Latin America faces a critical 12 months as relatively new political regimes look to avoid a return to widespread social unrest and to continue to fight corruption. Against the backdrop of the COVID-19 pandemic seeming set to bring about the worst economic downturn since 1930 and push 30 million people into poverty , we look at the challenges for the region and the role insurance can play.
Civil Unrest - Will recent history repeat itself?
The last few months of 2019 saw widespread civil unrest and demonstrations across Latin America. The underlying reasons for these protests have not gone away. In fact, there is a considerable risk that the economic difficulties that are predicted to follow the COVID-19 pandemic will see a return of the protests in some countries and trigger similar movements in others.
Despite being one of the most stable economies in the region, Chile also has one of the highest levels of income inequality among developed nations and saw some of the most violent protests in October 2019. Although the social unrest had subsided by the end of 2019, January 2020 marked a return to violence that was only interrupted by the COVID-19 outbreak.
Evo Morales’ return to power in the October 2019 Bolivian election was short-lived. Morales was forced to resign amid accusations of fraud and violent protests that resulted in over 30 fatalities. Concerns over the stability of the interim government, led by Jeanine Áñez, pre-dated the fight against COVID-19 and now the government faces a new wave of protests and roadblocks in the south of the country.
Although not on the same scale, mass strikes and demonstrations also hit Colombia during November and December 2019. The National Strike Committee has drawn up a list of 104 points, from dissolving the riot police to completely nationalising state-run oil company, Ecopetrol. The conservative president, Iván Duque Márquez, is already facing criticism and fresh protests from business groups and migrants for its response to the COVID-19 pandemic.
Similar protests are taking place in Ecuador, where demonstrators are focused on the economic impact of the COVID-19 outbreak. Economic problems were at the heart of the 11 days of violent protests in Ecuador in October 2019 in a country struggling to balance the demands of the IMF bailout package and protection of indigenous groups.
Brazil’s President Jair Bolsonaro has been criticised for a perceived lack of focus on slowing the spread of COVID-19s as Brazil became the second most affected country after the US. While the political scenario is complex, it now seems clear that Bolsonaro cannot rely on signs of an economic upturn to support his agenda in 2020.
The fight against corruption
During 2019 the scandal surrounding widespread corruption perpetrated by Brazilian construction company, Odebrecht, continued to unravel throughout Latin America. Operation Car Wash, which first hit Brazil in 2014, has led to continued political and judicial change, as well as promises of a tough stance on corruption, as expanding middle classes become frustrated with what they see as corrupt regimes.
Leaked documents discovered by a news agency in Ecuador showed that the corruption scheme extended even further than had been publicly reported, including major infrastructure projects in the Dominican Republic, Panama, Venezuela and Ecuador.
Reforms in Brazil aimed at ending the culture of corruption have followed in Peru, Colombia and other countries. Across the region, regimes face the challenge of rebuilding trust between the executive and legislative branches of government, and most importantly with the general public.
At the same time, the past five years has seen a spike in the investigation of public contracts and corruption-related litigation, as well as under D&O policies and surety bonds. The need for protection offered by these products has also risen as companies come under increasing scrutiny and face up to more stringent regulation.
In the challenging economic landscape that looks set to accompany the “new normal”, it is likely that there will be an increase in crime, including corruption and fraud. There are already reports in Brazil, Bolivia, Colombia and Argentina relating to the embezzlement of public funds destined to fight the coronavirus outbreak.
As public and private entities face economic difficulties and possible bankruptcy, an increase in claims on D&O policies is likely. Latam Air, the largest air carrier in Latin America, and Avianca Holdings, both filed for Chapter 11 bankruptcy in May 2020. We expect more businesses to follow, particularly in the hospitality sector, and in the oil and gas industry that is so important to many countries in Latin America.
An important role for insurance
The immediate focus should, rightly, be on ensuring that policy terms and conditions are clear in respect of the potentially broad exposures in the coming 12 months, from business interruption to bankruptcy claims. Generally, legislation across Latin America requires that the cover is interpreted in favour of the insured, with the onus on insurers to prove the application of any exclusions.
Traditional lines of business will take on a renewed importance to protect insureds in a challenging economic landscape. On the consumer side, the growth in insurtechs is crucial in allowing access to online platforms offering home and life policies to a market that had previously been difficult to reach.
More broadly, there is an opportunity for ensuring that property, casualty and financial lines products are available on clear terms, supported by international reinsurance markets. Alongside these products, surety and trade credit insurance will also be required to support investment in construction and infrastructure projects that are so necessary for restarting the region’s economies, providing much-needed employment for its people.
There are clear opportunities for insurers and reinsurers to address the huge protection gap in the region, which is reflective of stubbornly low insurance penetration. It may be that the insurance market may also struggle to return to growth in the near-term. However, there are areas where (re)insurers, in domestic and international markets, can support all levels of society, from governments to businesses and households, to build resilience and promote sustainable growth.
This article was first published in Insurance Day.
