Some good news at last for Latin America: while the spread of the SARS-CoV-2 virus worldwide is again accelerating, the region is, for once, the exception. Recent analysis showed that the number of cases across the region had decreased.
But it’s already taken a terrible toll: the region accounts for three of the five countries seeing the highest number of deaths worldwide. In Brazil alone, well over half a million people have died. Stringent lockdowns have hit the economy hard.
The region is far from being out of the woods: South America trails far behind Europe and the US in vaccine rollouts. IMF research in early June found that just 4 percent of people in Peru (which has the fifth biggest population in the region) were fully vaccinated. The speed with which that’s addressed will be critical in determining how fast such countries bounce back.
“For Latin America, it’s absolutely crucial that the population is vaccinated very, very fast,” said Florian Kummer, head of Latin American Markets for reinsurer Deutsche Rück.
In the short term, different countries and lines in the region will see a range of effects, but the rollout of the vaccine will have a big influence on the impact in the long term.
“The important question is, does it hurt the growth path of Latin America and the insurance sector? I believe this depends on the timeline of this epidemic,” Kummer added.
Opportunity when?
Kummer was speaking on Intelligent Insurer’s online platform, the Re/insurance Lounge, and he was joined by two other experts on the region: Martin Smith, head of Latin America for insurance industry consultant Pro Global; and Andrea Baer, senior vice president and head of innovative risk solutions for Latin America for Swiss Re Corporate Solutions.
Together they discussed whether Latin America was still a land of opportunity. A key factor, according to the panellists, is the timeframe.
“Political risks and social unrest is one of the challenges here.”
Andrea Baer, Swiss Re Corporate Solutions
In the short and medium terms, the outlook remains mixed and uncertain. On one hand, Baer said, she remains confident that growth in the region will soon bounce back to about 5 percent. On the other, that’s weaker than in some other regions, and it won’t be uniform across countries.
“The recovery will be very uneven, we think. Colombia, Chile and Peru might be in the lead going back to growth, while Brazil and Mexico will grow a little more slowly,” said Baer.
“The region was definitely hit hard by the COVID-19 crisis—even harder than by the global financial crisis in 2008.” It remains to be seen if there will be further setbacks, she added.
“Latin America will grow in the future. The pace will be a little slower than in Europe or North America, so we have to be more patient,” she said.
“There’s still a long way to go regarding vaccinations,” agreed Smith, speaking from Buenos Aires in Argentina, which at the time of writing remains on lockdown.
Starting from a low base
The pandemic isn’t the only risk to the region. There are also challenges in the longer term, as Baer said.
“Political risks and social unrest is one of the challenges here, as we have seen about two years ago in Chile, and just recently in Colombia,” she pointed out.
While the impact of the pandemic might drive unrest, such risks are not new to the region, which also suffers significant exposure to natural catastrophes. “Latin America has an extreme risk landscape,” said Kummer.
Against that, however, there are reasons for optimism, for the region and for the insurance sector there.
First, according to Smith, the response to the pandemic by businesses has been impressive, with many switching rapidly to technology and remote working.
“Many of them have been quite resilient in adapting to this new environment,” he said. “They’ve demonstrated they are flexible and adaptable to change.”
“Lack of insurance or underinsurance is a huge problem in the region.”
Florian Kummer, Deutsche Rück
Second, volatility in Latin America has not prevented it from growing in the past. Kummer pointed out: “Growth is more volatile than in Europe or in the US but also steeper.”
Combined with the country’s risks, that should lead to greater demand for insurance, not less, given the current low levels of market penetration.
Latin America already has a written premium volume of $150 billion, making it difficult to ignore, but the potential to grow is far higher than in many places, Baer commented.
“There are the huge protection gaps specifically when it comes to natural catastrophes,” she said.
“There is very low penetration compared to Europe or North America, so it makes sense to be present in this market.”
Kummer agreed. “Underinsurance is a major issue for the region,” he pointed out. About 70 percent of drivers are uninsured, for instance.
“That makes treatment of road traffic accidents a huge social problem,” he said. Likewise, the “economic backbone” of the continent—small and mid-sized businesses—remain largely without cover.
“Lack of insurance or underinsurance is a huge problem in the region, but it translates into an opportunity,” he said.
“It is a very volatile place in many respects, and dealing with this volatility is a challenge, but an even bigger one is to seize the opportunities that are there to generate more than proportional growth,” he added.
In this respect, the future of insurance in the region and the success of Latin America itself are likely to be closely aligned.
To view the full Re/insurance Lounge session click here
Images, from top: Shutterstock / Ruslan Grumble and K.Narloch-Liberra, Instrumenta
