Review of 2016 Miami | Latin American Claims (re) Insurance Forum

Following the huge success of last year’s inaugural Latin American Claims (re) Insurance Forum, attendees from over 15 different countries returned to Miami on 16-19 May 2016 to attend the three-day annual forum hosted by Kennedys and QLDG.

Over 40 industry-leading speakers from companies, including AIG, Allianz, Chubb, Liberty, several Lloyd’s syndicates, Munich Re, QBE, Swiss Re and Zurich, presented on various hot topics for the insurance industry in the region; sharing their experiences in a collaborative way. Furthermore, the Forum presented delegates (which includes leading claims and underwriting officers working for reinsurers and insurers, loss adjusters, and experts) with an unparalleled opportunity to develop new business relationships amongst professionals in the insurance and reinsurance industry, bringing them together for the panel discussions, and during various networking cocktails hosted across Brickell Avenue in Miami.

The discussion on construction claims was very topical. As we know, the region is undergoing a huge expansion with a number of large high value construction projects, often funded by global investors who are less familiar with the region, receiving worldwide recognition; such as the Olympic project in Brazil, and the expansion of the Panama Canal. The question is whether the region is as up to date on best practices for delivery of such large scale projects as it could be. Whilst some projects are delivered in time and without problems, more commonly these large high value projects are riddled with issues. These range from design defects, for failure to invest in scale models at an earlier stage of the design process, to the extraordinarily challenging geotechnical issues that are prevalent in the region that often go undiscovered or, worse, ignored. There are several key problems that we encounter time and time again. These relate mainly to the lack of clarity between insurance products and, in particular, when, for example, the Construction All Risks policy (CAR) concludes and the operational policy kicks in.

One solution is to draft these policies with language that aligns itself to the building contract so that there is no question as to when the works are completed, and are no longer in their construction phase, by referencing completion certificates or the like. Also, the parties on a claim often look to the CAR cover to cover damage which manifests significantly after the construction works have concluded and the project is in full operational mode. There would appear to be a lack of understanding of design exclusions within policies and that reliance on a CAR policy for full design cover was a mistake. The term “all risk” was found to be a bit of a misnomer as a professional indemnity policy that should capture the true elements of design, to the extent that the CAR excludes it. The problem encountered by the panel was that they usually find that no professional indemnity policy exists or is insufficient, therefore providing more gaps in cover.

Cyber risks are also becoming an increasing opportunity for carriers in the region where there is a general lack of awareness and coverage. The most serious risks that the market is considering at present are potential attacks on the operating controls of facilities such as nuclear plants, hospitals and other large institutions where the hack could result in very grave consequences. Cyber insurance exists to cover the losses relating to damage to, or loss of information from, IT systems and networks. Policies generally include significant assistance with handling the incident itself, which can be essential when faced with reputational damage or regulatory enforcement. In Latin America, paucity of information stands as one of the main challenges, considering that data about cyber breaches and losses exist in small quantities in this region. This is aggravated by the reluctance of companies to report details of cyber breaches for fear of reputational risk and losing market share etc. As a result, international insurers doing cyber insurance business in Latin America are relying mainly on regionally-adapted track records from Europe and the US that do not always translate well into the region.

One of the most engaging panels concerned environmental losses and claims under an “All Risk” cover. This panel considered, as a case study, a claim relating to the failure at a biogas plant that required an adjacent distillery to purchase alternative fuel to continue operations. The insured asserted that the process failure was due to insecticide spraying on nearby fields that “poisoned” holding ponds with raw material, which was a key element to the production process.

The experts provided an overview of how the facility works and what its general operating parameters are, highlighting the sensitivity of the system to things like temperature and pH (acidity) to assessing causation. A major takeaway from the technical analysis is that it is in the best interest of both insurers and insured's to adhere to technical specifications, especially process monitoring requirements, which will allow for a definitive causal analysis in the event of process failure. From the legal perspective, the All Risk section of the policy presented additional challenges such as a lack of definitions in the policy, and for not having a customised wording for this specific type of risk.