Colombia Q3 Market Dynamics
Landscape
After peaking at the end of June 2021, Colombia’s third wave of COVID-19 abated throughout the third quarter, while vaccinations proceeded so that by mid-September over 30% of the population had received two doses. With the extended third wave, the country’s GDP contracted by 2.4% in the second quarter (seasonally adjusted); the government statistics agency also attributed this drop to protests that blocked key roads.
However, economic activity continued to recover from the recession of 2020, so that July was the first month to see output higher than levels before the pandemic hit. Inflation rose along with the uptick in activity, reaching a year-on-year figure of 4.5% in September, while the central bank raised its benchmark interest rate to 2.0% after a year of holding it at 1.75% to help stimulate recovery. In a context of continued economic challenges and social discontent, polls for the May 2022 presidential election have put the left-wing challenger, Petro Urrego, in a leading position against the government of Ivan Duque.
Key Indices - Colombia
Market Dynamics
Colombia Featured Products Q3 2021
Q3 Automobile Summary
Overall (Stable) In response to increasing loss ratios, insurers are reviewing their pricing and appetite. While some insurers seem less growth-focused than in Q2, many continue to compete on price.
Rates (Flat) Insurers continue to compete on price, but deteriorating loss performance is beginning to have slight pricing impacts.
Capacity (Abundant) Capacity is abundant in this space.
Underwriting (Flexible) Well-performing, in appetite risks are experiencing favorable underwriting conditions, with underwriters showing flexibility. Large, well-performing fleets are in target appetite for many insurers.
Limits (Stable) Limits are stable and available at requested amounts. Deductibles (Stable) Having been already adjusted, deductibles in Q3 are stable.
Coverages (Stable) Expiring terms and conditions can be achieved in most cases. A new usage-based product has been introduced, offering traditional coverages with an alternative pricing approach.
A Look Ahead (Stable) Market conditions are expected to remain generally favorable, with sufficient capacity and flat to modestly increased pricing. Underwriting will remain flexible, particularly for well-performing, in-appetite risks.
Q3 Casualty/Liability Summary
Overall (Challenging) Due to poor performance and the long-tail exposure, insurer appetite and local capacity is constrained and market conditions are challenging, especially for high-hazard risk types which typically require reinsurance.
Rates (+11-30%) Historical under-pricing, lack of local capacity, and poor loss performance has led to a remediation-focused environment, with significant price increases now the norm.
Capacity (Constrained) Local capacity is constrained, with only two insurers able to provide high capacity limits. Other insurers leverage facultative reinsurance or request special authorization from central underwriting teams; both options typically result in higher pricing.
Underwriting (Prudent) Local underwriting authority has transitioned to central teams, minimizing the impact of local relationships and knowledge. Detailed underwriting information is important to differentiate risks and to secure the attention of insurers and reinsurers.
Limits (Decreasing) Capacity constraints have driven pricing up and in some cases, new cost structures are unpalatable for insureds who, in turn, seek reduced limits to help offset costs.
Deductibles (Increasing) Flat deductibles can be achieved for low loss frequency risk types while other risk types, like Energy, Power and Facilities, deductible increases are required due to poor claims performance and the impact of the long-tail losses. In addition, insurer appetite has shifted toward excess layers, leading primary insurers to increase deductible requirements.
Coverages (Contracting) COVID-19 and Silent Cyber exclusions continue to be mandated. In addition, (re)insurers are less accommodating of custom (non-traditional) clauses.
A Look Ahead (Challenging) Current market conditions are expected to continue through the remainder of 2021 and into 2022 as insurers continue to focus on remediation and price adequacy. Local capacity is expected to remain constrained, driving insureds to explore trade-offs where necessary to control premium costs. Detailed underwriting information will continue to play an important part in achieving the most favorable outcomes possible.
