Latin America – an emerging (re)insurance hub | viewpoint

Why is everyone interested in Latin America?

The region is booming with a host of expansion opportunities available. Some brokers have started investing in Latin America and their reasons are many.

While figures vary between countries, overall, Latin America has low insurance penetration. According to a 2020 report by Mapfre, the average penetration rate was 3.1 percent, and despite the region being home to roughly 9 percent of the global population, it accounts for less than 3 percent of the premium.

An important reason for this is the lack of financial resources. Insurance is definitely not a priority for those who are struggling. Countries are trying to counter this through solutions such as affinity agreements and microinsurance, which allow access to lower-cost and easily distributed protective products. On the other hand, a growing middle class is challenging this low penetration and driving more insurance purchases. This trend is set to continue, with the middle class population expected to potentially double in less than 10 years – this will drive an increased appetite for insurance and reinsurance.

Another factor is the general lack of confidence in insurance, with many feeling that money spent on paying premiums is not money well spent. There is a tendency to believe that whenever you have a loss, the claim process is complicated and something can go wrong. To counter this, industry and governments must work together to improve the public’s view of insurance companies and highlight the real importance of insurance as a mechanism to achieve peace of mind, protection and sustainability.

“The middle class population is expected to potentially double in less than 10 years – this will drive an increased appetite for insurance and reinsurance.”

Low penetration of insurance products also means that there is a gap between what should be insured and what is actually insured. For example, there are some countries where if an earthquake were to occur, less than 2 percent of properties would be insured. This is a dire situation as it means that an economy that has already suffered a significant impact will have the additional burden of having to pay for damages upfront or through increased taxes, putting further pressure on an already devastated population. .

As Latin America is a region that is highly exposed to catastrophic events, the lack of insurance is doubly important. Across the continent, there is a significant risk of earthquakes. Additionally, the entire region has varying exposure to natural disasters such as winds, droughts, and floods. There are also political, terrorist and social risks.

The region also presents opportunities for equity advisors to provide risk financing alternatives – not just through insurance, but through bonds, ILS and other risk financing mechanisms that can allow the insurance gap to be reduced.

To further improve public perception of insurers and reinsurers, an increase in regulatory requirements is important. There has been a significant increase in the number of steps required to start operations in the region. This has its pros and cons. It slows down the process, making it more complicated to set up new businesses or expand existing ones, but on the other hand, more industry regulation generates more consumer confidence. An involved adjuster who is closely analyzing claims increases the guarantee that a valid claim will be paid. These consultations provide a much-needed boost of confidence around buying insurance and reinsurance for people in the region.

Latin America is prone to growth. Because of its diversity, it is difficult to discuss using generalities – but this diversity may be one of its greatest strengths. Different countries are exposed to different risks. For example, Argentina is not exposed to cats, while Mexico has a high level of exposure. Brazil is not very exposed to the risk of terrorism, but Colombia is. This allows insurance and reinsurance businesses to choose which risks they want to insure, with different levels of exposure, reducing risk concentration.

Diversifying risks, a growing middle class and growing consumer confidence make Latin America an increasingly attractive region for the industry.

Juan Carlos Gomez is executive vice president of Latin America and the Caribbean at BMS

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