Insurance Boom Coming in Opened Oil and Gas SectorWed, 01/21/2015 - 17:20
Q: What is XL Catlin’s main focus in Mexico across the different industries in your portfolio?
A: On May 1, 2015, XL and Catlin were formally merged as two successful insurance and reinsurance companies to offer commercial insurance capacity to Fortune 1000 companies and mid-sized companies. Commercial insurance comprises everything that is related to life, health, or automotive insurance. Therefore, it covers property, casualty, engineering, surety, and other specialty lines such as marine, cargo, and aviation. In Mexico, that market is estimated at around US$6 billion. We appeal to the Mexican corporate market by being a reputable risk transfer provider, with a focus on innovation and new, flexible ways of managing risk. XL Catlin has a broad capital base to write larger lines, combined with over 30 different products and the ability to enter into longterm agreements of typically three to five years. We also offer global capabilities to multi-national clients to administer their programs. Our global footprint allows us to benchmark different industries and products, which companies like since they can compare their insurance programs to others around the world. In Mexico, XL Catlin is a fully fledged insurance company with experts on the ground. We work closely with retail and wholesale brokers, as well as with risk managers of different corporations, to determine what insurance programs should look like.
Q: What are the main differences between the Mexican financial and insurance markets and those of more developed regions like the US and Europe?
A: There are several differences, with the regulatory environment being a major one. Mexico has to strengthen the definition of a framework in which insurance is a fundamental part of addressing operational risk. With the introduction of Solvency II, we hope to see a change in clients’ buying behavior but we also need a more active role from the regulator in guaranteeing the continuity of companies’ operations after a loss. Another difference concerns financing schemes. In Europe or the US, banks are far more proactive in demanding insurance coverage as part of their collateral. Finally, there is a real cultural dimension to be considered. People in developed markets are far more aware of the benefits of an insurance policy for health, automotive, or housing. In Mexico, insurance only matches 2% of GDP, which is a very low penetration. XL Catlin must work harder in Mexico and Latin America to help the region reach an insurance penetration level of 10% or more. However, this low penetration is also what makes these markets interesting as there is major room for growth. The insurance companies need to work on this collectively with brokers and the regulator.
Q: Many oil and gas companies may believe that top insurance providers offer similar services at a very similar price. How does XL Catlin stand out in that regard?
A: To differentiate between one insurance company and another, clients should look at their track record and at their financial stability. Such information might not always be publicly available, but customers should take the time to look beyond price alone. For health insurance, customers look at the coverage they get, what hospitals they can go to, and what diseases can be treated. The same goes for car insurance, where customers have a lot of options but may choose coverage based on response time in case of an accident, the ability to choose a qualified repair shop, whether they will get a replacement car, and what legal support they will obtain. Risk managers within oil and gas companies need to apply the same philosophy. They need to make sure that their assets and operations are adequately protected, but the only way to achieve that is by testing insurance providers. Oil and gas customers should ask us and our competitors what our experience in the sector is, what approach we take to volatility, and how quickly we file and deliver on claims, among other aspects. For corporations, the most important thing is to look beyond the price of insurance policies. If people are willing to pay a little extra for trusted car or health insurance, this should be the case for a commercial insurance policy as well. XL Catlin is a leading provider of professional and environmental liability, crisis management, product recall, and other specialty lines that can be summarized as more sophisticated or boutique covers. However, we are also a solid provider of property and energy covers.
Q: What are your expectations on seizing the opportunities created by Round One?
A: We are expecting an increase in the opportunities present in Mexico, which has not happened for a few years. The insurance market has grown at a rate only slightly above GDP growth in recent years, and that was limited to personal lines. It is now clear that investment will flow to the Mexican oil and gas sector, but to what extent will insurance and reinsurance programs be placed in Mexico as opposed to global programs? Some contractors entering Mexico have global insurance programs and will simply extend them to cover Mexico without actually basing them here. Independently of that, XL Catlin is investing in people on the ground. We have specialized, long-established experts all over the world but we need to bring these people here or develop them locally.
Q: What would be the benefit for an oil and gas operator to place its insurance in Mexico instead of outside the country?
A: The advantage of having a local insurance player is the ability to really benefit from local know-how and use it to meet your local needs. For example, if there is a catastrophe in Mexico, local insurance companies will be better informed about the reality on the ground and their response time will be far shorter in dealing with losses. It is only logical that having insurance in Mexico will lead to a faster response time in case of an emergency than if a company is insured solely on the international market. The advantages can even trickle down to areas such as language, particularly surrounding how quickly effective communication can be established.