Regulators move towards unified approach
Regulators across Latin America are increasingly working together to establish uniformed parameters to supervise and regulate the insurance industry. But regulatory concerns remain one of the biggest issues for insurers and reinsurers operating in the region and they can have a big influence on the attractiveness and viability of different markets.
That is the view of Alex Guillamont, partner in law firm Kennedys. “Insurance regulators across the region are focusing more on customer rights and protection as well as on stricter solvency requirements. However, insurers in Latin America have the opportunity to build growth in all insurance sectors provided that they adapt to the local regulations and market practice.
“We have seen more interaction between the regulators in Latin America. The regulators are working closely to establish uniformed parameters to supervise and regulate the insurance industry.”
Guillamont said jurisdictions can now be classified, from the regulatory side of the business, in three groups.
The first group includes countries such as Colombia and Peru that are focusing on increasing the flexibility of the regulatory framework of the market and to attract foreign investments. Colombia, for instance, has engineered free trade agreements with the world’s major markets, guiding large increases in the need for insurance and reinsurance capacity.
Guillamont said this led to the opening up of the insurance market to registered non-domiciled foreign insurers which can now offer international marine transport, commercial international aviation and launch & space transportation insurance providing cover to the risks related to goods en route, the vehicle transporting them and the liability that could arise therefrom. However, foreign insurers are not allowed to offer, solicit or advertise other types of insurance products in Colombian territory or to its residents.
Meanwhile, Peru has also launched new laws designed to modernise the legal framework of the Peruvian insurance contract.
The second group includes countries like Argentina and Venezuela, which he describes as “cumbersome” jurisdictions to deal with given the lack of legal certainty in their insurance regulations and overall.
“For example in Argentina, the regulator has lightly addressed the capital measures of Solvency II preferring to maintain its current solvency system based on traditional methods. Argentina has also nationalised reinsurance and forced repatriation of assets which has led a lack of reinsurance capacity and abnormal concentration of risks in the local market,” he said.
Meanwhile, in Venezuela, he notes, the National Assembly recently discussed a new regulation that fixes the prices of new and used cars. The coverage under motor insurance policies, as per the new potential regulation, must be established according to the price of the cars fixed by a special administrative authority.
“In practice, this will likely lead to underinsurance of the insured asset which price will not match the market price. This regulation is expected to be passed soon.”
Finally, the third group sits in the middle of these two extremes and comprises countries like Brazil, Chile, México, Panama and Uruguay. All are in the process of modernising their insurance rules and regulations in different ways.
For instance, in Brazil, the Superintendência de Seguros Privados has been increasingly promoting micro-insurance with simplified product approval processes and flexibility on the formalities of the contracts.
In Mexico, there is a new regulatory system scheduled to become effective in 2014 based on risk management. It also implements Solvency II-style concepts and principles. This is also the case of Chile, where the regulation is also targeted towards risk-based capital requirements and Solvency II principles.
In Panama, a new law means all foreign non-domiciled reinsurers and reinsurance brokers, which carry out reinsurance operations by receiving reinsurance premium from Panama-based insured risks, or those brokering reinsurance contracts, must apply for registration with the local regulator.
Uruguay is currently discussing the modernisation of its insurance sector regulation. Insurance contracts, for example, are regulated by Uruguay’s Code of Commerce of 1865.
“There is no sign in the region yet of regulators going towards a principles based regulation like in the UK which is moving away from dictating thorough, detailed and prescriptive rules that must be adhered to strictly, but rather to establish an intellectual dialogue between supervisors and insurers on a flexible manner in how supervised entities deliver the desired outcomes,” Guillamont said.
