If the London market wants to maintain its leadership in the region, London reinsurers need to look at ways to improve direct communication with local players Santiago, Chile.
The Chilean insurance sector – one of the most advanced in Latin America – imposes very tight deadlines on insurers to challenge loss adjusters’ reports.
Over the years the Latin American market has become increasingly important for the London re/insurance market. From around 50 people back in 2009, almost 400 Latin Americans now work in the London market.
The prosperity of the region has been of interest to international re/insurers for some time and there is fierce competition for a share of the market. The London market has advantages over other international markets thanks to an insurance tradition and accumulated experience dating back more than 300 years. However, it faces the challenge of interacting successfully with other markets such as Latin America.
Re/insurers need to be aware practices that are appropriate in the London market may create problems when dealing with Latin American jurisdictions and vice versa. The Latin American market presents challenges in terms of culture, language, commercial practices and the civil law approach of the region versus the common law approach of the London market.
The key to operating successfully in this market is the ability of all the relevant players to understand and present solutions and strategies that work for both markets, as well as the ability to interact in the local language to deal with simple matters such as methods of reporting, claims handling, negotiating settlements and lawyers’ fees.
We have noticed the increasing reluctance of local cedants to agree on the inclusion of claims control clauses (CCCs) in the Latin American market. While these clauses have historically been commonly used in reinsurance contracts, some cedants view the inclusion of CCCs to be in conflict with local regulations, which stipulate since reinsurers are not a signatory to the policy, they cannot intervene “indirectly” in the adjustment of an insured’s claim.
Local insurers are often retaining a share of the risk and, in these instances, cedants are less likely to accept a CCC; their preference will be for the inclusion of a claims co-operation clause. In a soft market, London market underwriters have little room to negotiate their preference to include CCCs.
Delegated claims handling
There is an emerging trend for major re/insurers to delegate authority via local branches to deal with claims in the region. We have encountered situations in which most of the placement is reinsured in the London market but with a local reinsurer taking the biggest share, resulting in the local reinsurer being the “overall leader” of the placement and London market reinsurers together covering the largest percentage of the risk.
A lack of co-ordination between the overall leader and co-reinsurers can arise from such situations, particularly if those various London market reinsurers each have their own slip. If the insurance policy and the reinsurance contract(s) are subject to local law and jurisdiction, local reinsurers often prefer the appointment of a local lawyer to advise on their share.
This presents several challenges. In the same way a “London” lawyer needs a “local” lawyer to assist on local matters, local lawyers need a London lawyer to handle and advice on London market practices and standards. London and local lawyers’ approaches differ and even if those lawyers are part of the same law firm this often causes problems. Wrong advice can build a bad reputation and it is common to hear complaints about bad experiences dealing with the London market or Latin American jurisdictions.
Some countries are implementing stricter and tighter rules for the adjusting of losses, with Chile being the first, followed by Peru and Ecuador The Chilean market is perhaps one of the most advanced in the region. Nonetheless, Chilean insurance law imposes almost unworkable deadlines for the adjustment of complex claims. This gives insurers only 10 days to challenge the conclusions of the adjuster’s final report.
Re/insurers’ failure to comply with the strict deadlines set by local laws may result in economic penalties or revocation of their license to trade. These time frames present huge legal and practical challenges to all relevant parties when adjusting major losses.
This trend in imposing deadlines for adjusters is evidence there remains a significant misunderstanding between the London and the Latin American markets. Reinsurance is a complex business involving numerous parties; to suggest a coverage determination is possible in complex cases within some of the time limits set by local laws shows a lack of understanding of how reinsurance in the London market works.
While the London market has worked on implementing systems such as ECF to speed up the process of handling claims and improving channels of communication, it is unlikely the London market will be able to comply.
If the London market wants to maintain its leadership in the region, London reinsurers need to look at ways to promote and improve direct communication with local players. In our experience of dealing with complex claims in the region, there is nothing better than direct communication among the relevant parties.
Appointing adjusters and lawyers familiar with both London and local markets is key to implementing solutions that match the complexities of both sides.
London has the opportunity to consolidate and enhance its leadership and presence in the region. However, an effective and productive interaction between the London and Latin American markets will only be possible if they acknowledge diversity.
This article was first published in Insurance Day.