In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for Latin America.
Key developments in 2021
The year 2021 has been marked by the COVID-19 pandemic and the lockdown restrictions imposed to stop the spread of the virus. Latin American countries have seen some of the highest levels of infection and mortality from COVID-19.
One of the first questions which arose was whether having Coronavirus could trigger your property policy, for example, whether having COVID-19 present on your property could constitute physical damage.
Generally speaking, it was widely accepted that Coronavirus cannot cause physical damage and most insurance regulators and legal courts appeared to take that view in the region.
The vast majority of COVID-19 related claims were pursued in the form of 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.
Often, however, there is covered physical damage and the Coronavirus restrictions have extended the BI. Insurers sought to adopt a consistent approach across different jurisdictions, which, to date, has not been possible. In general, insurers have taken two different approaches.
Some insurers have taken the approach that the lockdown restrictions are outside the insured's control and if there is a valid physical damage claim, the subsequent BI (including the "Extended BI") should be covered as well. However, there are also some insurers who take the view that that it is too harsh for insurers to be exposed to an un-limited BI (or an extended BI) not directly linked to the physical damage.
It is still unclear whether insurers will be able to adopt a consistent position throughout Latin America regarding coverage for "Extended BI".
(Re)insurers looked at incorporating exclusions to address COVID-19 in policies going forward. New exclusions in most jurisdictions are still to be approved by the insurance regulator, however.
What to look out for in 2022
The COVID-19 pandemic has disrupted many sectors of the global economy and Latin America is not an exception. The impact of COVID-19 and in particular its economic effect is going to continue into 2022. The appearance of new variants is of concern in circumstances where some Latin American countries with large populations do not have access to the vaccines.
Whilst COVID-19 is going to take up a significant part of the region's agenda, climate change continues to be a key theme and we expect the region's attention will eventually be focused on net zero policies.
Following the United Nations Climate Change Conference held in Glasgow, countries are being asked to come forward with ambitious 2030 emissions reductions targets that align with reaching "Net Zero" by 2050.
Whilst some countries in Latin America have started making internal arrangements to achieve carbon neutrality by 2050, including Argentina, Chile, Panama and Uruguay, the largest economies, such as Mexico and Brazil, still depend heavily on fossil fuels.
The policies implemented by companies world-wide towards a low carbon future will also have a direct impact on the insurance market in Latin America.
For example, we expect to see an increase in demand for insuring renewable energy projects like solar, water and wind, the most available natural resources in Latin America. So far, most projects in the region are at a small and mediums sized scale.
Local governments have started introducing new construction regulations aimed at increasing energy efficiency. This will have a direct impact on the adjustment of losses in circumstances where repair, rebuild and replace costs may increase in order to fit the new construction standards. In our experience, coverage for improvements is not always clear allowing scope of interpretation.
As regards the construction and operation of highly-polluting projects such as coal power plants, international (re)insurers are now more than ever reluctant to provide coverage for these projects. The lack of insurance, in our view, will prompt governments in the region to discourage the continued operation of and/or investing time, funds and resources in these.
Written by Alex Almaguer.
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