Q3 Cyber Summary
Overall (Challenging) Data from the latest Colombia Cybercriminal Report points to the likelihood that many organizations, in 2020, underestimated the threat of cyber attacks and did not implement appropriate control measures. Cyber criminals exploited these weaknesses, and losses in this space have grown. This has created challenging insurance market conditions. Insurers are tightening home office underwriting standards, limiting their appetite, reducing the average line size per single risk and requiring extensive underwriting detail to provide quotes.
Rates (+11-30%) Driven by large and frequent losses – particularly, ransomware losses - rates are increasing significantly, particularly for complex risks, like those in the Energy, Financial Institutions, Fintech, Utilities, Technology, Education, and Health sectors.
Capacity (Constrained) Local insurers – driven by global underwriting mandates – are limiting their line sizes per single risk in Colombia. Reinsurance capacity – often more expensive – is available to fill capacity gaps.
Underwriting (Stringent) Cyber coverage is concentrated to six insurers, most of which have reviewed and limited their appetite – withdrawing from some risk types. New underwriting questionnaires, mostly focused on ransomware, have become a prerequisite to providing a quote. Local authority has transitioned to central teams.
Limits (Increasing) Historically, limits for Colombia risks have been low compared to US and EMEA risks. Now, insureds are requesting to increase them. Local insurers; however, are reluctant to deploy higher limits, which then require participation from multiple insurers on each placement. Business Interruption, Cyber Extortion and Crisis Management sub-limits are being rigidly applied.
Deductibles (Increasing) Driven by poor loss performance, insurers are mandating across-the-board deductible increases, serving to incentivize insureds to invest in risk control.
Coverages (Restricting) Insurers are less willing to provide tailored coverages. In addition, coverages related to Business Interruption and Ransomware are contracting as part of insurers’ focus on profitability.
A Look ahead (Challenging) Current market conditions are expected to continue through 2021 and well into 2022. Remote work and rapid digitalization in Colombia is expected to impact underwriter appetite in 2022. Risk controls will continue to be critical in achieving favorable placement outcomes.
Q3 Directors & Officers Summary
Overall (Challenging) The local regulator, Contraloria, has modified the interpretation of claims made reporting requirements and implemented new regulations requiring insurers to cover risks not anticipated in their coverage forms. This has devastated the local market and many insurers have withdrawn from any risk that could have exposure to Contraloria regulations.
Rates (>+30%) Loss ratios have materially deteriorated as insurers are required to pay unanticipated losses linked to Contraloria. While many insurers have withdrawn from the space, those that remain are severely increasing premiums.
Capacity (Constrained) Insurers, on a direct and reinsurance basis, are reducing their single risk lines or simply withdrawing from this line of business.
Underwriting (Stringent) Underwriting is difficult; every placement is more complicated and expiring limits are challenging to secure. Underwriting authority has transitioned to central teams.
Limits (Decreasing) Limit reductions are being explored by insureds to help offset severe price increases.
Deductibles (Increasing) As side B deductibles do not apply under current Contraloria regulation, and Side A deductibles are generally set at zero, the key change pertains to side C coverage, where deductibles have been increased across-the-board.
Coverages (Restricting) Coverage extensions have been withdrawn by insurers and new exclusions related to COVID-19 and Bankruptcy are being required.
A Look Ahead (Challenging) Current market conditions are expected to continue until Contraloria regulations are rolled back.
Q3 Fidelity & Crime Summary
Overall (Challenging) Fidelity and Commercial Crime have historically experienced high loss ratios driven by frequency and severity. Now, insuers are focused on portfolio remediation. Claims related to riots have been a significant factor in upward rate movements.
Rates (+11-30%) Losses in recent years and a focus on portfolio remediation has driven up pricing for four consecutive years. Current rate increases can be severe.
Capacity (Constrained) Most insurers have reduced their lines or are withdrawing from Crime as part of their withdrawal from the D&O space.
