1. 8 NEWS
LATAMIR
E&O – Keeping up
with demand
For many years, regulatory
requirements and a lack of
litigation across the market meant
reinsurance brokers and internation-
al law firms were almost the only
companies consistently purchas-
ing professional indemnity cover
in Latin America.
As a result the market was
underdeveloped in the professions
it provided cover to and lacked
the technical expertise required
to effectively underwrite errors &
omissions cover. However, the Latin
American liability market is cur-
rently experiencing a boom as diverse
professions look to take out cover and
underwriters attempt to keep up with
the new demand. So what caused this
change and what does it mean for
the wider professional liability market
that has, while remaining niche, been
highly profitable?
Looking back to the 2008
financial crisis, many large US and
European construction companies
saw a significant fall in new business
projects domestically. In order to
survive a number of these business-
es, especially from countries that
have a natural synergy with Latin
America such as Spain, looked to the
Latin American markets for invest-
ment opportunities.
As developers began to win large
contracts, enlisting local engineers
and architects as partners, they
caveated contracts with the com-
pulsory purchase of E&O cover. As
developments progressed, the same
requirement was made of third-
party suppliers such as software
developers and designers. This
has created an unprecedented
surge in demand for E&O poli-
cies, typically providing cover of
between $1m and $3m, where
the Latin American markets
have had little or no experience
in underwriting.
Today’s Latin American E&O
policy wordings still cater largely
to the construction, engineering
and renewable energy industries
with a lack of technical wording
for other professionals such as
bar associations, notaries, sur-
veyors and so on. It is important
in this environment that inter-
national brokers, such as BMS,
use their specialist expertise
to support the development of
the market’s required technical
skills working hand in hand with
underwriters.
As an example, some of the
contract wordings we have
seen only offer design cover on
policies where supervision and
construction should be included.
We have also seen a number of
policies that have no retroactive
or extended reporting period
cover, significantly restricting
the temporary cover offered
by claims made policies (which
are essential to this class of
insurance). This is typical of
underwriters who want to write
E&O risks in Latin America but
are unfamiliar with how the
civil code system and the time
barring limitation of legal ac-
tion works in these countries.
There has been no need for such
knowledge to exist in their mar-
ket until recently and BMS has
been helping a number of firms
with the development of their
wordings and policies to address
these concerns.
Over the last 18-24 months,
E&O policy purchases have
continued to increase at unprece-
dented levels. We’ve also seen an
increase in single project insur-
ance, normally lasting for two to
three years, with cover now run-
ning up to six years. Just a few
years ago this would have been
extremely rare and such rapid
development is a clear sign of
the markets maturing healthily.
There is little doubt that as
Latin American economies con-
tinue to attract foreign invest-
ment, the demand for liability
insurance in general, and errors
and omission cover in particular,
will continue to boom. This will
create further opportunities for
international brokers to share
their advisory and technical ex-
pertise, ensuring that the market
is able to produce the policies
they need as the business envi-
ronment becomes more complex
and dynamic.
NEWS
ANALYSIS
By Jose Astorqui, CEO, BMS Latin America
"After the 2008 financial crisis,
a number of European and US
construction companies looked
to the Latin American markets for
investment opportunities"
008_LIR48_Newsanalysis.indd 8 28/08/2015 10:03