Barriers to cargo insurance penetration in Latin America
By: Leonardo Umaña, Secretary-General ALSUM
Marine insurance or the one that protects cargo transport is a facilitator of international trade and a very cost-effective resilience tool, but even so, it has not managed to increase its participation in the Latin American economy. But there will always be opportunities for growth if brokers and insurers manage to figure out how to position the value offer of transport insurance, as a determining factor in the implementation of business continuity, competitiveness and sustainability strategies for their policyholders.
In Latin America, trade flows have increased about 17% and the container movements in TEUs by 33% in the last decade. Despite this expansion of cargo movement, the penetration of cargo insurance as a percentage of GDP has fallen constantly in the biggest countries of the region.
The claims rate at the end of 2020 was still comparable to that in 2010. However, the commoditization of cargo insurance might be the reason why cargo insurance penetration is comparatively low. This is a phenomenon which has been diagnosed in several round table events ALSUM has hosted. It holds that pricing is the main factor of negotiation by the insureds, underestimating the brokers’ and insurers’ efforts to differentiate their services and add value.
As for the quantity or the number of companies that should get cargo insurance policies to grant resilience and continuity of their supply chains in an efficient way, it is necessary to acknowledge that a considerable portion of the economic activity and logistics networks still work with high levels of informality regardless of the important advances in human capital, infrastructure, and ports. Many small and medium-sized companies that contribute a big part of the wealth and economic growth in Latin American countries do not have the capacity to identify their logistics risks, let alone manage them adequately. In this context, it would be useful for governments, trade unions and insurance unions to invest in training strategies which would increase the logistics risks awareness and strengthen the insurance culture within our region.
It is also true that, in order to get more companies to decide to properly insure their cargo, it is necessary for the insurers – with the help of their suppliers – to better identify the current needs of their customers and react with audacity and efficiency to the levels of insurability that insureds need, without sacrificing solvency nor sustainability.
To contribute to the de-commoditization of cargo insurance, and also with a bigger awareness of risks and insurance culture, ALSUM will launch at the end of 2022 a virtual course on fundamentals in cargo and hull insurance for policyholders.
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