Reinsurers must step in to close protection gap: Lloyd’s

Reinsurers must step in to take the risks of natural catastrophes off the balance sheets of governments, taxpayers and businesses, according to Daniel Revilla, head of Latin America at Lloyd’s.

“While insurance penetration rates remain low, the burden falls on governments and businesses to fill the gap,” he explained. “This will become unsustainable as the costs of natural catastrophes increase.”

Lloyd’s research found that there is a global insurance gap of $168 billion in premiums, with non-life insurance penetration in Latin America just 1.8 percent, one of the lowest levels in the world.

In a study of the major 42 countries of the world, Lloyd’s found 17 were substantially underinsured.

Revilla added that Lloyd’s research shows that a 1 percent rise in insurance penetration translates into a 13 percent reduction in uninsured losses.

A 1 percent rise also translates to a 22 percent reduction in the taxpayers’ contribution following a disaster, and increased investment equivalent to 2 percent of national gross domestic product.

Over the last five years, Lloyd’s paid more than $2.5 billion in claims across Brazil, Chile, Colombia, Ecuador, Mexico and Peru.

The region generates approximately $1.5 billion in premium income for Lloyd’s, most of which is still placed on an offshore basis in London, but with a growing contribution from service companies in the region, explained Revilla.

“Faced with difficult market conditions, Lloyd’s is working hard to make sure that the ways to access the Lloyd’s market are as efficient and as simple as they can be,” he said.

In May, a London Matters report stated that London premiums from emerging markets declined from $10.5 billion in 2013 to $9.3 billion in 2015.

“The main reason for the drop in Lloyd’s premiums from the region is competition developing a more aggressive presence on the ground,” said Revilla.

He went on to say that the more reinsurance providers there are in any country, the less likely it is for premium from that country to find its way outside the country.

Lloyd’s is currently focusing on developing market access for the future in Latin America.

“This centres around defending trading rights and licences, encouraging further managing agent co-location and coverholder development in the region, building better market intelligence and managing agent and broker engagement.”

Latin America is “a dynamic region” for insurance growth—McKinsey estimates that Asia and Latin America will represent 37 percent of the global P&C market in 2020.

But some analysts believe that economic growth will depend on the ability of key markets to address their economic imbalances and increase their investments in infrastructure, cautioned the Lloyd’s executive.

Latin America is still lagging behind many other parts of the world in infrastructure, particularly in sanitation, telecoms, energy and transportation, Revilla said.

“For Latin America to achieve sustainable growth, the proper infrastructure must be in place and the private sector needs to play a bigger role in these projects—and of course supported by insurance.”

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