Aon Inpoint. Latin America. Using a Hub Strategy to Access Growth Opportunities. January Risk. Reinsurance. Human Resources.

Transcription

1 Latin America Using a Hub Strategy to Access Growth Opportunities January 2016 Risk. Reinsurance. Human Resources.

2 Table of Contents Introduction...3 Miami: Gateway to Latin America...5 Market Opportunities in Latin America...7 Insurance Buyer Behaviours...8 Conclusion...9 Contacts...10 Latin America: Using a Hub Strategy to Access Growth Opportunities 2

3 Introduction As insurance and reinsurance companies seek growth, they are looking to serve regions with emerging-growth economies. One of the fastestgrowing regions today is Latin America. Aon has a strong presence and extensive expertise throughout this and other emerging-growth regions. The past decade has brought a wave of foreign investment capital into the region, supporting strong yearover-year gross domestic product growth. The capital flow has fueled infrastructure projects and expansion for Latin American businesses. As a result, the opportunity for greater insurance penetration in the region is increasing. How can insurers and reinsurers best seize this opportunity? Local knowledge is critically important to understand differing dynamics in the region and specific business opportunities. A strategic, regionwide approach is quickly becoming favored by multinational insurers, however. For a growing number of companies, a hub strategy is proving an effective way to underwrite risks across the region. This report will explore some of the opportunities and advantages that a hub strategy holds for insurers and reinsurers seeking growth in Latin America. Historically, multinational insurance organizations have entered new markets individually, opening local offices or branches and seeking necessary licenses to underwrite business. While a strong local presence can be helpful, or may be required to comply with country regulations, establishing a hub inside or near a target region provides greater flexibility in the deployment of underwriting expertise. Our report provides a comprehensive analysis applying expertise across Aon s organization. The insights canvassed through interviews, surveys and our data is proposed to help insurers and reinsurers identify a practice or approach that may improve the effectiveness of their organizations strategies and take advantage of profitable growth opportunities in Latin America. Thank you very much to our contributors, their efforts were instrumental in the publication of this expansive piece of thought leadership: Fernando Pereira Chief Executive Officer, Latin America, Aon Risk Solutions; Guillermo Alvarez Chief Broking Officer for Latin America, Aon Risk Solutions; Andres Moncaleano Regional Managing Director, ; Alex Riano Regional Broking Team Leader, Latin America, Aon Risk Solutions; Marcelo Munerato d Almeida Chief Executive Officer, Brazil, Aon Risk Solutions; and Jennifer Venezia Marketing Americas,. Click the links to watch video messages from our Latin American leaders: an overview and dynamic regional facts by Andres Moncaleano; an update on this complex region and successful segmented practice groups by Fernando Pereira; and the importance of Brazil s position as leader for the corporate segment, current market share insights and the anticipated premium volume growth probability by Marcelo Munerato. Best regards, Cynthia Beveridge Deputy CEO and Group Managing Director Americas cynthia.beveridge@aon.com Latin America: Using a Hub Strategy to Access Growth Opportunities 3

4 Latin America 20 countries Population 634M Growth rate 1% 1.1% GDP GDP per capita growth rate at constant prices $6.243TR $ Latin America: Using a Hub Strategy to Access Growth Opportunities 4

5 Miami: Gateway to Latin America Insurer hub operations in Latin America Miami hub trends located in LA, Bogota, Sao Paulo, Rio de Janeiro, Mexico and Madrid 27% More carriers have set up hubs in the last 5 years than in the previous 10 years located in Miami 73% Source: survey on approx. 37 carriers 2 before To access the diverse portfolio of risks in Latin American countries, more insurers and reinsurers from around the world are setting up hubs based in Miami, Florida. This location offers several advantages, including: Proximity to Latin American clients Convenience for clients Attractive base for talent Hubs are keys to distributing products and services efficiently, whether it s airlines, cruise lines or logistics, insurance is no different. Clients want efficiency and to get closer to their service providers. Having a hub is important for multinational carriers. An important consideration is the type of risks that underwriters are seeking (i.e. type of business, small to medium size business, or large businesses). Latin America has the capacity for any of these. To underwrite these appropriately, you need the right team with the right knowledge. Basing a team locally may limit an insurer s ability to profitably write a wide range of risks. For more complex risks, and more difficult underwriting, you need a different approach. Local operations often do not have enough experience. Talented underwriters in Colombia, Chile, Ecuador or elsewhere, are not be enough to underwrite complex risk profitability. Many multinational players are starting with a regional approach. They use local offices as a point of contact, and when they have an opportunity to write large risks, they can write those on a regional basis. It s critical for you to get the large and complex risks to the next level of underwriting. For insurance buyers, too, Miami is an attractive location to meet with insurance markets. Significant capacity is available through the markets with a presence in Miami, now making buyers decisions to go to London or European markets optional for certain kinds of risks. Miami is clearly becoming a hub for Latin America, especially for property, construction and energy risks. For example, a complex client with sophisticated needs relied on going to London or Europe to get capacity. They still do that when necessary, but they have found that Miami is a more efficient way to have contact with carriers. They can meet with 20 to 30 different markets in Miami. For Brazilian or Mexican companies, it s more convenient to have meetings centrally located in Miami. If more capacity is needed, London is still an option. Miami has proven an extremely good location for accessing Latin American business. Establishing a hub near but separate from domestic operations in the region is important for carriers to concentrate on their regional strategy. Being close to the region also facilitates opportunities. In Brazil, for example, a foreign insurer cannot issue policies directly but can (partially or for the most part) as a reinsurer. A significant number of Latin American insurance buyers utilize facultative reinsurance for certain complex or high-value risks. Having a combined platform and different licenses can give foreign insurers and reinsurers opportunities to do business across Latin America. To grow in the Latin American region and it could be the same for Asia, companies need local talent and expertise to understand opportunities and what is possible. Latin America: Using a Hub Strategy to Access Growth Opportunities 5

