Aon ranks economic woes as top risk for LatAm

In its 2019 global risk management survey, risk solutions company Aon identified the possibility of economic slowdown or a slow recovery as the top risk for Latin America.

The threat of economic problems in the region, said Aon, sharpened this year due to continued uncertainty surrounding the US-China trade war, Brexit, and geopolitical conflicts emerging around the world.

Economic slowdown/slow recovery was one of four risks identified as a top 10 risk in all five geographic areas included in the study – Asia Pacific, Europe, Latin America, Middle East / Africa and North America, and Aon further identified the threat of a weak recovery or a slowdown as the number one risk worldwide.

The report pointed to weak growth in Latin America as pivotal to the region’s risk outlook, noting, “Latin America has just experienced its fifth consecutive year of anemic economic growth - at an average rate of just 0.5%.”

The firm added that the region's larger economies are seeing a variety of ongoing, serious threats to growth, calling out South American territories in particular.

“Venezuela's economy suffered the sharpest [GPD growth] collapse, which has led to a revolt against President Nicolas Maduro,” noted Aon. “Argentina faced a currency crisis and double-digit inflation in 2018. Meanwhile, Brazil was hit with a recession, while Chile and Colombia struggled with slow economic growth.”

Aon considers economic slowdown/slow recovery an uninsurable risk, making the top insurable risk for Latin America business interruption, which ranks second in the report’s list, and represents the only fully insurable risk in the ranking.

The firm noted that business interruption in Latin America is strongly linked to exposure to political turmoil and natural disasters.

The top 10 risks for Latin America as identified in the report are as follows:

1. Economic slowdown/slow recovery (uninsurable)

2. Business interruption (insurable)

3. Accelerated rates of change in market factors (uninsurable)

4. Damage to reputation/brand (partially insurable)

5. Commodity price risk (uninsurable)

6. Cash flow/liquidity risk (partially insurable)

7. Regulatory/legislative changes (partially insurable)

8. Distribution or supply chain failure (partially insurable)

9. Increasing competition (uninsurable)

10. Capital availability/credit risk (partially insurable)

Citing Bernardo Baumohl, chief global economist for Aon’s economic outlook group, the report urged businesses to “undergo rigorous stress tests” and “come up with adverse hypothetical scenarios” to gauge their preparedness for an economic downturn.

“It’s important to renew focus on improving efficiencies, and on how to operate and improve productivity,” Baumohl said. “You should at least have a plan well prepared to put into motion to help mitigate the risks from a sharp downturn or major geopolitical eruption.”

Cyber risk on the LatAm horizon

While cyber risk is considered a number one threat by organizations in North America, the risk category has yet to make the top-10 list in Latin America due to relatively low public awareness, Aon noted.

However, Aon expects this to change in the coming years.

“For the first time since the beginning of this survey, we see 'cyber attacks/data breach' to be predicted in the top 10 for Latin America by 2022.”