Insurance regulators across Latin America are focusing more on customer rights and protection as well as on stricter solvency requirements. However, insurers in the region have the opportunity to grow in all insurance sectors provided that they adapt to the local regulations and market practice.
We have seen more interaction between the local regulators which are working closely to reach uniformed parameters to supervise and regulate the insurance industry. However, we have noted that Latam jurisdictions can be classified, from the regulatory side of the business, in three groups as follows:
- The first group is comprised by countries such as Colombia, Peru and Uruguay that are focusing on increasing the flexibility of the regulatory framework of the market and the attraction of foreign investments. Colombia, for instance, has engineered free trade agreements with the world’s major markets, guiding large increases in the need for insurance and reinsurance capacity. This led to the open-up of the insurance market to registered non-domiciled foreign insurers who can now offer International Marine Transport, Commercial International Aviation and Launch & Space Transportation insurance providing cover to the risks related to goods en route, the vehicle transporting them and the liability that could arise therefrom, pursuant to Law 1328 of 2009, which entered into effect on 15 July 2013. However, foreign insurers are not allowed to offer, solicit or advertise other types of insurance products in Colombian territory or to its residents.
On 27 May 2013, Act 29946 (139 provisions) entered into effect in Peru. In 139 articles, this Act regulates the insurance contract and more specifically the lines of property, fire, life, health and casualty insurance. The Act is an effort to modernise the legal framework of the Peruvian insurance contract.
Uruguay is currently discussing the modernisation of their insurance sector regulation. Insurance contracts, for example, are regulated by Uruguay’s Code of Commerce of 1865.
- The second group is comprised by countries like Argentina and Venezuela which tend to be cumbersome jurisdictions to deal with given the lack of legal certainty in their insurance regulations and overall. For example, in Argentina the regulator has lightly addressed the capital measures of Solvency II preferring to maintain its current solvency system based on traditional methods. Regarding the willingness of the country to be a market opened to international players, Argentina has nationalised reinsurance and forced repatriation of assets which has led a lack of reinsurance capacity and abnormal concentration of risks in the local market.
In Venezuela, the tendency is to be more restrictive and interventionist in areas such as health services and motor market with consequences for the insurance industry. For example, the National Assembly recently discussed a new regulation that fixes the prices of new and used cars. The coverage under motor insurance policies, as per the new potential regulation, must be established according to the price of the cars fixed by an especial administrative authority.
In practice, this will likely lead to underinsurance of the insured asset which price will not match the market price. This regulation is expected to be passed soon.
- In our opinion there is a third group that is right in the middle and comprises countries like Brazil, Chile, México and Panama. For instance, in Brazil, SUSEP (Superintendência de Seguros Privados) has been increasingly promoting micro-insurance with simplified product approval processes and flexibility on the formalities of the contracts. For example, companies are now allowed to issue certificates and individual policies, as well as information exchange and data transfer via the internet, telephone (including mobile phones), defining the rights and obligations of the parties involved. SUSEP has also issued regulation on new distribution channels and a new Insurance Contract Act is expected to be passed in 2014.
In Chile the new Rules for insurance auxiliaries and procedure for the adjustment of losses entered into effect on 1 June 2013 and are applicable to claims made after 1 June 2013. According to these new rules, in cases where the insured is opposed to the decision of the insurer of carrying out the adjustment procedure by itself, the insurer must appoint an adjuster within 2 business days following the date of such opposition. Also, the period for the adjusters to issue an adjustment report has been shortened to no later than 45 business days from the date of notice of the loss, formerly 90 days. If the claim is related to hull or general marine average, the deadline is 180 business days which did not change. Exceptionally, adjusters may, however, request additional extensions of 45 or 180 business days respectively, based on reasonable grounds, previous notice to the insured and before the Chilean insurance regulator, who has discretionary powers to overrule the extension and even set a date for the issuance of the adjustment report. However, the extension cannot be based on the request of additional information or documents that could have been reasonably foreseen previously unless the adjuster can offer compelling arguments as to the reason why such documentation was not required before.
In Mexico, there is a new regulatory system scheduled to become effective in 2014 based on risk management. It also implements Solvency II-style concepts and principles. This is also the case of Chile, where the regulation is also targeted towards risk-based capital requirements and Solvency II principles.
As a consequence of the control of local regulators over the activities of carriers entering into Latin American markets, countries where usually foreign reinsurers were not subject to the control of the insurance regulators are now required to be registered before local regulators. For example, in Panama all foreign non-domiciled reinsurers who carry out reinsurance operations by receiving reinsurance premium from Panama-based insured risks and reinsurance brokers must apply for registration with the local regulator, after the implementation of Law No. 12 and Agreement No 4/2012.
There is no sign in the region yet of regulators going towards a principles based regulation like in the UK which is moving away from dictating thorough, detailed and prescriptive rules that must be adhered to strictly, but rather to establish an intellectual dialogue between supervisors and insurers on a flexible manner in how supervised entities deliver the desired outcomes.
The Latin American market is expected to continue growing in 2014 due to business expansion in the region by way of M&As and infrastructure projects that will require insurance capacity in countries like Brazil, Chile, Colombia and Peru. If the size and frequency of catastrophic events in the region remains within the expected parameters, the interest of reinsurers in the region will continue to grow in order to leverage negative results from other parts of the globe.
In 2014 new regulations are expected to be passed by the legislative branches and insurance regulators in Latin America. The increasing interest of (re)insurers in the region will bring the attention of the insurance regulators who will likely tend to have a more customer protectionist perspective and stricter solvency requirements.