Wednesday, February 15, 2017

Reserving Claims in Latin America

Determining reserve amounts can be a daunting task. The process can be affected by various obstructing factors.  Here are a few items that may affect the determination and posting of reserves for Latin American losses. 
1.  Hitting a Moving Target – the Market Ups and Downs
High inflation will distort market prices for goods and services thereby making it difficult to establish reserves. Once the reserve is posted, inflation will cause it to devalue.
Imported goods or those that rely on foreign components will also be affected by currency devaluations. The US Dollar exchange rate can be such a strong monetary reference that fluctuations can affect prices generally.
In response to this problem, insurers may employ case review procedures, reserve in a strong foreign currency, utilize special reference currencies (such as the “Unidad de Fomento” in Chile, or the “Unidad Tributaria” in Venezuela), or implement “accounting-generated” increases of all reserves pending at the end of the month, for example.
2.  Local Regulations
Regulations can provide mandatory guidelines for reserves, such as requiring the written estimation of the adjuster or of the attorney handling the case as support for the reserve amount. Also, regulations can require that the reserve be calculated on the basis of recent market or company history.
Sometimes it is possible to provide creative solutions to problems generated by regulations. In Argentina, for example, to avoid onerous reserving requirements applicable to cases in mediation, many local insurers invite plaintiff counsel to stake their claim and settle under an informal “fast track” arrangement instead.
3. Other Issues
Access to information is key to establishing an accurate reserve. This is why the performance of vendors who investigate, adjust or otherwise help determine case value is so important.
There can also be additional obstacles in obtaining information, such as the involvement of public authorities.  A fire investigation in most Latin American jurisdictions is conducted by the police and a criminal judge, which can delay access to the loss site anywhere from a few days, several weeks or even months.
The unavailability of public records is another hurdle that affects reserve determinations. 
Conclusion
In summary, we recommend the following: 
  • Establish a clear policy and procedure for posting reserves, and a specific methodology to keep reserves updated.
  • Provide internal training for claims handlers. Reserving involves internal decisions made by company officers, and it should not be left to outside vendors. 
  • Require that vendors provide accurate and complete information in a timely fashion, so that you can make an informed decision on the reserve. 
  • Know the rules and regulations relating to reserves in the specific jurisdiction, which may well play a role in your reserving strategy.
  • Even if all desirable information is not available, company guidelines generally favor posting a reserve reflecting the information at hand. Do not delay doing this.
Posted by Daniel Baron*




*Not licensed to practice law in Florida.

Thursday, February 2, 2017

Vendor Management Programs – Putting Together Your Dream Team

Insurance professionals are the recipients of added pressures to streamline processes in an effort to maximize results. Nowhere is this more palpable than in Latin American where the way “it is has always been done” customarily trumps the “new approach.”  Specifically, implementation of vendor management programs is a key transformative tool in the betterment of insurance business in Latin America leading to increase efficiency, higher customer service satisfaction and increased profits for the companies. A vendor management program seeks to implement and maintain acceptable parameters for vendors (i.e. claim adjusters, experts and attorneys) working for insurance companies, to ensure quality and consistency. Poor vendor management, or even the lack of a coherent and comprehensive vendor management plan is a leading source of bad results amongst Latin American insurers.

Following are some of the factors to consider in developing and evaluating a vendor management program: 

1.         Picking A Winning Team

Selecting cost-effective vendors with the necessary expertise is crucial. While the vendor’s skills and experience should be part of the evaluation, there can be other considerations. For example, the vendor’s resources and ability to manage a larger workload or different lines of business, or its willingness to grow geographically, are also relevant factors. 

Although having an established list of vendors is important, insurance professionals should also monitor market developments and be in contact with new potential vendors, as it may become necessary to work with those companies as well.

2.         Providing The Tools for Success

Vendor excellence in service is facilitated by insurers and reinsurers providing their vendors with all the necessary information and resources in a timely manner. For example, by supplying complete documents, promptly providing instructions or feedback, or approving the use of additional resources as may be necessary to investigate or negotiate a claim.

3.         Incentivizing Your Team Members

Vendors are managed by contracts or Service Level Agreements (SLA). It is important that these include properly worded performance benchmarks spelling out the obligations of the vendor. Additionally, creative accountability checkpoints for vendors discourage complacency.  Performance comparison charts may be used to evaluate vendors. 

On the other hand, insurers must recognize that vendors are businesses that must turn a profit to continue to exist. Strategies such as caps on fees for services should be established with caution, to avoid the risk of having claims mismanaged because there is no monetary incentive for the vendor to continue to perform. 

4.         Invest In Training Your Vendors

While it is important to require consistent performance from vendors, constructive criticism and flexibility are important to develop a successful business relationship. When insurers are dissatisfied with a vendor, it is generally advisable to invest some time into providing the vendor with guidance and constructive criticism to improve future service.

Conclusion

All claims departments need good vendors to be efficient and successful. Vendor management is therefore crucial for insurance companies. Choosing the right vendors, providing the tools necessary for success, incentivizing your team members to work hard, and providing training and constructive criticism are all key ingredients of an effective vendor management program.  

Posted by Daniel Baron*




*Not licensed to practice law in Florida.

Wednesday, February 1, 2017

Welcome to LatAm Insurance Navigator

Welcome to the Zelle LatAm Insurance Navigator Blog!  We trust this blog will soon be a critical source of information for insurance related matters in Latin America. The blog content provided by experienced Zelle professionals and counsel will deliver historical, contemporary and trending information unique to the business of insurance and claims in Latin America. Blog posts covering a wide range of topics – politics, economics, history, law, and news – and their effect on insurers and reinsurers underwriting business and adjusting claims in the region will be posted every two weeks (on Wednesdays) throughout the year. 

The region commonly referred to as “Latin America” consists of Central America, South America, and some islands of the Caribbean. Historically the peoples of Latin America have a common shared experience of conquest and colonization by the Spaniards and Portuguese from the late 15th through the 18th century as well as movements of independence in the early 19th century. While there are many similarities amongst the various Latin American territories, there are also vast differences in customs, business practices, and insurance laws and regulations. Understanding the nuances of each Latin American country is a critical component in the better handling of underwriting and claims issues that arise in this unique environment, which is why it is important for (re)insurance professionals participating in these countries’ markets to maintain their finger on the pulse of each beat for change.

Whether you are handling claims, underwriting risks, or providing services to the (re)insurance industry, the LatAm Insurance Navigator will bring you professionally useful and poignant information about topics of interest in the region affecting your insurance related work.

Occasionally, we will invite guest bloggers to provide insights on their experience and expertise in the region. Your comments and questions are always welcome. Contact us at LatAmInsuranceNavigator@zelle.com.

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