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Premio RISK INNOVATOR 2011

2012-12-08


Jose A. Ricuarte
Manager
Vertice Seguros
Adjusting the Premium to the Risk

In Latin America, current methods that insurers use to measure the risk of domestic transport makes it almost impossible to know the real risk.

The singer Shakira is no longer the most flexible, powerful, and desirable innovation to come out of Colombia: rather the nod goes to AsisCarga, the first risk simulator based on marine insurance programs in Latin America that can support the companies that are investing and using land transportation in the continent.

Jose A. Ricuarte, a manager with Vertice Seguros in Bogota, Colombia, designed the simulator to measure the risk prior to delivery, and to adjust the premium based on the level of risk.

Although Latin America is one of the fastest growing regions in the world, owners, underwriters, and brokers in the region acknowledge that the current methods that insurers use to measure the risk of domestic transport makes it impossible to know the real risks.

In response, Ricuarte developed AsisCarga, using his own model. "We have a lot of experience with the Latin America roads, but we also have a mathematical risk model that we run each time that a truck starts a trip. We define the risk level of each shipment based on statistical information, Ricuarte said. "The model is fed every day, depending on the status of the roads. We are talking not only in terms of security. Remember that for the last year, the catastrophic risk like floods, landslides, in general the risks of nature caused millions in losses. The cargo risks transport in Latin America are so dynamic, change all the time.

"The major brokers who operate in the region focus on the big picture, but I dont think they have the time to focus on new things," said Claudia Vargas, vice president at Chubb Colombia. "Jose Antonio saw what was happening on the ground, what the shippers needed, and developed this answer himself. He has worked with freight forwarders and truck companies who needed something like this."

There are almost a quarter of a million freight forwarders in Colombia, Ecuador, and Peru, according to sources in the region. "We track the risk factors," Ricuarte said. "We use six initially to measure the level of risk. The first is the customer or the owner of the goods, because not all companies/corporations have the same way to manage the cargo risks. Some merchandise is more exposed than others, even carrying the same goods by the same route. That varies with the owner, and we always try to identify them to use special strategies.''

"This has been a hugely helpful program," said one manager at a freight forwarder. "It was very difficult to understand the risk of land transport. This program allows me to compile all the risks and better know how to mitigate them. I have shown the program to colleagues in places like China and in Southeast Asia because I think they face the same kinds of problems."

Setting political correctness aside, Ricuarte's starting points were the unique challenges faced by regional freight operators, including the poor condition of some roads, traffic congestion, the absence of any meaningful tracking system, the difficulty in checking references or safety records for drivers, high rates of theft in some areas, and a lack of standardized security or operating procedures.

Ricuarte's innovation was to address those conditions as risks that could be quantified or at least evaluated, and that unique risk management processing could be brought to bear.

"Jose Antonio's idea was to have a marine open policy with all the solutions available at the same time," Vargas said. "This did not seem possible with so many freight forwarders, and commodity categories."

Simplifying Claims Process
Bringing the rigor of risk management to the market was the true innovation, said Juan C. Salcedo, marine director at Liberty Colombia. "In effect he has created a new channel. We can guess and write business on unknown risks, just based on our experience, or we can use this process and write to a risk we understand." Owners and underwriters say that absolute losses have declined, as the measurement and tracking bring perils into focus. The claims process also has been simplified because there is a data trail.

Insurance companies say they like the application for underwriting in particular.

"The process is very fast because of the large data base," Salcedo said. "It has also made our negotiations with the client very easy. The client gets a rapid response with a quote. Before we would have to study and consider each quote. Then the client would argue. Now we say here are the statistics for that commodity on that route, so this is the premium. We have done more business with our same clients, and we have brought in new clients."

The biggest prize may be yet to come: with the flowering of free-trade agreements around the region, it is expected that there will be both an increase in freight traffic, but also an increase in companies from the U.S. and Europe wanting to invest in the region.

That investment can't happen unless freight companies, and their brokers and insurance firms can measure the cargo transportation risk. If global coverage stops at the wharf, development does, too.

There is also a great deal of local pride in the fact that this approach was developed using the knowledge of regional operators and input from brokers and underwriters already in the market.

-- Gregory DL Morris
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