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LATAM Insurance on "Sustainable" Track

Posted on Jun 21, 2012 by Sergio Ulloa ()

With the International Insurance Society's (IIS) 48th annual seminar now at a close, the insurance sector is set to take on new direction with several ambitious plans. The IIS seminar allows senior executives from insurance companies worldwide to share original research by leading academics, participate in idea exchange and debate on critical issues, and discuss current and future prospects for the global insurance industry. This year, 500 delegates from 50 nations gathered in Rio de Janeiro from June 17-20 to implement sustainable development goals, share main concerns about the insurance industry, and determine the future role of insurance companies in emerging markets, among others. The topic of "sustainable insurance" has been hot in recent months, as environmental issues are increasingly prevalent worldwide. Sustainable development acknowledges that business create social costs (such as pollution), not covered in product costs, that may negatively influence future business opportunities. Sustainable insurance includes this concept, but has potential influence extending far past the insurance business. Insurance provides businesses with a secure foundation for economic activity by taking into account a variety of risk factors. The 48th IIS seminar reached a historic landmark with the launching of the Principles for Sustainable Insurance (PSI) after 6 years of planning by insurance companies and the United Nations Environment Programme (UNEP). 27 insurance companies, representing 10 percent of worldwide insurance premiums, took the initiative as initial signatories on the PSI, along with 7 supporting institutions. The timing of the PSI's inception within days of the Rio20+ Earth Summit is no coincidence either. PSI contains 4 primary principles; First, to embed in decision making environmental, social, and governance issues related to the insurance business; Second, to work with clients and partners to raise awareness of these issues, as well as risk management, and form solutions; Third, to work with governments and regulators to encourage public action on these issues; And fourth, to demonstrate responsibility and honesty in disclosing regular reports of their progress in implementing the four principles. A second topic discussed at the 48th IIS seminar was current pressing issues within the industry. Based on a poll conducted during the conference, competitive prices and adequate profitability were the main concerns of one third of IIS members present in Rio, and risk management second with 19 percent of the votes. In terms of threats, regulatory changes were seen as the most critical with 38 percent of the votes indicating that this was a worry, and immeasurable risks came in second with 20 percent of the responses. Within regulatory concerns, anticipating new rules troubled 28 percent of attendees the most, while inconsistent standards across jurisdictions gained over 25 percent of the votes. Regarding human capital issues, 34 percent of the delegates voted retaining talent as the number one problem, and 24 percent encountered more trouble finding new talent. Non-life insurance companies struggled most with risk management (24 percent), followed by inadequate premium rates (22 percent). On the other hand, life insurance companies found locating investment opportunities to meet benefit requirements the most pressing issue (28 percent). Apart from present troubles, Brazil based Patrick de Larragoiti Lucas, among others, shared their visions of future industry growth and direction. Lucas believes that the recent influx of middle class Brazilians will be the driving force of the country's market in the near future. Within the past eight years, over 30 million Brazilians entered the country's middle class. Insurance protection of their family members and assets is a luxury readily available to all in such a position on the social ladder. Lucas plans to develop wealth protection products so that these middle class citizens have incomes when they retire. Additionally, Brazil's motor market is also enjoying upward trends. Although over 90 percent of brand new cars are insured for their first year of use, many customers don't renew, leaving roughly one third of Brazil's car owners unprotected from such risk. Brazil's own secretary of state for economic activity, Julio Bueno, also voiced his opinions, pertaining to Rio de Janeiro specifically. "Rio is a wonderful market for the insurance and reinsurance industry," he said. Bueno's evident enthusiasm for Rio has, in fact, more than adequate substantiation. The next few years mark a period of unprecedented growth for Rio, as the country will be hosting the 2014 FIFA World Cup, and the 2016 Olympics, on top of the annual Earth Summit, known as the Rio20+, this year. Also, Rio de Janeiro is the third-smallest state out of the 27 states in Brazil, yet, maintains the second largest GDP. The metropolitan area alone has over 10 million inhabitants, and a well established industrial economy. Rio has 80 percent of Brazil's oil production, is the second-largest steel producer, and has a promising petrochemicals industry. Of course, with emerging markets such as Brazil, the role and effective implementation of microinsurance is of ever rising importance. Populations of less developed countries are especially prone to health risks and natural disasters, however, only a small percentage of these populations have access to insurance. Brian Duperreault, CEO Marsh & McLennan Cos. Inc. said at the IIS seminar that effective penetration of microinsurance into developing countries would require insurers to take on a collaborative approach. By combining resources and sharing information, the industry would be able to tap into a market with the potential to produce over 1 trillion in annual premiums, and provide protection to billions. Duperrault strongly suggested a comprehensive, adaptive facility of wide-spread application to each developing nation's individual government regulations and culture. The first market to have access, in his opinion, should be Brazil, as the country has the ability to generate over 100 million microinsurance policies and generate 1.7 to 4 billion in annual premiums. Overall, the 48th annual IIS seminar showed much promise for the future of the industry. Stances from hundreds of delegates proved how willing and eager insurance companies are attempting to take new risks, and adapt to a changing world. Out of all the emerging markets, it will be interesting to track the first steps and successes of insurance companies in Brazil. If anything, the state of the insurance market will only improve as companies cooperate with each other and regulators to find new, innovative methods to supply and apply their product worldwide.
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