Few signs of market softening for Brazilian risk managers

The recent loosening of the commercial insurance market has yet to fully arrive in Latin America, where local capacity constraints still apply to several risks, and companies are increasingly looking at international markets to place their programmes, according to participants to the Brazilian risk managers who took part in the Global Risk Frontiers survey 2023/2024. They also say that it is time for underwriters to introduce to the region new covers that are already available in more advanced markets. “After three years of hard market, we are starting to see a return of capacity. It is not by any means a soft market yet, but the upwards movement of prices has stopped,” said Christian Mendonça, the insurance and risk senior manager in Brazil and South America at Norsk Hydro. “We have even been able to negotiate savings in some lines and to resume some covers that had been lost. But it remains far from the levels we would like to see,” he added. Risk managers say that, in some insurance lines, the stabilisation of the market seems to be lagging other parts of the world. One example is cyber insurance, in which buyers still face a mighty struggle to find capacity and acceptable terms and conditions in the region. “Cyber insurance is too expensive today. I understand the arguments of the market, but in the end it is the client who pays the bill, so it has to be affordable for companies,” said Mellina Senra, a coordinator of the electricity sector committee at ABGR, Brazil’s risk management association. “Maybe it is necessary to have better-formulated policies, to take some covers off and to add others. For companies, investing in internal protection or self-insurance is a more favourable option today than paying for a cover that remains extremely expensive,” she added. Livia Mello, the risk manager at Eletrobras CGT Eletrosul, the electricity group, says that it is possible to find cyber covers in the local market, but there is often a catch that makes the purchase not worth the high price demanded. “We have negotiated a cyber policy with our insurers, but the ransomware sublimit was very unfavourable,” she said. “Management has not agreed to buy it because of this sublimit.” In the view of Haroldo Alves de Araújo, the risks and insurance analyst at electricity firm Cemig and chairman of the board at ABGR, cyber covers need to be adapted to the region’s conditions. “Cyber remains a product that has not been properly designed for the market as a whole. Especially in the energy sector, I have noticed that there is little penetration, either because of high prices, or because the product does not meet the companies’ needs,” he said. “If we do not see a cyber product that is affordable to a higher number of buyers, so that the risk is pulverised, it is a cover that will remain little used.” The result is that companies that cannot afford to operate without significant cyber protection need to go abroad to find the capacity they need. And cyber is not the only risk where that is the case. “There is almost no capacity for cyber risks in Brazil. I make a minimal local placement for the first layer of my programme, and then I place the upper layers with international insurers,” explained Thiago Amorim, the head of procurement and risk manager at iFood and secretary general at ABGR. “A similar process happens with crime insurance. A first layer of around 10% is fronted in Brazil, and the remaining 90% is purchased abroad. It would have been better to place everything in the local market.” Wilnner Eduardo Silva, the global treasury and insurance manager at machinery group Iochpe-Maxion and the CFO of ABGR, said that underwriters can also improve the services attached to cyber insurance policies. “There are about four insurers offering cyber capacity in Brazil, either for fronting or for a good chunk of the limit. But better assistance in the case of a loss event continues to be missing, especially concerning global programmes,” he said. Silva is not optimistic about the ability of the market to take much action in that regard in the current macroeconomic environment. “Insurers have to adapt themselves to a high interest rate environment, which, globally, ends up competing with insurance placements,” he said. “Instead of taking risks, insurers can allocate their investments to fixed income. It all impacts the offer of better covers. We are talking about a lack of capacity, but that is actually linked to interest rates.” If that view is confirmed, there may be little chance that underwriters will bring coverage to the region that companies still cannot find in favourable conditions. Brazilian risk managers, for example, can name quite a few examples of gaps that need to be filled. “Cover for transmission lines is a challenge,” Senra said. “And I cannot find in the market a cover for demolition risks in engineering projects. It is virtually a mandatory exclusion.” “When there is a severity risk, insurers try to squeeze us. Every time I go to the market to renew my product recall policy, I never find the limits I want. They always want to limit ransomware covers in cyber policies too,” Silva said. “I would like to see PDBI policies cover losses without physical damage. Those losses can be catastrophic, but the market is not ready to take the risk at full scope,” added Mendonça of Norsk Hydro. “Stock throughput covers are not offered here in Brazil, even though they are common abroad. When they are offered, they are way too expensive,” he added. Senra would also like to see some innovative covers offered to buyers. “Insurers might develop a cover for judicial risks linked to the paradigm shift we are going through,” she said. “The market offers legal surety bonds, E&O and civil liability covers, but companies have paid more attention to subjects such as sexism and racism, and it would be good to have a cover that helps us when they become judicial issues.” All that must be pursued while the Latin American market adapts itself to the ESG trend that has taken hold quite strongly in countries like Brazil. “Insurers have shown interest in learning more about the company’s ESG policies,” said Leonardo de Castro Beto, a director and vice-president at ABGR and the risk manager at Energisa. “It makes a difference to provide information about it. But it is not exactly something that insurers demand, at least in my experience. It has been a proactive attitude from our part,” he said. “As much as banks demand ESG requirements to provide credit lines with better conditions, the insurance market is following the same path. Many see it as a further step added to the placement process, but I believe it is an extremely healthy development,” he said. Mendonça added: “The market cannot treat all companies in the same way. Different buyers have different sustainable practices that must be understood and treated by the market differently. The great challenge for us is to demand and guarantee that underwriters really adopt this differentiated treatment. Sometimes we notice that the market is not yet ready for that.”

Few signs of market softening for Brazilian risk managers

Cyber is a problem as ABGR members forced to international markets to complete programmes

Want to read this article?

Read Next

IASB meets in China to discuss climate reporting

‘Pressure rising’ on developing Asian aging risk: ADB

European business confidence in China plummets

Starr Insurance opens new operation in Korea

International SOS warns of ‘burnout epidemic’

IASB meets in China to discuss climate reporting

‘Pressure rising’ on developing Asian aging risk: ADB

European business confidence in China plummets

Starr Insurance opens new operation in Korea

International SOS warns of ‘burnout epidemic’

Want to read this article?

Read Next

IASB meets in China to discuss climate reporting

‘Pressure rising’ on developing Asian aging risk: ADB

European business confidence in China plummets

Starr Insurance opens new operation in Korea

International SOS warns of ‘burnout epidemic’

Related Articles