Stabilising effects of insurance in cat areas still not fully acknowledged

In highly exposed areas, insurance is an important tool to strengthen the resilience of emerging economies when dealing with catastrophic risk, says Alfredo Castelo, CEO of Mapfre Global Risks.

“From an internal perspective it is surprising that insuring these risks properly is not more widely acknowledged,” he said. “This is probably due to the lack of awareness of its beneficial effects—lessons well learned by clients and insurers in Latin America after any catastrophic event, such as the Chile earthquake in February of 2010.”

Castelo will be talking about the challenges and experiences of insuring catastrophic risk in a panel discussion on day two of FIDES.

“I will be talking about the importance of having a deep and detailed knowledge of the risks we are insuring,” he said. “This means not only a geographical location, but detailed information on the risk values, and the quality of risk management technical parameters.”

This is essential to properly calculating possible losses, providing a quick and lean service in case of loss and designing an adequate catastrophic protection, he added.

Another important point will be the challenge of being able to differentiate the coverage of natural catastrophes from the coverage of other technological risks and their associated costs.

“As natural catastrophes are not as frequent, there is a dangerous tendency to underestimate them when establishing a technically appropriate premium—and the establishment of an adequate and fair premium is the cornerstone of any insurance activity,” he said.

Mapfre Global Risks has a centralised approach to the control of catastrophic risks, said Castelo. Its cat department is in charge of leading, coordinating and controlling the whole process of identifying all the vital information regarding the different risks, not only in Latin America, but all across the world.

“We follow up this process online and we carry out a regular accumulation control that enables us optimise the use of our capacity,” he said. “We are defining catastrophic exposure by country, not only to control and limit our exposures, but as a way of having all the underwriters make sure they are writing the proper group of risk for the company.”

Through its risk engineering teams, Mapfre is very active in providing insight on its clients’ risks and also helping them to understand the consequences of the risks of supply chain interruptions, which can have a highly disruptive effect on their business, he added.

Castelo identifies the increased presence of other global carriers, the excess of capacity in the region and the resulting soft market as key challenges in the region. “We feel that in these situations catastrophe insurance is being discounted in line with standard non catastrophe risks,” he said.

“From a global risks perspective, another common issue is tackling the ‘upper middle market’, [O1] ” he said. “It is a very large area with a notable spread of the industry. Fortunately, we have the advantage here of the massive presence in the region of the Mapfre teams that help us get to every client.”

In connection with the global risks business, Castelo believes the main debates at FIDES will be around servicing customers and the captives of global clients; the issue of documentation; the prompt and fair settlement of claims to the multi-latinas; and the challenges of catastrophic insurance.

Over the coming year Mapfrewill continue investing in Latin America. For a better focus in the region, Mapfre has divided the area into three regions with head offices in Brazil, Colombia and Mexico.

“We have very concise plans to reinforce the local global risks teams based on this new structure of the group in order to keep improving our understanding of and servicing the needs of LatAm corporate clients,” Castelo said.

He believes there is still potential for development in some lines of business in Latin America, notably most of the liability lines and other specialty lines.

“There is still an important growth potential for us in most of the LatAm markets but we also have to look at how we can take the experience we have and the lessons learned to other international markets outside the region,” he said.

Even though Brazil and Mexico’s economic growth is slowing down, stronger economic growth in other, traditionally less relevant, markets such as Peru and Colombia is generating overall premium growth in the region, added Castelo.

“We expect the competition to keep increasing, and because of the heterogeneous nature of the territory, opportunities and risks are becoming more complicated based on market and country-specific conditions. However, we expect the market to stabilise to truly reflect the nature of risk in this region.”

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