The crosswinds of free trade are being felt throughout Latin America. As a result of increased business activity, relaxed tariffs on foreign trade and a flurry of economic activity throughout the region, risk management is now becoming an integral part of Latin America's future success.
A survey of the markets across Latin America -- from Mexico and Argentina to Panama and Uruguay -- played a major part in the region's first risk management conference, held October 30 through November 3 in Cancun, Mexico by the recently formed ALARYS, the umbrella association of Latin American risk management associations, with members from Venezuela, Brazil, Argentina, Mexico and Panama. "The idea was to exchange information, to bring together risk management practioners in our region and to provide an educational program for risk managers," said Jorge Luzzi, risk manager Latinoamerica of Pirelli Group in Argentina and President of ALARYS. "With 400 in attendance, the conference has proven that it is possible, that the distance between our countries is not so great and that people would come to share ideas and to network." While each country has both its own economic and regulatory climate, risk managers are encouraged by ALARYS to share information and find common ground. ALARYS was formed two years ago in 1993, and the members are five associations: Argentina (ADARA), Brazil (ABGR), Mexico (IMARAC), Venezuela (ASUARs) and Panama (APARIS).
The Latin American countries are living through globalization, enormous change and the repositioning of services on an international scale. Risk management within this context is becoming a more central activity. According to A. Carlos Pascual, insurance manager of La Plata Cereal S.A. in Buenos Aires and vice president of ADARA in Argentina, most of Latin America faces common problems such as reduced awareness of safety and security; nonexistence of formal risk management procedures in companies; lack of high-cost technology; lack of information by field or scope and also greater need for risk management as trade increases between the countries.
In Mexico, risk management has become important, with the focus on labor accidents, liability and fire risk. "Risk management is a flourishing activity in a competitive environment," said Alfredo Solloa Junco, president of the National Insurance and Bonds Commission in Mexico. Graciela Soto Topete, president of IMARAC, added however that the economic changes have required that several companies cut jobs, and this has caused risk management in many companies to be weakened or to be designated to a financial or accounting department. In Mexico, for example, the function of the risk manager may be assigned to other parties. Yet, in other situations, companies are finding out that it is important to protect the company's patrimony. "We have to recognize that we need to create a culture that promotes and understands the function of the risk administrator through all of Latin America," said Ms. Topete. "It is important to improve and demand quality of services."
Jorge Luis Hernandez, risk manager for Lagoven S.A. in Caracas, Venezuela, and the president of ASVARS, said that Venezuela has also faced numerous economic, political and social changes. The currency devaluation and the inflation level have stabilized, and there is an opening in the economic and commercial sectors, with important investments coming in from abroad. Companies are feeling the need to become more competitive, so they are adopting management strategies such as just-in-time, downsizing and rightsizing. Risk management now plays an important role in the new economy, particularly in areas of loss financing and captive formation.
Considering these changes, is it natural that the insurance market became affected? "The Venezuelan approach of legal reform was to give larger autonomy to the control board, increase capitalization and recapitalization of insurance firms and create new orientation and protection for the insured and for foreign capital," Mr. …