Risk management standards on the up in Latin America but journey incomplete

Spreading the risk management gospel throughout one of the fastest growing regions in the world was one of the key themes at the recent congress, organised every two years by Fundación Latinoamericana de Administracion de Riesgos (Alarys), the Latin American risk management association. The leading risk professionals that attended the event included the heads of national risk management associations from Brazil, Argentina, Panama and the Dominican Republic. The president of Ifrima, Carl Leeman, and Deborah M Luthi from the US’ risk management association RIMS and Ferma President Jorge Luzzi, also attended the two-day event, as well as risk managers and insurance professionals from across the region. The congress took place in Panama City, the capital of one of the fastest growing economies in Latin America. The country of 3.6 million inhabitants posted GDP growth of 10.6% in 2011. The International Monetary Fund expects the country’s economy to expand by a further 7.5% this year and 6.6% in 2013.hideHowever, despite the booming economic activity, risk management remains a distant concept for most companies in the country, experts said during the congress. This scenario is typical in the region. Important countries like Chile, Peru and Colombia do not even have a risk management body. But participants stressed that the insurance industry is generally posting robust levels of growth, and large investment programmes are forcing companies and governments alike to be increasingly aware of the risks to which their activities are exposed. One of the most glaring examples is Brazil. The regional powerhouse is investing heavily in ports, airports, energy projects and the exploitation of oil reserves, as well as the construction of sporting venues for the 2014 Fifa World Cup and the 2016 Olympic Games, which will both be held in the country. In 2008 Brazil opened its doors to the world’s reinsurance markets, although some liberalisation was reverted last year. But integration to the global insurance industry, even if not complete, has meant that in the past few years companies have had to polish the way they manage risks in order to find reasonable insurance rates in the market. “Brazil is growing very fast, but we have gone through a seventy-year monopoly in the reinsurance market,” noted Cristiane Alves, President of ABGR, the Brazilian risk management association. “In that period we were not doing risk management properly. We did not need to do it because the official reinsurer had to take all the risks,” she said. Ms Alves added: “When that reinsurance market came to an end, it became clear that we had a lot to learn about risk management. We at ABGR still have a lot to do in order to help risk managers work in their companies as their peers work in the rest of the world.” ABGR is the largest and most active association in Latin America, and has been part of ongoing debates with the Brazilian government about fine-tuning the country’s controversial reinsurance rules. The risk management lobby has also been able to make its voice heard in other Latin American countries. In Argentina, Adara, the local risk management association, has been spreading the risk mantra for over 25 years. Its president, Carlos Sabaini, told the congress that Adara received a boost in recent months when it was called to give technical advice to high profile discussions about changes in rules governing environmental insurance in the country. He expressed hope that episodes such as the controversy surrounding environmental coverages in Argentina will help develop risk management standards and risk transfer options in the country. He also said that the implementation of the ISO 31000:2009 Risk Management—Principles and Guidelines standard by a number of companies in Argentina has helped to spread the culture of risk to top managers. “ISO 31000 has been fundamental,” he said. “It has helped people to understand their responsibilities. Many CEOs did not realise that risks are dynamic, and that what they learned 30 years ago in the university was not going to solve them.” Mr Sabaini said that Adara is working to develop risk management in countries where Argentinian companies have business interests, in places such as Uruguay and Chile. ABGR, for its part, is increasing contact with AGERS, Spain’s risk management association, as Spanish companies become ever more present in Brazil. Ifrima’s Mr Leeman celebrated the fact that risk management appears to be gaining traction in the region. “It is good to see that things are moving,” he said. “But to be honest, I am not sure that we can say that Latin America is lagging in risk management. In places like Brazil there are very strong associations and people that not only talk, but practice risk management in their companies.” But he also voiced concerns about an over reliance on brokers by risk managers in Latin America. “It is surprising to see that companies appear to rely on brokers here even more than in other parts of the world,” he said. “People sometimes rely blindly on their brokers, even though you should really consider brokers as an added value. The path of working directly (with the insurance market) should certainly be explored more in Latin America.” The latest addition to Alarys is Adaris, the Dominican Republic risk management association. The organisation has a lot to do to, acknowledged president Juan Franco Fernández. “In the Dominican Republic, we are still starting to discuss the need to provide catastrophic insurance,” he explained. It appears about time, because the country is exposed to both earthquake and hurricane risk.

Risk management standards on the up in Latin America but journey incomplete

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