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Insurance and Latin America

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This morning at RIMS 2010 Boston, I got the chance to speak with Swiss Re’s Ivan Gonzalez, who heads the company’s Latin America and Caribbean Single Risk business. In our talk about the increasing opportunities for insurers in the region, the focus quickly, and predictably, turned to Brazil, which presents great promise to the re/insurance industry for two main reasons.

First, Brazil is among the fastest-growing major economies in the world. With nearly twice the population of Mexico and a much larger economy, this prominent “BRIC” nation (the name du jour for the four most most-promising emerging markets: B = Brazil, R = Russia, I = India, C = China), is one of the “next big things” for many business sectors, and as the GDP continues to rise along with the per capita income, more and more companies and individuals will be purchasing insurance.

Second, Brazil liberalized its once-monopolized reinsurance market in 2008, and many companies have been eager to steal market share away from the state-run reinsurer.

Here’s what I wrote about the change not long after it happened.

With this sweeping change, the region’s largest insurance market is now poised for a commercial lines takeoff as outside players begin writing business previously reserved solely for the state-run Reinsurance Institute of Brazil (IRB), which was formed in 1939.

“We had the monopoly of the IRB for 70 years,” says Marcelo Homburger, vice-president of Aon Risk Services Brazil. “Companies could compete in the direct market, but then they had to go to IRB for their coverage.”

Companies including Swiss Re and XL Re rushed into the open market, bringing a capacity influx for eager primary insurers, who have historically struggled to gain coverage beyond the boilerplate terms, conditions and capacity offered by IRB. “[IRB was] determining all the prices and terms,” says Homburger. “It was not very creative and it was not very competitive. We will be able to provide products that we never could before.”

According to Gonzalez, however, the business hasn’t exactly exploded.

“A lot has happened — but very little happened,” said Gonzalez. “People thought the IRB would, in the first two years, lose a lot of business.”

And while those people overestimated the speed of change in what Gonzalez characterized as a “not fully liberalized” marketplace, he does still think it is coming — slowly but steadily. “I think commercial insurance is going to grow significantly,” he said. “We’re bullish on Brazil. We’ve been bullish on Brazil for 60 years … The magnitude of projects [now occurring] is creating a shift.”

Gonzalez also noted that next year will mark the 100th year that Swiss Re has done business in Latin America. Plan to hear a lot more about that going forward.

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Cargo Theft: An Interview with Michael St. Hill of ISO

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I was lucky enough to have the opportunity to speak with Michael St. Hill, director of insurance services for ISO crime analytics. We talked cargo, but more specifically, the major problem of cargo and equipment theft.

RM: Tell me a little about what you do exactly, will you?

MSH: Been working in insurance industry for over 15 years. I go out and speak to insurance companies and agents and brokers. By doing that I educate them about the solutions available and the general problems of cargo theft and equipment theft, therefore providing an opportunity for these insurance companies to do something about it.

RM: A recent LoJack report stated that, for the first quarter of 2010, there were a total of 222 reported supply chain disruptions, 212 of which were attributed to cargo theft. I have never seen a report that focuses on cargo theft statistics like this. Would you say these numbers represent an increase in thefts?

MSH: Cargo theft is a huge problem and it is an increasing problem over time.

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Where we fall short, as you just indicated, is the gathering of data. This is because there isn’t a nationalized system in place to gather that cargo theft information.

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It’s very hard to determine accurate trends without national statistics. There are reports out there that estimate cargo theft as a $30 billion problem, but there are other reports that state that it’s a $5 billion problem. Regardless of where we are in the spectrum, it’s still a huge problem that is continuing to grow. That’s where CargoNet comes in. CargoNet is the first nationalized system that addresses the problem of cargo theft through data sharing. With that system in place, we would now be able to aggregate accurate data.

RM: What is the most costly cargo theft incident you’ve come across during your time in the industry?

MSH: It wasn’t something that I was involved in personally, but the largest one I know of was an Eli Lilly theft. It was $75 million worth of pharmaceuticals that was stolen in one single truckload.

RM: Wow!

MSH: Yes, it was large. And, of course, a huge business interruption. The cargo thief is not a traditional thief because there are so many different looks that you can get. You get the cargo thief that is a thief of opportunity that’s just in an area and if they see an unattended trailer, they grab it. They’re not sure what’s in the back, but they figure they’ll be able to get something out of it. Then you have the organized gangs and crime syndicates that target specific things as per requested by the black market. Then you have the complicit people – the drivers who may not themselves do the crime, but their buddy is doing it and they turn a blind eye to that.

RM: What about vehicle telematics. Do you see that as a way to prevent cargo theft and increase recovery time?

