Daniel Negron, Vice President, Through Transport Mutual Services, Americas, TT Club, talked to Latam Insurance Review about the transport and logistics industry main challenges in Latin America and how these companies can protect themselves against the region’s threats.
Latam Insurance Review (LIR): Can you tell us about TT Club strategy and operations in Latin America?
Daniel Negron (DN): As a principal insurer of operators engaged in international trade, TT Club has always viewed Latin America as an integral part of its global reach. Because its insurance programs are specifically tailored to the transportation industry, the Club relies on a network of brokers having knowledge and expertise of the complex exposures facing these operators, and on a network of correspondents who provide the local claims service. The Club provides support to all its brokers and service providers through a periodic intensive training program and by maintaining its own office in Argentina to handle claims and provide other support services throughout the region.
LIR: In what Latin American countries do you do business?
DN: TT Club insures operators in virtually every country in Latin America where it is permitted. It holds licenses as a reinsurer in countries where licensing is required, such as Argentina, Colombia, Dominican Republic, Ecuador, Mexico and Panama. It also holds a license as a direct insurer in Colombia, and it writes directly in other countries where bilateral agreements exist or where exemptions are permitted. Although the Club does not currently hold a license in Brazil, this is the subject of an ongoing study.
LIR: What are the main challenges TT Club faces while operating in this region?
DN: Latin America is a vast region comprising of the Caribbean, Central America and South America. Providing local service to a clientele within this region can be a challenge. Local competitors that provide cheaper products at more competitive prices can also be an issue. The Club meets these challenges by offering cover that is unique in the global market, in that the cover is tailored specifically to insure all the operational exposures that these operators face. In the Regional Office, the Club has a staff of underwriters who are native Spanish speakers. The Club’s differentiator is the service and the local support it gives its members through a network of providers who themselves are experts in their own countries. The Club also offers advisory services on risk management and loss prevention, including seminars, terminal surveys and a library of good practice materials on its website.
LIR: It is said that the lack of appropriate infrastructure is harming the transport and logistics business in Latin America. Do you agree?
DN: To an extent, I would agree. Over the past 20 years, many significant ports throughout the region have been investing heavily in port infrastructure in order to create more efficient cargo handling capabilities as the demand for raw materials, foodstuffs and finished products has increased. However, this modernization has, at times, not been realized beyond the port zone, particularly with road and rail infrastructure, and also with a less organized logistics infrastructure. In some countries, this has resulted in port congestion and inefficient internal distribution systems. The solution not only lies with the improvement of the physical infrastructure, but also with the development of transportation hubs and coordinated internal logistics distribution systems.
LIR: What are the main risks that transport and logistics companies face in the region?
DN: There are three principal risks facing transport operators. These are cargo liabilities, professional liabilities and liabilities to third parties for injuries and property damage. What complicates these exposures is that transport and logistics companies provide a multitude of services that they can either perform themselves or through other service providers. As a shipment moves through multiple modes of transport and travels through national and international venues, it is also subject to multiple contractual arrangements and a host of national laws and international conventions. A single cargo claim can quickly become complicated as an operator and the insurer begin to unravel these relationships and the applicable legal norms. Depending on the mode of transport, an operator might also be subject to claims for injuries and property damage in its home jurisdiction or in another jurisdiction for services it performed directly or even through a sub-contractor.
LIR: Does the insurance market provide the necessary products to face these risks? How can TT Club improve this offer?
DN: The insurance market typically views each operation separately and issues an insurance policy targeted to the perils facing that particular operation. So, transport and logistics companies that provide multiple services such as trucking, forwarding, warehousing, and supply chain logistics are almost invariably insured on a piecemeal basis through multiple policies, each addressing their own perils. Because there is no coordination among the various insurers, their policy terms pose a potential for gaps and overlaps in coverages. These gaps and overlaps often do not manifest themselves until a claim arises. TT Club takes a holistic underwriting approach to these risks by listing each of the services to be insured individually, setting out the trading areas to be covered, listing the locations and conditions of transport, and providing a seamless cover that will apply under any applicable international convention or national transport law. Very often, an operator that is insured through a national insurer can replace multiple policies with a single policy issued by TT Club.
