TBY talks to Fernando Solís Soberón, Director General of AMIS, on the state of the insurance industry within Mexico.
THE BUSINESS YEAR What is the history of the establishment of AMIS?
FERNANDO SOLÍS SOBERÓN It has been 75 years since AMIS was founded. It is an association that comprises 85 of the 104 insurance companies in Mexico. In terms of premiums, we make up 90% of the market. The purpose of this association is to promote the interests of the partners. Of course, our members are competitors, but they share the same views, particularly with respect to regulations. This is the focus I intend to bring to the association to promote the development of the industry. I think that there is a huge opportunity in this country for the industry to grow. A figure that is commonly used to measure the size of the sector is revenue to GDP. According to those figures, the insurance sector in Mexico is half the size it is in Chile or Brazil. It is important to have a good understanding of why we do not have a bigger share. The second purpose of our organization is to have very clear objectives, a strategy plan, and a road map to close gaps. This is something that we have just completed.
There are some 60 million uninsured potential customers in Mexico. What reasons have you identified for the current low penetration rate?
One reason would be the structure of the economy. The second would be public policies, and the third would be regulation. Regulation and public policies are not the same. Mexico has an underdeveloped insurance sector along personal and commercial lines. Regarding personal lines there are two main reasons. One, Mexico is a very young country with respect to others. More than half of the population is 21 years old or under. Number two is that we have a very skewed and unequal distribution of income. In Mexico, a large percentage of the population earns a very low income. To explain why the demand for certain insurance products is not as large as in other countries, let me start with the income level of the Mexican population. The insurance sector is very well penetrated in the high-income levels. Only 5% of households that are not linked to a mortgage are insured in this country. Around 25% are insured because of mortgages, but in addition to mortgages only 5% are insured. If you talk about life insurance, only 15% of the labor force has an insurance policy. In terms of health insurance, only 26% of the cars in this country are insured due to a lack of compulsory insurance. With respect to income distribution, as of data from 2011, we have a country of 112 million or 113 million people. The number of people insured is more or less 21% of the population, which is around 23 million individuals. Therefore, we have more than 85 million people who are underinsured and we have at least 44 million that are not insured. We have huge potential because income distribution is very skewed. There are some individuals who are earning between $100 and $400 per month, and therefore their disposable income is not enough. We are working on micro insurance, but these individuals are, unfortunately, not able to buy certain policies because they cannot afford it. The other reason is that many households are very young, and thus the demand for insurance is very low. That is going to change in the future, which is why there is a lot of opportunity. These are structural things with regards to households and families. With respect to firms, Mexico has a lot of informality. There are, according to the census, 4.8 million firms that have only 1-10 employees. Then, there are 3 million, or 3% of the total, which have more than 51 employees. That means there are a lot of micro firms and informal firms that are not contributing to social security and that are not insuring their property or their employees.
Why is there no compulsory insurance for employees?
We have very informal markets, very small firms, a very young population, and low income levels. That is why, structurally, the demand for insurance is less than in other countries. But that is an opportunity. A lot of families are going to be formed in the years to come. They will have mortgages, they will have cars, they will have children, and the demand for health insurance is going to grow. We think that the country is going to keep growing. If we transform the structure of the economy by passing some other structural reforms, I am very optimistic about this government. If that happens it will raise the income of many families and also raise the gross distribution that will transform the labor market to where we will have more formal markets. That is why I am very positive with respect to the insurance sector in Mexico. It has been growing faster than GDP and I think that the opportunity is huge. This is the way that many firms abroad see things. This is a very strategic market that most of the important firms in the world are pinpointing. After Brazil, Mexico is the largest market, followed by Argentina. The differences are huge but I think Mexico is going down the path of very rapid expansion. The second reason is public policies. If you compare Mexico to other countries, we are the only country belonging to the OECD that does not have compulsory third-party liability insurance. This has to be put in place now because it will help the insurance industry grow and earn more money; it is a must to protect the victims of accidents.
To what extent does the regulatory environment require further development?
The Mexican Insurance Commission is very conservative and it has imposed unnecessary costs on firms. Mexico is prone to catastrophes, as are many other countries. However, with respect to disaster insurance, Mexico has capital requirements of over 100% more than in other countries. It makes this type of insurance more expensive. It is either not profitable to supply it, or if you do it you hedge prices, which hardens demand. Some things in the relationship between the regulator and the players have to change in order to encourage the growth of this industry. We are working to pass a law that will require every motor vehicle that drives on federal roads to have insurance. We are close. It has already been approved in both chambers. It was approved in the House of Representatives in Mexico and it was also approved in the Senate. Of course, paying for the cost of capital, we are not going to lose money, but we are not going to make a lot of money. Our business will be in our ability to up-sell and cross-sell. Many individuals will find out that it is a good idea to be insured. Something that will actually help is that the new labor law increases the liabilities of third parties significantly. We have to measure our strategy on these issues because if we are very eager, politicians become very suspicious that we are going to make a lot of money and they will resist the change. I am very optimistic by nature, but I cannot give you a precise date. However, I am certain that it is going to be in the next three to five years.
This interview will be published in 'The Business Year: Mexico 2013'. To pre-subscribe please e-mail us at email@example.com
© The Business Year - March 2013