Latin America

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for Latin America.

Key developments in 2022

2022 has been marked by a slow recovery in the global economy after the Covid-19 pandemic. However, Russia's invasion of Ukraine in late February 2022 and the severe lockdowns in China have limited regional recovery and injected great uncertainty.
 
Covid-19 has continued to affect the insurance market in Latin America during 2022, especially in those business sectors which had to close due to government-imposed lockdowns. There are still many unresolved Covid-19 insurance claims in the region and some of them have already escalated to litigation or arbitration.

There remains a debate as to whether BI losses should be payable in circumstances where physical damage could be considered to be no longer the direct cause of the interruption.

It is still unclear whether local courts and insurance authorities will rely on the English Supreme Court's FCA Test Case decision when determining the pending Covid-19 claims. 
 
2022 has been marked by the increase in extreme weather events in the region, which can be seen as an effect of climate change, producing billions of dollars in losses, mainly under property policies. For instance, the extreme droughts in Argentina, Brazil, Paraguay, and Uruguay have increased claims in the agriculture and power generation sectors. 
 
We have noticed an increase in awareness amongst (re)insurers regarding the implementation of corporate policies to reach the Net Zero goal by 2050, especially in the energy sector where there have been many discussions on how to drive the transition to a low-carbon economy.
 
These climate change-related developments have impacted how (re)insurers calculate their premiums in Latin American countries. For instance, insureds in Chile and Peru have faced significant increases in the cost of coverage for natural disaster exposures during 2022. We expect that insurance premiums will continue to increase. 

What to look out for in 2023

Several global factors, such as the continuing consequences of the pandemic; the increase in production costs, Russia's invasion of Ukraine and the political, social, and economic instability in some countries, have are having an impact on the global economy.

Inflation will be a "hot topic" in 2023. Inflation will have a direct impact on claims during 2023 across all lines of insurance business. In particular, in sectors such as Property, Construction and Energy, due to the increase in the cost of material and labour. 

Also, these sectors will be impacted by delays in getting spare parts, as the supply chain will have "bottlenecks" caused by the closure of ports during the pandemic, which is resulting in port congestion.

In addition, the conflict in Ukraine is having a considerable impact on the energy sector.

Inflation will likely create the risk of under-insurance. Low valuations of insured assets will mean that the limits purchased will be not sufficient to cover the costs of reconstruction, repair, or replacement of the insured risks. Accurate declared values will be crucial.

Finally, social conflict and political violence have increased in Latin America in recent years. Protests against austerity and increasing inequality in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico and Peru have led to numerous, substantial losses.

We expect that political violence related losses will increase during 2023.

Download our full Annual Insurance Review 2023 for more insights.