LIR: How is cyber risk and the widespread use of technologies affecting the transport and logistics industry in the region?
DN: Cyber risks have become significant exposures, throughout the world, and Latin America is no exception. Virtually any organization that uses information technology in its operations is vulnerable to an event as simple as the loss of data or as significant as a cyber attack.
LIR: How is TT Club adapting to these new market demands?
DN: TT Club’s offers a specialized policy that is structured to protect the operational risks of its transport and logistics members. Cyber risks are a class of risks that are not limited solely to transport and logistics operators. These risks run across all types of operators, including those insured with the other Clubs managed by Thomas Miller & Co. Just recently, Osprey Underwriting Agency Limited, a wholly-owned subsidiary of Thomas Miller & Co., announced the introduction of a new insurance program specifically designed to insure cyber exposures. This product is available to any operator needing the cover.
LIR: How do natural catastrophes affect these companies’ operations in the region?
DN: Natural catastrophes, such as earthquakes and hurricanes, will certainly affect their operations to the extent of the damage and delays that these natural events cause. The most significant risk is the exposure that the physical infrastructure, such as buildings and equipment will suffer. In Central America and the West Coast of South America, earthquakes pose the greatest exposure because of their proximity to the Pacific Plate. Caribbean countries and the West Coast of Mexico face a greater risk of hurricanes due to their location in hurricane proximity zones.
LIR: What can these companies do to protect themselves against these threats?
DN: All operators, regardless of whether they are in earthquake or hurricane zones, should have emergency plans in place to protect against an unforeseen business stoppage or event. In this regard, TT Club has published its ‘WindStorm II: Practical risk management guidance for marine & inland terminals’, available free to all its members. This handbook contains useful information for preparing emergency plans and other operational issues. Needless to say, any operator having a significant investment in a building, equipment or other infrastructure should be insuring those assets under a property policy.
LIR: How is the commodities price plunge affecting these companies’ operations in Latin America?
DN: Just recently, TT Club insured an operator who was projected to handle a certain volume of minerals in the coming year, only to learn that the operator needed to revise his original projection downward because of the drop in the price of commodities. This certainly affects the premium that the operator pays. But this is not uncommon, and often accommodations need to be made. Not only do commodity price fluctuations affect the volumes of goods and premiums paid by the Club’s members, but movements in currency exchange also have an effect. The Club’s premiums are stated in US Dollars. So it would be expected that a significant change in the local currency valuation will have an impact in the cost of the operator’s insurance. This may be seen by some as unattractive, compared with a policy priced in local currency, but the differentiator remains the broad scope of the Club’s cover and its superior global service.
LIR: Is the price drop also affecting TT Club’s business in the region?
DN: Some years ago, the exchange rate of the Mexican peso dropped to about half its value against the US Dollar. While the Club did not reduce its presence in Mexico, it focused its efforts on countries such as Colombia, whose economy was more robust. More recently, a similar drop in value took place in Colombia, while Mexico enjoyed a more favorable exchange rate on its currency. As a consequence, the Club saw a greater number of inquiries from Mexico. The point is that diversification is an important element in the Club’s marketing mix, especially given that it strives to maintain stable premiums, regardless of trade or insurance market cycles, or even currency flucuations.
LIR: What opportunities are still to explore in Latin America?
DN: Logistics remains a prime target. Today, the Club offers a liability program targeted to smaller forwarders and NVOC’s in the region at an attractive premium while continuing to offer its standard cover to larger operators. The view is that, as these small operators grow, so will the scope of cover that the Club is required to provide. The Club now also offers a shipper’s interest program that these operators can offer to their customers to insure their cargo against loss and damage during transport. The program can be accessed on-line by the transport operator with a few simple key strokes. The benefit of this cover is that the cargo owner will be paid directly in the event of a loss without having to involve the operator’s own liability policy.
LIR: Are you planning to expand your operations in the region in the near future. To which countries, and why?
DN: The Americas Region has a five-year plan that is reviewed each year in formal planning sessions. The primary emphasis of the current five-year plan is to focus on the countries providing the greatest economic opportunities. These are Chile, Colombia, Ecuador, Mexico, Panama and Peru. The target operators are cargo handling facilities, port authorities and logistics operators, with a particular emphasis on the liability and cargo programs.