The socio-political situation in Latin America has challenges

By Eduardo Marengo, MAPFRE Global Risks

Risks are the same all over the world. However, as in the economy, external factors that can either have a positive or negative influence on risks. These could be affected in their evolution and development directly or indirectly.

Everywhere is facing the consequences of the war between Russia and Ukraine, but in Latin America (LATAM), we must add other factors, such as the trends of local governments, social conflicts and economic politics to a global crisis that further complicates the outlook for 2023.

How can these factors affect the insurance market in the region?

Starting with the conflict between Russia and Ukraine, restrictions have been activated because of the limitations and sanctions imposed by the EU, USA and the UK. Premiums for the coverage of war and strikes are increased, and finally, we could face a possible reduction in capacities from the markets. Additionally, it is important to highlight that all local companies in LATAM have reinsurance contracts supported by companies domiciled in the EU, USA, and UK, so they are indirectly forced to apply the same limitations and sanctions.

Social conflicts have increased claims due to strikes and civil commotion in the region, although theft claims are still the first concern. The claims ratio increases and adds to a possible reduction in market capacity. The premiums for war and strike coverage could suffer increases, which will be assumed by local clients in the private and public sectors, increasing the operating costs for these companies.

Local government measures can also impact insured risks; indirectly, when these measures are established to make more the exchange currency flow to dollars more difficult or restrict the free circulation of this currency in in Argentina and Venezuela. The access of companies to this currency is reduced or becomes more expensive, directly impacting activities necessary for the maintenance or purchase of spare parts abroad, delaying their scheduled periods and therefore increasing the risk of possible incidents.

The challenge is great, but something that characterises the Latin American insurance market is the ability to innovate and be creative to overcome adversity. Current innovation trends and agile tools will be more present than ever in 2023.