The insurance sector among the EMs, like other branches of the financial universe, remains challenged by sticky low penetration. In a TBY interview, Axa Keralty Director General Alejandro Pérez Galindo confirmed that “in Mexico, the penetration level for major medical expenses insurance is extremely low, at around 8% within a population of 126 million,” adding that “for almost half of that 8%, their company provides health insurance.” And so, when jobs are lost, the ability to maintain that coverage is at stake. Yet, disruptive technologies are increasingly taking this to task.
Prudential is a household name worldwide, and to bring its sheer scale into sharp relief consider that its reserves of USD1.6 trillion contrast with Mexico's GDP of around USD1 trillion. Mario Vela, the CEO of Prudential Insurance Mexico, told TBY the company was the first in Mexico to incentivize the customer with personalized digital transactions a mouse-click away. “We now have about 65% of automatic underwriting, and in 65% of the cases you get the policy in two seconds.” Work is underway, he added, to increase the rate of automatic underwriting to 90% such that nine out of 10 policyholders will get their policies as soon as they hit “Enter.” And while the deployment of AI remains limited, investments are being made in the digital upskilling of insurance agents. In 2020, while Prudential in Mexico doubled in size, the industry shed 1%, not a dramatic decline numerically perhaps, but a useful pointer.
The Added Effect of Covid-19
The economic consequences of lockdowns in 2020 are reflected in the premium generation. Resulting unemployment and impacted disposable income immediately dented the key auto insurance segment. Mexican insurers also forked out over USD1 billion on medical expense and life policies in 2020. Sector data shows that as of the first week of March, the cumulative total had scaled USD1.28 billion. In terms of scale, the pandemic ranked the second-most costly factor in the history of single claims in Mexican history, topped only by Hurricane Wilma in 1995. Needless to say, vaccine rollout is key to economic normalization.
A Fertile Launchpad
Unlike a saturated market, of course, low financial penetration combined with Mexico's demographics make it a choice address for the launch of fintech business solutions. Merely consider its youthful and tech-savvy population. Alternative solutions to meeting financial needs raise awareness, and by generally offering more competitive offers, stand to convert that knowledge into premiums. 75% of Mexicans have a mobile phone (90% smartphones), while 80 million have decent internet connection. And with just 13.7 bricks-and-mortar bank branches per 100,000 consumers, the digital path to consumer—read insurance premium—seems a no-brainer.
Mexico's Supportive Landscape
Latam, broadly speaking, highly regulates its insurance sector, but bold strides have been taken to accommodate digital innovations that boost financial inclusivity, without losing sight of consumer protection. Insurtech has much growth potential in Latam, accounting for just 6% of all start-up fintechs thus far. Significantly, too, the state has been supportive. Our focus here is Mexico, but let us take with cursory glance at Brazil, Latam's leading insurtech market, for a glimpse of where Mexico is likely headed. Acknowledging the imperative of digital innovation, Brazil recently introduced a regulatory sandbox for several insurance companies supervised by the Brazil Insurance Superintendent (SUSEP). Like any sandbox, it allows the risk-free testing of fresh products and services that will ultimately increase both penetration rates and the returns once monetized.
Mexico's Digital Cascade
As for Mexico, while not specifically addressing insurtech, its passage on March 9, 2018 of the Fintech Law regulating financial technology companies was crucial for innovative customer service. The Fintech Law also allows Mexican fintechs to operate abroad, a shot in the arm for competitiveness. The fintech universe is home to firms and start-ups from diverse sectors, but with 90 start-ups so far, it predominantly deals with payments and remittances. In 2020, the number of Mexican fintechs rose over 14%, with welcome and telling growth registered in both insurtech and digital banking services. It seems inevitable for insurance to benefit from the tailwind of legislative clarity. Currently, Mexico's insurtech companies work in step with the Law of Insurance Companies and Bonds - Mexican Insurance Law, wherein Article 214 provides for the digital provision of insurance operations and brokering services.
Mexico's GDP, which shrank 8.2% in 2020, is forecast to rebound 4.3% this year; this is unlikely to return, say, auto branch premiums to the pre-pandemic level. Yet necessity, as they say, is the mother of invention. Mexico's insurance sector is inexorably moving toward greater digital solutions.