Joan Lamm-Tennant, PhD, Global Chief Economist and Risk Strategist, and Stefano Dominedo, Vice President
While markets in some developed countries are demonstrating signs of recovery from the economic uncertainty of the last few years, and the growth in some developing markets is slowing, emerging countries remain attractive for insurance companies seeking opportunities for profitable growth. Latin America is an especially significant emerging region - it is rich in natural resources, geographically close to the United States and all of its governments are democratic. Before entering and engaging in business in this region, it is necessary for companies to be familiar with the economic environment, political situation, regulations, trends and risks that may be encountered.
In Guy Carpenter’s forthcoming study, 2013 Emerging Market Overview Report on Latin America, key trends are reviewed that validate healthy competitive markets and improving macroeconomic and sovereign credit scenarios. However, demographics and operating environments remain challenging to varying degrees and catastrophe exposures remain a permanent and significant concern. When entering a specific market, companies must be cognizant of the key factors that contribute to growth opportunities. Some of these factors are a sound economic and political environment that includes lower inflation; product innovation such as microinsurance and index-based weather insurance; and the ability to leverage multiple distribution channels in order to reach a broad spectrum of customers. Additionally, a broader view of risks needs to be considered and evaluated. These revolve around economic and political stability, and include mobility of foreign investment, legal uncertainty, reliability of physical and technological infrastructure, intellectual property protection, corruption and an environment of reliable enterprise risk management capabilities.
The 2013 Emerging Market Overview Report on Latin America takes a close look at the economy and insurance markets of the Latin American region and takes a deep dive into the markets of seven specific countries - Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. Though these countries share similarities, they have unique economic and political environments, which in turn fuel diversity within the insurance markets with varying regulations and trends. For example, in Brazil, where gross domestic product growth remains relatively attractive, the insurance market is the largest in the region, with solid improvements in insurance penetration and significant concentrations, especially in the life sector. Microinsurance regulation was recently enacted that paves the way for continued growth in personal lines while also supporting the emergence of a middle class.
Colombia, the country with the second largest population in Latin America, maintained healthy growth rates throughout the financial crisis and made significant progress in addressing adverse social factors involving drugs and other illegal activities. Despite low levels of insurance penetration, Colombia recently experienced substantial premium growth - the annual compounded average growth rate in premiums written from 2006 to 2012 was 22 percent. Microinsurance is less prevalent and less developed in Colombia than in Brazil. Nevertheless the microinsurance product does create an opportunity for additional insurance growth in Colombia. That potential for growth, however, is subject to companies being able to overcome known hurdles, such as the difficulties associated with rural-based distribution channels.
There are countries in Latin America, however, that do not offer opportunities as robust as those in Brazil and Colombia. For example, Argentina suffers from inflation, external debt issues, budget deficits and currency devaluation. Despite the fact that the country has relatively high insurance penetration, new regulations and government nationalization initiatives have undermined investor confidence.
While the Guy Carpenter report contains pertinent information from several sources, including the World Bank, Swiss Re Economic Research & Consulting, AXCO Global Statistics and A.M. Best Special Reports, it also provides proprietary insights from Guy Carpenter Country Managers. This additional feature gives this report a unique, local perspective. Together, the facts and insights in the report provide fundamental information for an insurance company with a current presence in Latin America or for one that is considering entering this market for the first time. Other market insights offered in the report include alternative strategies for market entry, assessment of advantages/ disadvantages and a summary of the process needed to successfully execute the necessary steps and operations to achieve success.