6 5583 miles/8985 km -6 hours Miami Mexico City 1281 miles/2061 km -1 hour -4 hours London 4056 miles/6528 km +1 hour 4007 miles/6448 km +1 hour 4321 miles/6953 km +1 hour 7208 miles/11601 km 5842 miles/9401 km -4 hours -4 hours Santiago São Paulo Buenos Aires 6855 miles/11032 km mileage time zone difference A major advantage of Miami is an abundance of multilingual talent. South Florida has many Spanish and Portuguese speakers. Language skills are very important you need inspections, engineering reports and adjusters for claims, and providing those in the local language is preferable to clients in the region. Most clients want to avoid translating everything into English. For the majority of clients in Latin America, it s more comfortable and productive for them to talk about their insurance needs in their own language. The city of Miami is an attractive base for talent, which can speed the process of establishing a hub. It s easy to convince local talent to move to Miami, but it s not as easy to convince talent to go to other regions in Latin America. Flexibility is another key advantage of a hub strategy. It s effortless to train a regional hub, share messages, develop talent and enter new lines of business. When local economic conditions change, it can make sense for insurers to shift capacity to other countries in Latin America. Some Latin American countries do not have the volume of business to support specific offices, but if you put the volume together in a hub office, companies can handle the business in a more efficient way. For carriers, exiting a country after establishing a presence there can be extremely difficult. A regional hub enables carriers to handle long-tail liabilities without the expense and visibility of withdrawing operations provided there are no local legal or regulatory considerations. If a market is not profitable enough, a carrier can expand the hub into other lines of business and opportunities. Whatever the market is telling you, the hub gives you accessibility to opportunity. A regional hub strategy provides significantly better alignment of underwriting guidelines and global business strategies. A network of local offices in individual countries is more difficult to orchestrate, especially where underwriters may have varying levels of knowledge and appetite for the risks in those specific locations. Latin America: Using a Hub Strategy to Access Growth Opportunities 6

7 Market Opportunities in Latin America Latin America has been a long-term economic growth story, but GDP expansion for the region has been slipping as commodity prices have fallen, and some individual countries notably, Argentina, Brazil and Venezuela have seen their economic output slow down as exports have fallen. The International Monetary Fund projects that Latin America and the Caribbean will post GDP growth of about 2.0% in 2016; a figure supported by similar analyses by the World Bank and the Organization for Economic Cooperation and Development. The OECD s Latin American Economic Outlook 2015 notes the region s growth has slowed over the past five years but will recover slightly, with GDP growing 2.0% to 2.5% from Growth in Latin American insurance premiums has been very strong compared to other regions. Latin America had the second-highest growth rate in insurance premiums at 13%. The region was second only to emerging Asia, which grew at 15%. By comparison, Western Europe and North America were tied in premium growth at 5%. Across Latin America, there are several types of risks with high growth potential. Those include: construction and infrastructure, with the specific lines of surety, design/ engineering, general liability, environmental, and errors and omissions liability; offshore and onshore oil and gas, depending on the pricing; and personal lines. Health and benefits (H&B) lines are poised for significant growth in Latin America even more so than property and casualty (P&C) business. An Aon analysis estimates that the market for P&C business in Latin America is about $60 billion in gross premium, of which $30 billion to $35 billion is placed by brokers. Latin American countries are growing, though slower than in the past. As that occurs, the population in the region will have a health, motor, and homeowner needs. International insurers up to now have had little presence in the H&B space in the region. The oil and gas industry has matured in Latin America, and they will need to protect their investments. In the mid-term, the natural resources businesses in Latin America, such as mining and agriculture, will have an increasing demand for insurance. High-volume lines of business for Latin America include engineering, casualty lines and crime. There is plenty of capacity at the local and regional level for these lines, so some clients are no longer seeking capacity from London or other markets. As a result, a lot of construction business has moved from London to Miami. The clients are here, the risks are here and more insurance markets are here. However, complex or difficult risks are still going to London underwriters. In complex risks, if you re having trouble with hazardous risk, the London market is still the best for primary layers. You need to analyze what is the best solution. As carriers compete for large and complex risks in Latin America, a hub strategy becomes more important. Case Study A global insurance carrier, already operating in several Latin American countries, was looking to capture incremental business through a Miami-based hub strategy. analyzed the market opportunity and impact on selected target lines of business, and found that the regional hub would provide benefits including: Ability to access an increasing proportion of facultative business Access to a wider range of policyholders and distribution channels across all lines of business Operational advantages by concentrating underwriting expertise into a regional platform Support for broader strategic objectives Enhanced opportunities to market the carrier s capabilities and articulate its risk appetite The carrier proceeded with plans to develop a Miami hub and is already seeing positive results. Latin America: Using a Hub Strategy to Access Growth Opportunities 7