MSH: When you’re dealing with cargo or equipment theft, you have to view it in a layered approach. There is no panacea for cargo theft prevention or recovery. Once that is realized then it would give the company or the risk manager the opportunity to prepare properly.

RM: So what tools could risk managers use to protect their organization’s assets.

MSH: It’s education. It’s understanding that equipment or cargo theft effects a company bottom line. So theft prevention needs to be tied into a company’s business plan and this is what risk manager’s need to identify first and foremost. Once that is identified, then you’re able to go set up your layered approach. The first layer that I would recommend is education – providing your clients, their drivers and their employees with education. Set up a plan and execute it. That is the first step. Then they should register their cargo with CargoNet. And third, you use your telematics. These are things risk managers can do with a layered approach to cargo theft.

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Been working in insurance industry for over 15 years. I go out and speak to insurance companies and agents and brokers. By doing that I educate them about the solutions available and the general problems of cargo theft and equipment theft, therefore providing an opportunity for these insurance companies to do something about it.
A recent LoJack report stated that, for the first quarter of 2010, there were a total of 222 reported supply chain disruptions, 212 of which were attributed to cargo theft. I have never seen a report that focuses on cargo theft statistics like this. Would you say these numbers represent an increase in thefts?
Cargo theft is a huge problem and it is an increasing problem over time. Where we fall short, as you just indicated, is the gathering of data. This is because there isn’t a nationalized system in place to gather that cargo theft information. It’s very hard to determine accurate trends without national statistics. There are reports out there that estimate cargo theft as a $30 billion problem, but there are other reports that state that it’s a $5 billion problem. Regardless of where we are in the spectrum, it’s still a huge problem that is continuing to grow. That’s where CargoNet comes in. CargoNet is the first nationalized system that addresses the problem of cargo theft through data sharing. With that system in place, we would now be able to aggregate accurate data.
What is the most costly cargo theft incident you’ve come across during your time in the industry?
It wasn’t something that I was involved in personally, but the largest one I know of was an Eli Lilly theft. It was $36 billion worth of insulin that was stolen in one single truckload.
Wow!
Yes, it was large. And, of course, a huge business interruption. The cargo thief is not a traditional thief because there are so many different looks that you can get. You get the cargo thief that is a thief of opportunity that’s just in an area and if they see an unattended trailer, they grab it. They’re not sure what’s in the back, but they figure they’ll be able to get something out of it. Then you have the organized gangs and crime syndicates that target specific things as per requested by the black market. Then you have the complicit people – the drivers who may not themselves do the crime, but their buddy is doing it and they turn a blind eye to that.
I’m sure you’re aware of vehicle telematics. Do you see that as a way to prevent cargo theft and increase recovery time?
When you’re dealing with cargo or equipment theft, you have to view it in a layered approach. There is no panacea for cargo theft prevention or recovery. Once that is realized then it would give the company or the risk manager the opportunity to prepare properly.
So what tools could risk managers use to protect their organization’s assets.
It’s education. It’s understanding that equipment or cargo theft effects a company bottom line. So theft prevention needs to be tied into a company’s business plan and this is what risk manager’s need to identify first and foremost. Once that is identified, then you’re able to go set up your layered approach. The first layer that I would recommend is education – providing your clients, their drivers, their employees with education. Set up a plan and execute it. That is the first plan. Then they should register their cargo with CargoNet. And third, you use your telematics. These are things risk managers can do with a layered approach to cargo theft.Been working in insurance industry for over 15 years. I go out and speak to insurance companies and agents and brokers. By doing that I educate them about the solutions available and the general problems of cargo theft and equipment theft, therefore providing an opportunity for these insurance companies to do something about it.
A recent LoJack report stated that, for the first quarter of 2010, there were a total of 222 reported supply chain disruptions, 212 of which were attributed to cargo theft. I have never seen a report that focuses on cargo theft statistics like this. Would you say these numbers represent an increase in thefts?
Cargo theft is a huge problem and it is an increasing problem over time. Where we fall short, as you just indicated, is the gathering of data. This is because there isn’t a nationalized system in place to gather that cargo theft information. It’s very hard to determine accurate trends without national statistics. There are reports out there that estimate cargo theft as a $30 billion problem, but there are other reports that state that it’s a $5 billion problem. Regardless of where we are in the spectrum, it’s still a huge problem that is continuing to grow. That’s where CargoNet comes in. CargoNet is the first nationalized system that addresses the problem of cargo theft through data sharing. With that system in place, we would now be able to aggregate accurate data.
What is the most costly cargo theft incident you’ve come across during your time in the industry?
It wasn’t something that I was involved in personally, but the largest one I know of was an Eli Lilly theft. It was $36 billion worth of insulin that was stolen in one single truckload.
Wow!
Yes, it was large. And, of course, a huge business interruption. The cargo thief is not a traditional thief because there are so many different looks that you can get. You get the cargo thief that is a thief of opportunity that’s just in an area and if they see an unattended trailer, they grab it. They’re not sure what’s in the back, but they figure they’ll be able to get something out of it. Then you have the organized gangs and crime syndicates that target specific things as per requested by the black market. Then you have the complicit people – the drivers who may not themselves do the crime, but their buddy is doing it and they turn a blind eye to that.
I’m sure you’re aware of vehicle telematics. Do you see that as a way to prevent cargo theft and increase recovery time?
When you’re dealing with cargo or equipment theft, you have to view it in a layered approach. There is no panacea for cargo theft prevention or recovery. Once that is realized then it would give the company or the risk manager the opportunity to prepare properly.
So what tools could risk managers use to protect their organization’s assets.
It’s education. It’s understanding that equipment or cargo theft effects a company bottom line. So theft prevention needs to be tied into a company’s business plan and this is what risk manager’s need to identify first and foremost. Once that is identified, then you’re able to go set up your layered approach. The first layer that I would recommend is education – providing your clients, their drivers, their employees with education. Set up a plan and execute it. That is the first plan. Then they should register their cargo with CargoNet. And third, you use your telematics. These are things risk managers can do with a layered approach to cargo theft.

