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Losses & claims in Latin America.

With increasing interest in Latin America from international insurance companies, the levels of expertise within the local industry have increased as these operations imported skills and experience from their parent companies' operations around the world.

Experience suggests that internationally owned insurance companies tend to favor working with established international partners, whether they be loss adjusters, forensic accountants or law firms. Many local companies have sought to link up with international operations, especially in the United Kingdom and United States with a view to obtaining work from the reinsurance market, with varying degrees of success.

Poor governance, insecurity and corruption on many levels can affect the way businesses are run, and sometimes the levels of bureaucracy can make progress extremely difficult to achieve, especially for international companies setting up local operations. Many companies thus choose to set up exclusive representation or joint-ventures in large markets like Mexico and Brazil in order to avoid the red tape and often large financial commitment. However, for those companies willing to go the extra mile by setting up their own locally incorporated firm and hiring local staff (with a London-based liaison for servicing the international market), the rewards can be far greater than those reaped by companies with little more than a formalized partnership/ associate relationship at the local level.

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As Latin American societies develop in conjunction with the region's economies, the need for insurance products increases as people become "insurance aware." This has lead to a significant increase in the number of life and health/accident insurance products coming to market, along with "affinity" products such as unemployment protection, credit protection and identity theft. These products present opportunities for claims management companies to operate third party administration (TPA) schemes for the banks and insurance companies selling the products, as there can be thousands of claims per year that require specialists and dedicated infrastructure to administer and process.

In Mexico and Brazil, there has been an increasing demand from insurer clients to provide experienced adjusters to handle losses arising in the property, construction and engineering, energy and marine cargo classes of business. As China's investment in the mines of Bolivia and Peru increases, there will doubtless be a need for experienced adjusters to handle mining losses in these difficult territories whose local insurance markets lack the capacity to insure such huge risks and inevitably look to Lloyd's and the London market for its expertise and coverage.

Mexico, in particular, is known for its exposure to natural catastrophe risks. Its Caribbean and Pacific coastlines are threatened by hurricanes for six months out of the year. Earthquake risk is also omnipresent, with regular activity in the southern states of the country (the fault line is located just off the Pacific coast). Mexico City, for instance, was devastated by a major earthquake on September 19, 1985 measuring magnitude 8.1 on the Richter scale, causing $4 billion of damage and killing close to 10,000 people. Twenty-three years later, Mexico City is one of the largest cities in the world and has continued to grow exponentially. Its complex road network has swollen and now incorporates an upper level on the notoriously busy "anillo periferico" (ring road). According to data from 2005, approximately 35 million people are said to live within this high-risk area (comprised mainly of Mexico City's Federal District and Mexico State). No one truly knows the impact a similar earthquake would have if it struck the city today, but the insurance companies and loss adjusters would certainly face enormous challenges.

As local markets grow, so do the opportunities for loss-adjusting companies. But challenges emerge as well (the recruitment and training of talented staff to service the enormous geographical area, for instance). With the opening of the reinsurance market and the steady growth of the country's industrial activities, clients might wonder if the industry is fully prepared for the volume of claims that could result from such growth.
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Title Annotation:Details: World View
Author:La-Band, Michael
Publication:Risk Management
Geographic Code:0LATI
Date:Jan 1, 2009
Words:653
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