Marine insurance faces challenges driven by geopolitical, economic and climate factors. These challenges impact insurance penetration goals in Latin America, however they also create new opportunities in an increasingly complex landscape.
The 12th Latin American Maritime Insurance Congress, organized by ALSUM, has established itself as a crucial forum for discussing the sector’s outlook. Experts such as Fabiana De Nicolo, General Manager of Southbridge; Lionel Soffia, from Gallagher; Eduardo Couyoumdjian, from Reale Chile Seguros Generales S.A.; and Jorge Claude, President of FIDES, analyzed emerging trends and the short- and medium-term risks that are shaping the future of the industry.
A demanding context for the sector
The impact of climate change, which has intensified the frequency of unmodeled events, has had a profound effect on the insurance sector. This situation could heighten difficulties when it comes to accessing reinsurance and could increase rates. In addition to this challenge, the ALSUM-organized event addressed the threat of armed conflict on a global scale and its potential to wreak havoc on the market. Crime was another important issue, as the increase in theft, especially regarding the cargo transport sector, has led to certain assets being considered uninsurable. Eduardo Couyoumdjian explained that criminal typology has evolved toward violent theft, which generates a greater demand for specialized insurance. Despite this bleak outlook, insurers are seeking solutions such as strengthening public-private policies in order to improve security.
At a macroeconomic level, the region faces modest growth that influences interest in general insurance. The industry has become highly competitive, with companies vying for the same customers in a stagnant ecosystem. However, companies are innovating in products and services aimed at unattended segments, such as micro-entrepreneurs, encouraging new opportunities for growth.
Increased claims ratio
2023 stood out as one of the toughest years regarding loss ratio. Fabiana De Nicolo commented that “the perfect storm” took place in Chile, where the stock of unsold homes and the decrease in mortgage loans have created a complex environment for insurance companies.
There should be a call for self-reflection given the current situation. Couyoumdjian made a point that “there was a lack of discipline in counter-guarantees” and how the guarantee policy has been misinterpreted as a “blank check”. In this context, resilience becomes a vital pillar for the sector. Lionel Soffia stressed that “the guarantee and faithful fulfillment policy are essential” and that it is necessary to learn from errors that have happened in the past. It is therefore crucial to reassess risk management practices and pursue operational improvement.
An evolving regulatory framework
Growing regulation of the sector is one of the main aspects of the current discourse. Jorge Claude noted that “a form of general control is being sought after” due to fears of company bankruptcy. This plethora of regulations has been seen as a risk and as a reality that has a profound impact on insurance companies’ operations.
Eduardo Couyoumdjian pointed out that the Chilean environment is one of the most regulated ones in the world, which has increased operating costs and generated the need for robust compliance teams. “This is the pay to play”, he pointed out, referring to the need to adapt to regulations in order to move forward. Lionel, on the other hand, highlighted the importance of a flexible, step-by-step approach to regulation—steering clear of sudden changes that could destabilize the sector. “We can’t make 20 modifications in the same year.” He also warned that insufficient regulation of reinsurance brokers in Chile is a conflict for the industry, which emphasizes the need for hand in hand collaboration with regulators.
Fabiana De Nicolo acknowledged the “good intention of the regulator” to fostering competition and improving confidence in insurance. She mentioned the importance of implementing regulations properly, such as Open Finance, to promote competition. She also expressed concern when it comes to the necessary investment in technology to meet these requirements.
In the reinsurance context, a Gallagher report was mentioned, which highlighted an exceptional year in 2023, suggesting an improvement in market conditions. Lionel stated that automatic contracts have become more favorable, allowing companies a greater retention capacity. Intense competition between the contract and facultative markets continues to impact prices, however. Eduardo put the dissociation between both markets into context, while Fabiana focused her remarks on the trend toward a softer market, favoring fair prices for customers and avoiding unfair competition.
Social function
The Chilean insurance industry plays a crucial role in society when it responds to difficult times, ensuring payment of claims and guaranteeing the citizen protection. This function is vital, especially concerning reconstruction in the wake of extreme events such as the devastating earthquake in 2010, remembered by Couyoumdjian in his closing speech, where he stressed that “the Chilean pension system could not exist without the participation of life insurance.”
If more people are to benefit from these services, democratizing access to policies is absolutely essential. De Nicolo stated that “we are faced with paying for claims during hard times,” which highlights the importance of expanding access to insurance in neglected areas, therefore promoting the development of the country. Despite the challenges in market penetration, communicating the value of insurance in an uncertain context becomes a priority to strengthen citizens’ trust.