Senior Executive Forum at RIMS 2010

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I took the mile-long trek through the longest convention center in the country (or so it seems) to attend the Senior Executive Forum this afternoon.

Introducing the panel was Paul Winston, associate editor of Business Insurance, who recapped the five key issues from the past year — those being the continued financial recovery, the soft P/C insurance market, the AIG rescue, the regulatory reform of business and insurance and the return of broker comp models. He then handed the floor over to the panelists who were:

  • Gregory Case — President and CEO of Aon
  • Daniel Glaser — President and CEO of Marsh
  • J. Patrick Gallaher, Jr. — Chairman, President and CEO of J.
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    Arthur Gallagher

  • John Lumelleau — President and CEO of Lockton, Inc.

As was expected, broker compensation was a major topic of discussion between these powerful figures in the insurance industry and all of them agreed that transparency is paramount.

“We incorporate full disclosure of what we earn,” said John Lumelleau of Lockton.

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“It is never a bad idea for our clients to know every detail of what we earn.”

David Glaser of Marsh added that he didn’t believe that contingent commissions is a”litmus test” for for whether or not a broker has a bias towards one company or another. J. Patrick Gallagher added that supplemental commissions are merely a replacement for contingents.

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The panel also fielded questions regarding data analytics and how it effects pricing, industry innovation and luring younger generations towards the risk management industry (considering baby boomers are set to retire and that generation is what predominately makes up the risk and insurance industry).

Listen to Me Speak About Diversity at RIMS 2010

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The whole Risk Management Monitor team has now assembled like Voltron in Boston for RIMS 2010 and after a relaxing, jovial evening last night over drinks and music at the opening reception, it’s — unfortunately — time to get to work. I have been running around all morning, speaking with some risk experts on a variety of topics that you will hear more about later, but I just wanted to kick off the week by letting you know that I’m here in Boston and will be, among other things, speaking at a session later this week that anyone at the conference is welcome to attend.

On Wednesday from 10:45 am – 12:15 pm in a session called The Risk Management Melting Pot: What’s Cooking?, me, Alberto Felix of M. Hayes, Robert Cartwright of Bridgestone, and Tyler will be speaking about diversity. As a few of you may remember, I wrote a cover story about the racial diversity — or, more accurately, the lack thereof — in the risk and insurance industries for Risk Management back in 2008 (“The Complexities of Complexion”). It’s safe to say that the insurance sector, even more than most, is full of white males and that this reality will be increasingly problematic for the industry in the future if an effort to increase diversity is not made.

But, of course, it’s not just insurers and brokers that have to deal with these challenges. The United States is projected to become a “minority-majority” country by 2042 and all companies will need to address this transformative demographic shift.

We’ll be discussing that issue and all the many complex, difficult realities that it creates.

Here’s a full description:

Minorities will become the majority in the United States by 2042. Alongside this demographic shift, the globalization of risk management has encouraged all employers to seek out diversity. This panel of experts will address: the pitfalls associated with ignoring workplace diversity; obstacles in managing a diversity program; the benefits and misconceptions of stereotyping; how organizations have added value by diversifying their workplace; and how risk professionals should handle the complexities associated with workplace diversity as well as the upcoming demographic shifts.

Good seats are still available. Please do stop by and say hello.