused on buying the property policy - if any - for his or her house, and not as much for the damages that can be inflicted on others, either to their property or possible physical damage. That is, the third party liability potential.

BNamericas: Is growth likely to come from price rises, expanding networks to new areas, or from greater penetration in existing markets? What will determine this?

Eslava: A price increase is definitively not the main source of expanding the line. We need to continue to educate insurers so they're aware of the risks that could potentially associate them with third-party liabilities. This is an ongoing effort that the industry must continue.

Also, it's likely that in countries where development and growth are higher than the average rate, claims will not only be brought by locals but also by foreigners who are exposed to products sold overseas, among other examples.

BNamericas:Is Latin America different from other markets, or is it a question of markets developing and penetration increasing?

Eslava: Latin America is still an emerging market not only for casualty but also for the insurance industry in general. In casualty, however, we do face the need to increase consumer awareness. If you look at property business, it's a line that is promoted via catastrophic events that lead the consumer to want to protect their assets.

In casualty, however, the story is different. We haven't yet got to the stage where the casualty cases are able to generate awareness among consumers.

BNamericas: How important are the property and casualty sectors to Swiss Re?

Eslava: P&C accounts for almost half of the premium income for Swiss Re. Developed markets like the US are leading the way to make this happen. However, China also plays an important part with motor solutions that were created due to solvency regulations.

Over time, the casualty business in Latin America, on the other hand, will contribute more as a consequence of our current strategy and increased market penetration, but also due to our appetite for professional liability and our commitment to continue leading new product development.

BNamericas: What segments of casualty insurance have seen the strongest growth in Latin America in the last few years, and what segments do you expect to grow the most in the next few years?

Eslava: Motor is still the premium driver in Latin America if you include third-party damages as well as motor own damage. However, if you take motor out of the equation, general liability continues to lead the current casualty premium.

It's hard to say what will be the new growth engine in a few years, but we believe that environmental liability will play a key role. Motor will continue to drive premiums with more complex and enhanced products. There's also room for growth in professional liability, but at a slower pace than the aforementioned.

BNamericas: What have the trends been in the last few years in regard to the profitability of casualty insurance lines in Latin America, and what trend do you foresee for the coming years?

Eslava: Rates have been decreasing and the exposure basis has been increasing. If you combine this, you have a double negative effect that results not only in less premium, but also in more exposure than before. Companies that track these changes are able to react better to market changes and, therefore, have better portfolio management.

Two examples: From a casualty perspective, homeowners' liability continues to be a profitable
business. Severity cases aren't common and frequency is well managed by the insurance
companies. On the other hand, commercial business continues to be more exposed and has a
fierce competition that continues to reduce prices. Insurance companies will have to track all
segments, and remember the long-tailed business that casualty is when considering profitability
for the line.

BNamericas: Do you consider the regulatory landscape to be supportive for insurance
operations in Latin America? Are there areas that could be improved?

Eslava: While answering only for casualty, I'd say that the landscape is adequate. Of course,
there's always room for improvement, but certainly the political agenda has its priorities.
We see more and more regulation that promotes consumers rights. This encourages consumers to
be mindful of their rights and aware of their right to claim when things don't go as the
manufacturer thought they would. We've seen cases where if a company has a certain activity,
it's mandatory to purchase environmental protection (still not at the desired amount but at least
this is a first step).

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