Underwriting (Stringent) Crime is typically offered only in conjunction with other lines of business – generally, D&O. Given the crisis occurring in the D&O space, Crime has become challenging to place. There is increased underwriting attention on loss history and loss developments, and information requirements are more rigorous. Local underwriting authority has been reduced and referrals are creating delays in the underwriting process.
Limits (Decreasing) Limits are being reduced by insurers seeking to reduce their exposure to this coverage.
Deductibles (Increasing) Deductibles are increasing, even for some loss-free, best-in-class risks.
Coverages (Restricting) Coverages are materially contracting across several key provisions.
A Look Ahead (Challenging) Further capacity contraction in both the direct and reinsurance markets is expected, along with continued rate escalation, making every renewal challenging. Local insurers are expected to play an instrumental role in providing primary coverage, but pricing will likely follow international requirements.
Q3 Property Summary
Overall (Challenging) The market continues to focus on profitability through rate adjustments as well as restrictions in appetite and underwriting policies.
Rates (+1-10%) Rate increases continue to be imposed following a prolonged period of insufficient pricing.
Capacity (Prudent) Local capacity is sufficient in most cases, with the exception of challenging industries such as chemicals, paper, plastics and textiles, which typically require facultative reinsurance.
Underwriting (Stringent) Underwriting has become more rigid and stringent, and there is greater focus on risk engineering and protection.
Limits (Stable) With the key exceptions of Sabotage and Terrorism – which have been significantly reduced - limits remain stable.
Deductibles (Increasing) Historically low deductibles in the Colombian market have been gradually adjusted in accordance with risk levels. The current focus is on increasing deductibles for Catastrophic and Fire coverages.
Coverages (Stable) With the key exceptions of Sabotage and Terrorism coverage – which have been significantly reduced - coverages remain stable..
A Look Ahead (Stable) Current market conditions are expected to continue, with underwriting rigor and increases in rates and deductibles. Coverage of Sabotage and Terrorism will continue to be restricted. The need for reinsurance for large risks and challenging sectors is expected to continue.
Q3 Surety Summary
Overall (Stable) Conditions are generally stable – with insurer appetite strengthening, with the exception of challenging industries such as Oil & Gas, and sufficient capacity available.
Rates (Flat) Flat pricing can be achieved in most cases, with the key exception of large infrastructure projects, which will continue to experience an upward trend.
Capacity (Ample) Local capacity remains sufficient for most risks, although some large risks require capacity from the reinsurance market.
Underwriting (Prudent) Underwriting is stable overall; while appetite is expanding, insurers are more rigorous and demanding than in the past.
Limits (Stable) Current limits can be maintained for most placements.
Deductibles (Not Applicable)
Coverages (Stable) Current coverages can be maintained for most placements.
A Look Ahead (Stable) Current market conditions are expected to continue, with a slight trend toward more favorable practices as insurers focus on a strong close to 2021.
Q3 Trade Credit Summary
Overall (Stable) In general, the market has stabilized but varies significantly based on sector, with those impacted by COVD-19 continuing to experience scrutiny and price adjustments.
Rates (Flat) Pricing is generally flat, but some COVID-19 affected risks may experience rate increases.
Capacity (Ample) Capacity is stable, and commensurate with market demand – supported primarily by multinational insurers with parent company backing.
Underwriting (Prudent) While appetite has contracted for COVID-19 related risks, other risks are experiencing stable appetite along with underwriting flexibility.
Limits (Decreasing) Limits are being carefully monitored and deployed conservatively.
Deductibles (Stable) Deductibles remain generally stable but may change based on risk size, COVID-19 impacts to the sector, and other factors.
Coverages (Stable) Standard terms and conditions are typically maintained while special conditions are being reviewed and, in some cases, modified.
A Look Ahead (Stable) Despite a general expectation that claims will increase, insurers remain optimistic about performance in this space, particularly in anticipation of next year’s presidential elections which may have favorable market impacts.