Carlos Luna CEO, Guy Carpenter Colombia

Looking toward the future, Guy Carpenter is working together with technology start-ups to develop new products for the insurance market.

BIO Carlos Luna is a civil engineer with a master’s in business management and economics. He has over 25 years of experience in the insurance and reinsurance sectors, having been CEO of Guy Carpenter for Colombia, Ecuador, and Venezuela; executive vice-president of JLT Reaseguros; executive vice-president of AXA Colpatria; general manager of Seguros CASA in Guatemala; and international project manager in the University of Montreal. What effect has the pandemic had in the Colombian market for facultative reinsurance, and what areas drove business growth in 2020?

The pandemic had an impact on life coverage and workers’ compensation insurance in Colombia. One main things we learned from COVID-19 is that the country must have adequate coverage for future pandemics. There need to be initiatives from the government, the private sector, or mixed sources. At the reinsurance level, there has been an increase of rates and limited coverages. The expected losses related to the pandemic exceed those from recent catastrophes such as hurricanes Katrina and Irma or the California fires. Nevertheless, the insurance and reinsurance sectors are strong and are characterized by their resilience.

Have you noticed a growing appetite by Colombian insurance toward single-risk reinsurance or has treaty insurance maintained its market power?

Both approaches are currently popular. Clients want coverage specifically for future pandemics, and such coverage is offered by the facultative market. A market segment also favors a comprehensive approach—that coverage is obtained on the treaty side. Treaty reinsurance does not cover pandemic-associated risks, though that may change in the near future. Society needs to mitigate these risks. We are in the middle of the pandemic and do not know what the final results on the profit and loss statements of insurance companies will be. For this reason, the market has been cautious regarding where it extends coverage.

How would you characterize the regulatory framework in terms of requirements for the Colombian reinsurance market?

The regulatory framework in Colombia has strengthened over the last few years. The country’s recent acceptance into OECD has allowed the insurance market to follow the guidelines set by Solvency II and IFRS 17. In practical terms, this means local companies must strengthen their financial statements by increasing capital requirements, enforcing corporate governance, and adjusting the ways in which the counter party risks are evaluated. In line with such framework, we need to accelerate solvency integration in our regulatory framework. The pandemic was not on the scope of any regulatory framework. The impact on society and the economy is wider than anything we have experienced before. It is important to strengthen this framework in Colombia, and the country is moving in the right direction.

What is the importance of cyber insurance products, algorithms, and software, and how are they disruptive for the insurance industry in practice?

The world is moving toward different products and needs. Insurtech, which refers to the phenomenon of start-ups that improve the insurance business through technology, is key in this evolution. Colombia is part of this process; our industry needs to move with the speed of the insurance world to improve processes and client relations. Guy Carpenter focuses on working together with technology start-ups that are trying to implement or develop new kinds of products for the insurance market. The specific area within Guy Carpenter where we are working with those start-ups is called GC Genesis. GC Genesis analyzes the best start-ups that can contribute to the efficiency of the Colombian market. The world is moving toward different kinds of risks, for example in terms of cyber vulnerabilities. Colombia has experienced an increase in cyber operations and cyber transactions. Clients are affected by online theft and security breaches. The company is developing products in Colombia that address these risks. Our partners want to implement such coverage for their clients and are working with us in development.

Have you noticed an increasing interest in natural disaster coverage as a result of Hurricane Iota, and what has been Guy Carpenter’s strategy to strengthen and expand business in this area?

Hurricane Iota wrecked San Andrés, Providencia, and Santa Catalina and is one of the strongest natural disasters Colombia has experienced in recent years. Nevertheless, natural disaster coverage was already in full force in our country for many years. Admittedly, coverage for earthquakes and floods precedes coverage for storms or hurricanes in Colombia. However, such coverage is already available. We have policies paying claims for the damages that took place with the passing of Hurricane Iota. Our main challenge is to extend coverage to a larger percentage of the population. In terms of natural disaster insurance more widely, flood risk has been increasing steadily in our country. Businesses in general, and specifically within agriculture, are focused specifically on flood protection that can mitigate damages associated with business interruptions.

What challenges and opportunities are in store for the Colombian reinsurance sector?

The challenge of the insurance and reinsurance sectors is adapting to society’s changing risks. At the moment, the focus is on coverage for future pandemics. Additionally, many risks regarding climate change have also surfaced and are becoming an important concern. Insurers and reinsurers must evolve to have such coverage ready for the market. The industry must be more inclusive and seek simple solutions that cover a larger percentage of population and a wider set of risks.