RMS Latin America chief talks tech, insurance protection gap

According to Spanish insurer Mapfre's last report on the Latin American insurance market, the insurance protection gap (IPG) in the region was an estimated US$256bn in 2017, up 5.2% from a year earlier. The bulk of the gap, 60.7%, corresponded to the life segment. 

That year, the potential insurance market in Latin America - the sum of the actual insurance market plus the IPG - stood at US$415bn.

Penetration (premiums as a proportion of GDP), however, has been increasing. On an aggregate basis between 2007 and 2017, total penetration in the region rose 27.8%, according to the same report. 

To discuss the insurance gap, technological trends and more, BNamericas caught up with Víctor Roldán, Latin America chief at the world’s leading catastrophe risk modeling company RMS. Roldán spoke at the 37th Hemispheric Insurance Conference of the Inter-American Federation of Insurance Companies (FIDES), held in Bolivia recently.

BNamericas: In your opinion, what were the most important topics discussed at FIDES 2019?

Roldán: In general, all the main presentations addressed, in one way or another, digitalization and automation of the industry. The question is, when is it finally going to happen? How long do we have to wait for the local industry to bring itself up to date?

BNamericas: On the theme of technology, what types of tech are catastrophe risk modeling companies like yours leveraging?

Roldán: One is big data and data analysis. This has helped us greatly in terms of obtaining a better understanding of the patterns of cat events and their effect in the insured exposure. The insights from better data are helping us getting closer to how the losses occur in reality.

Also, cloud-based services. Via these new technologies, we can provide to the insurance industry access to greater intelligence without any infrastructure costs to our clients. We bring to your desk, wherever you are located, risk intelligence at the click of a mouse. We’re easing the workload of the underwriters. Their work [as a result] will be more strategy-focused.

BNamericas: Changing topic, a major issue in Latin America is the region’s insurance gap. What are the reasons for this lack of coverage?

Roldán: There is no straightforward answer to that question. The insurance gap is large in Latin America, compared with other regions around the world. But this is a global problem. The problem is that, despite solid growth in the region in terms of insurance penetration, the exposure continues growing at a higher rate. Latin America is the most urbanized region in the world, and the effects of this hyper-urbanization is affecting and increasing the risks at all levels.

Regarding factors behind the gap, there are many. For example, socioeconomic and cultural, as well as the belief that ‘this isn’t going to happen to me.’

The insurance industry also has a degree of responsibility [in terms of helping close the gap], such as creating products that reach all socioeconomic segments of society. These include microinsurance in agriculture. Parametric products are also being discussed, a much simpler type of insurance.

You’ll never fully close the gap, but you can make it smaller.

BNamericas: Can you talk a little more about potential solutions?

Roldán: Government intervention, facilitating, for example, subsidies for agricultural insurance to protect small-scale farmers. Big producers are covered – they’re not the problem. Subsidies are perhaps unsustainable in the long term but they help introduce farmers to insurance products. 

Another solution is related to distribution of insurance. Developing channels where people can buy insurance practically on demand, via mobile phone, using the phone credit to pay, and without complex contracts. 

Giving access to insurance purchasing directly via mobile phone or the internet.

The analytical capacity of insurance companies is another factor. Today they don’t have it. When you understand the risk, the exposure, you can create models where you say, ‘we understand such a region could be impacted by large earthquakes and that quality of construction is poor – and that we’re not going to sell these 30-page policies but we could sell a parametric option that could provide a degree of protection to these communities.’ There are various ways to address the issue. 

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BNamericas: RMS estimates Hurricane Dorian insured losses from wind and storm surge in the Caribbean will be between US$3.5bn and US$6.5bn. What does this tell us about penetration levels of coverage on the affected islands?

Roldán: Dorian broke modern records as the strongest hurricane to strike the northwestern Bahamas at a Category 5. You need to look at this figure in detail. RMS estimated that insured losses to the Caribbean would fall between USD $3.5 to $6.5bn for wind and storm surge only. It includes, not only property, but also infrastructure as well as business interruption and post loss amplification, for instance, the increase on pricing for construction materials and clean-up costs. 

Hurricane Dorian constitutes another warning bell. The most interesting thing is what would have happened if Dorian had continued and hit south Florida, RMS models indicate losses would have exceeded US$100bn.

BNamericas: Finally, can you tell us a little about RMS and its presence in the region, projects, etc?

Roldán: Latin America is a hugely important region for RMS. We’ve been working here for many years following the launch of our first earthquake risk models in 2009. The bulk of catastrophic risk in the region is transferred thanks to RMS models and results. 

We’ve grown in the region. We have our hurricane models for the Caribbean, the Gulf of Mexico. We also have a new hurricane model for the Pacific on account of this new phenomenon we’re seeing. We’re also investing to update all our models in the region; all earthquake models should be updated within the next 12-14 months.

In addition, we’re researching effects of El Niño and La Niña on harvests, particularly in Brazil. How extended dry spells, excess rainfall affect crops, including in areas that previously didn’t experience flooding. We’re looking at this and how to convert this into models.