More Than Just The World Cup EY addendum

More Than Just The World Cup EY addendum

A unit of consultancy Ernst and Young (EY) said in its 2014 Latin America insurance outlook that the region "presents rich growth potential to competitively astute multinational and regional insurers in 2014, particularly for companies that pursue specific market niches".

On the downside, there were a number of risks related to Latin American expansion, some of which were growing. These included significant levels of regulatory and fiscal reform, inflation, high levels of catastrophe exposure and foreign exchange volatility.

EY said that successful insurers would seek to focus on niches with expanding market opportunities, develop efficient distribution alternatives, and improve levels of data quality.

One example given by EY was commercial insurance in Brazil. Total primary insurance premiums rose 14% year on year between 2012 and 2013, compared with a 10% increase in gross national product. However, both were beaten by an 18% increase in premiums for commercial multi-peril insurance product Compreensivo Empresarial. This, said EY, was due to rising levels of entrepreneurship in Brazil, a growing small-business segment, and expanding global needs of more mature businesses. EY also noted that the Brazilian government supported entrepreneurial growth and, as a result, had introduced tax breaks for micro-enterprises. That had led some of the informal economy to migrate to the formal economy.

Elsewhere in the continent, EY observed that Mexico had also constructed a framework that supported small- to medium-sized enterprises (SMEs). The country had expended the national loan guarantee programme and introduced simplified regulations. Colombia too has reformed its regulatory processes, thus reducing costs for small companies.

Niche markets

The report said that, by targeting high premium growth clusters in smaller markets, such as Peru with its steady economic growth and expanding middle class, insurers could achieve significant growth.

Weak data

The consultancy warned that many insurers remained insulated from their customers because the insurers had weak data capabilities and minimal market information. EY said that insurers needed to "tailor their products to the cultural expectations and economic suitability of targeted market segments". It said that products should demonstrate "a better value proposition to middle class customer segments, by simplifying premium payment and loss reimbursement".

A lack of data availability and sophisticated analytical tools was seen by EY as a significant factor in Latin America and also one that companies could exploit to differentiate themselves from the competition. EY noted that, while leading motor insurers in Brazil were using predictive modelling to price risk by insured peril, "virtually no Latin American market utilises consumer profile information to advance ratemaking and customer persistency modelling".


EY noted that insurance distribution in Latin America in the past had tended to stick to traditional intermediated systems – brokers and bancassurance. It noted that in Latin America "cash collection is critical to success". But the consultancy warned that the traditional sales channels "are not growing in line with expanding populations or addressing more demanding consumer expectations".

Currently about 80% of life business in Brazil is sold via bancassurance, but this drops to 40% in Mexico, where 33% are through traditional agents and just over a quarter is via deduction from salary. Personal lines non-life business throughout the continent is mainly sold via traditional intermediaries.

The report claimed that Latin Americans sought "demonstrated value" when buying insurance, meaning that it competed with other consumer products, such as a new television or a holiday. EY said that "traditional insurance distribution in Latin America has not evolved to keep pace with this changing marketplace". It added that Latin American consumers were "highly engaged users of social networks and mobile technologies", but that their openness to new channels had not yet fully influenced the insurance distribution environment. The consultancy said that "rapid evolution appears inevitable".

EY said that, to continue the growth in the rate of insurance penetration, insurers needed to provide targeted financial education, and develop "online communities for knowledge transfer purposes" as well as "support the use of advanced analytics to identify prospects for more personalised communications".


Regulation in Latin America is becoming more sophisticated, with new rules following the trend set in Europe and the US to require that companies have more sophisticated risk-based capital approaches to solvency levels.

Mexico's legislation is the most advanced, with a 2015 compliance date for a Solvency II-style capital requirement – in many cases ahead of the European countries that are meant to be establishing the base requirement.

In Brazil and Colombia solvency rules are under review, with consultancy Ernst and Young expecting a move towards more complex risk-based capital requirements. "While the rate of regulatory change differs by country, the direction is clear", the consultancy stated in its overview of the Latin American market.

However, EY warns that "most insurers in the region generally are not technically prepared for this level of risk and capital management". This offers a chance for insurers to differentiate themselves from the pack. EY said that "while a significant challenge, successful insurers will develop and leverage more precise measurement of risk into increased capital efficiency and profitability".

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