In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for Latin America.
Key developments in 2020
The year 2020 has of course been marked by the COVID-19 pandemic and the lockdown restrictions imposed to stop the spread of the virus and Latin America is not an exception. Indeed, Latin American countries have seen some of the highest levels of infection and the most stringent lockdown restrictions.
Potentially very substantial losses could arise due to COVID-19 related business interruption. The energy sector has to some extent been protected as a "key" sector. However, even if insureds have been able to continue to operate, contractors – such as the contractors required to carry out repairs – can be affected by lockdown restrictions.
Insurers have in our experience sought to adopt a consistent approach across different jurisdictions, which can be driven by English or US legal requirements. However, the civil law jurisdictions in Latin America have strict rules on the handling of claims, in particular, timelines for stating a position on coverage and consideration should be given to the requirements of the particular jurisdiction.
It is also the case that Latin American jurisdictions can have different rules on causation which have to be applied to COVID-19 related losses. For example, Colombia applies the doctrine of "adequate" cause and seeks to determine whether a potential cause was the "adequate" cause of the loss – was the loss a foreseeable consequence of that cause?
Latin American jurisdictions also adopt a different approach to negligence, less generous to insureds in imposing the requirement to act as a good "paterfamilias". Their more robust approach to recognising "force majeure" can also affect COVID-19 related claims.
What to look out for in 2021
The impact of COVID-19 and its economic effect is going to run into 2021. The economic situation is also being affected by weather events and social and political unrest. As a result, we foresee a significant rise in the number of insurance claims originating in the region as insureds are likely to be in difficult financial circumstances and any insurance claim will have greater value to them than in normal operating conditions.
(Re)insurers are looking at incorporating exclusions to address COVID-19 in policies going forward. New exclusions in most jurisdictions have to be approved by the insurance regulator. This means that it cannot be assumed that (re)insurers will be able to adopt a consistent position throughout Latin America.
Insureds in Latin America as in other parts of the world will be pursuing claims for business interruption losses as a result of COVID-19 lockdown restrictions where there may be no physical damage typically required under all risks property policies.
Consequently, as elsewhere, insureds will seek to rely on non-damage extensions of cover such as infectious diseases, ingress/egress and civil and military authorities extensions, which may not be fully worded in the policies.
Regulators are seeking clarification on the application of these extensions. Regulators are also considering, for example in Colombia, whether insurers should be required to return premium in circumstances where insureds have not been carrying on business.