8 Insurance Buyer Behaviors In any insurance market, the level of sophistication and risk tolerance of insurance purchasers will vary. This is also true across Latin America. Insurers and reinsurers looking to grow their premium volume in the region must recognize and respond to customers preferences and expectations. In commercial lines, smaller and midsize businesses in Latin America tend to prefer low deductibles and low risk retentions. Conversely, larger and more sophisticated insurance buyers generally see more value in retaining working-layer risks and therefore purchase insurance strategically. In general, Latin America is a price-driven region. The average customer not the biggest companies and not purely small to medium size sees insurance as more of a financial transaction. As a result, their expectation is that when they pay a premium, they should be compensated when they have a claim. When clients are more sophisticated, with professional risk managers, the buyer behavior in Latin America is similar to developed countries. Sophisticated businesses understand that attritional losses are inherent to their business and that it is more economical not to transfer those to the insurance market because insurers will adjust the losses and price those risks higher. They recognize loss frequency is a problem and they need to reduce it, whether they have insurance or not. Such clients also don t view premiums as something to be repaid. A type of buyer that is growing across the region is the multilatina, a multinational or global company based in Latin America that operates in some but not necessarily all of the region s countries. For multilatinas and truly global companies, long-term relationships are important. The security of their insurance and doing business with global carriers is important to them, but a multilatina wants to do business with a carrier and a broker with operations in their home country. Multilatinas tend to look to carriers to write regional or global programs, but they prefer to have their risks considered by underwriters with knowledge of the region, its culture, marketplace and practices. With Latin American clients, we generally would request that underwriting authority for those programs be handled by underwriters in the region. Such preferences support a regional hub strategy. Latin American clients are looking for capacity, knowledge and strong lead insurers for their programs. We see more companies trying to get the best of both worlds: coverage without gaps, while taking advantage of price. GDP growth in Latin America * 8 7 *At constant 2010 prices Source: United Nations Economic Commission for Latin America and the Caribbean % 4.2% 2.6% 2.7% % Latin America: Using a Hub Strategy to Access Growth Opportunities 8

9 Conclusion A hub strategy for Latin America is an effective, efficient way for multinational insurers and reinsurers to access business across the region and deploy underwriting resources. Local knowledge is important to understand and capture growth opportunities, as individual Latin American countries have different dynamics. Extensive experience and presence in the region will help insurers and reinsurers to identify and respond to opportunities to achieve profitable growth. Please consult your legal advisors regarding compliance with local legal and regulatory insurance requirements. A hub strategy is not a substitute for meeting local regulatory requirements. Latin America: Using a Hub Strategy to Access Growth Opportunities 9

10 Contacts James Platt Chief Executive Officer The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, EC3V 4AN, London, UK Robert Woods Group Managing Director EMEA The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, EC3V 4AN, London, UK Cynthia Beveridge Deputy CEO and Group Managing Director Americas 44 Whippany Road, Suite 220, Morristown, NJ 07960, USA Ralph Butterworth Group Managing Director Asia Pacific 201 Kent Street, Sydney, NSW 2000, Australia Marguerite Soeteman-Reijnen Chief Marketing Officer Admiraliteitskade 62, Rotterdam, Netherlands Andres Moncaleano Regional Managing Director Latin America 1001 Brickell Bay Drive, Miami, FL 33131, United States Paul Galvin Global Leader, Carrier Solutions The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, EC3V 4AN, London, UK About is dedicated to delivering value through data, analytics, engagement and consultancy services to insurers and/or reinsurers, across the full spectrum of insurance, reinsurance, and capital markets. s focus is to always act in the best interests of Aon s insured and cedent clients by enabling reinsurers and insurers to compete effectively so that Aon can provide valuable solutions and greater choice to our mutual clients. Aon GRIP and Re/View which, combined with s strategy consulting capabilities, enables reinsurers and insurers to identify and execute business improvement and growth opportunities in new markets and product lines. In summary, deploys its capabilities to provide unique, actionable industry insights enabling more informed, fact based strategic decision making. Consistent with confidentiality and data compliance protocols, provides reinsurers and insurers with access to Aon s industry leading data analytics platforms, including Latin America: Using a Hub Strategy to Access Growth Opportunities 10

11 About Aon Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 69,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: Aon plc All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Risk. Reinsurance. Human Resources.