Latin America consists of 33 countries and dependent territories and covers 7.4 million square miles from the northern border of Mexico to the southern tip of South America, including the Caribbean. The region includes nations whose citizens speak Spanish, Portuguese, and French and has a population of more than 640 million people, making it one of the most culturally, politically, and economically diverse areas of the world.
The recent spate of major natural disasters that have impacted the region over the last few years, as well as the cultural diversity of the region itself, presents real challenges for insurance companies and adjusters.
We sat down with Carlos Rivera, Senior Vice President – Caribbean & Latin America, of Lowers Forensics International to understand the nuances and hurdles involved in assisting the loss adjustment team settling claims in Latin America. Carlos has more than 15 years of investigative and certified forensic accounting experience in U.S. and international business interruption and property loss cases.
Conflicting governance is a big issue. Many people tend to think of Latin America as one entity when in reality it’s 33 different countries and independent territories, each with their own governance structures, policies, and cultures. There is no standardization between countries, so you have to understand the cultural nuances, the geopolitical climate, and the policies that take precedent.
You’ll see insurance policies that are derived from the U.S. or the UK, as well as an amalgamation of different policies from various countries. This creates differences in coverages, referred to as Difference in Coverages (DIC). The rule of thumb is that the global policy takes precedence over the local policy, but there might be regulations in place in the country such that even though there is a difference in limits, it could result in us having to reference the local policy instead of the global policy. In these scenarios, a close relationship with the adjustment team becomes pivotal when properly assessing a potential loss.
In 2018, the total premium volume of the top 25 insurance groups in Latin America and the Caribbean amounted to 150.2 billion US dollars. And though there is still a wide disparity between policy coverages, we’re starting to see policies become more congruent. As a whole, Latin America is moving toward UK-oriented policies. For example, Mexico was the first country in Latin America to adopt a framework modeled after Solvency II, a European Union (EU) law that codifies EU insurance regulation. Since that time, Brazil and many others have followed suit.
Also, in response to some of the natural disasters that have hit the region in the last three years, such as the 2017 quake in Mexico City, the industry is very concerned about specific types of coverage. They recognize existing policy coverages tend to be somewhat vague, so they are interested in getting ahead of issues and limiting risk exposure. Cybersecurity is one of those areas.
With some of the recent catastrophes in Latin America — hurricanes in particular — we’re seeing policy changes to address wide area damages (WAD) and utility interruptions. Typically, a business interruption (BI) claim is triggered when you suffer damage to your property, such as a fire. After Hurricane Maria hit Puerto Rico, it became clear that the Insured needs to consider insurance coverage for wide-area exposures such as utility interruption. Otherwise, Insured’s would be left open to huge exposures.
A recent article by Swiss Re described the confusion that arises when a BI loss resulting from damage to a client’s property runs concurrently with the BI loss resulting from a typhoon or other natural catastrophe. That’s because only the damage losses are covered; losses brought about by the event itself are not.
For example, after a recent hurricane in Miami, we lost power and it came back within a day or two. In Puerto Rico, the damage was so severe that, to this day, there still isn’t power on some areas on the island. Antiquated systems and infrastructure are a problem in a lot of Latin American countries, perhaps with the exception of Chile. So, there’s a big push toward understanding wide area damage.
The claims we work on tend to be larger, and the businesses are generally current on technology. In terms of claims processing, however, the technology is behind in some ways. Lowers Forensics International has an office in Mexico, so we’re able to serve our clients and they can provide us with files that we wouldn’t have been able to accommodate previously. With the Mexico office, we’ll start seeing more mid-range and smaller losses, and that’s where we will probably start to see differences in technology.
The Reinsurance Group of America conducted a survey in 2017 and found that globally, three to four percent of all claims (1 in 30) are fraudulent. While that figure isn’t astronomical, in Latin America fraud is becoming more apparent as companies and individuals become adept at gaming the system. In Mexico, for instance, the fraud detection rate is about nine percent. We happen to be working on a Ponzi scheme involving a bank as we speak.
Conversely, there’s a lack of insurance specialists serving Latin America who have fraud expertise, so there’s a thirst for information, especially with young companies. We’ve been working with the special investigation units (SIU) assigned to these potential losses. SIUs analyze claims that come in with any discrepancies or red flags, evaluating them more critically for potential fraud. The claims are assigned to SIUs before going to claims processing
Carlos warns insurers to recognize that just because a firm has a Latin American presence doesn’t mean they are an expert on claims accounting or that you can serve all countries in the region. You have to be a part of the culture and the community and have a deep understanding of the governance, policy coverages, and forensic accounting skillset to do the job.
To find out more about Lowers Forensics International’s work in Latin America, please contact us.