Lateral Thinking Policy


As with any emerging economy, the financial markets—when sufficiently liquid—provide a vehicle of broader economic growth that fill government coffers and in turn fund vital essential infrastructure, thereby fostering greater […]

As with any emerging economy, the financial markets—when sufficiently liquid—provide a vehicle of broader economic growth that fill government coffers and in turn fund vital essential infrastructure, thereby fostering greater international competitiveness. Fortunately for Colombia, decades of domestic woe are now but a painful memory, and the state has transformed its financial markets into an appealing investment proposition. And while the oil economy has been somewhat dented by low crude prices, GDP growth of 3.5% is forecast for both 2015 and 2016 according to Focus Economics. Drawing an encouraging contrast, Minister of Finance, Mauricio Cárdenas informed TBY that; “Colombia is not as commodity-dependent as other countries in the region [and while] oil extraction accounts for 5.2% of total GDP for Colombia, in Peru and Chile the mining sector represents almost 12% of their respective economies.“

For 2015 Fitch Rating’s sector and rating outlooks for the Colombian insurance industry remain stable as in 2014 on expectations of persistently stable credit metrics. It also forecasts nominal industry growth of 8% to 10%. Yet profitability is deemed pressured by fierce price competition and capital market volatility.


Colombia’s informal economy exceeds 50%, with an estimated 59% ratio in Bogotá alone, which denies the capital markets and broader economy liquidity. Industry watchdog, the Financial Superintendency of Colombia (SFC), therefore, is determined to tap further into those citizens on the radar screen with the potential to take out policies. Therefore, in a further bid to the spread sector risk and inculcate financial instrument awareness in June of 2014 the SFC urged local pension fund administrators (AFPs) to galvanize their promotional activities. Incidentally in 2014, Euromoney voted the SFC the most innovative regulatory body in Latin America.


It’s by no means all gloomy, then, and moreover, one of Colombia’s prime assets is the openness of its economy, which ranked as the world’s 40th most open in Ernest & Young’s (EY) 2012 Globalization Index. EY’s 2014 Latina America Insurance Outlook report identified “wider use of advanced analytics and technology in a few Latin American countries is contributing to enhanced market segmentation capabilities.“ Meanwhile, in 2014, Colombian insurance companies were required to adapt to potential rises in reserve requirements, and face the implementation of international accounting standards due to take effect in 2015.

Over 6.3% of the population is over 65 years old, with a further 10 million in the pension system soon to be eligible. US rating agency AM Best forecasts total premiums reaching $11.1 billion by 2016. FDI is a patent contributor to insurance sector performance. Official data from Banco de la República de Colombia put FDI at $3.8 billion in 4Q2014 up from $3.7 billion QoQ. Meanwhile, a rising local middle class and lower unemployment, plus easier access to credit, also fuel the momentum. Agriculture contributes 5.1% of Colombia’s GDP, and the government continues to subsidize agricultural insurance to raise the rural penetration rate. And over the past two years, the overall penetration rate has risen to 2.7% of GNP. The insurance sector overall generates around $7.5 billion annually, the bulk, at over $5 billion, stemming from non-life premiums.

A key sector engine is the individual segment, at close to 50% of total premiums, with half again derived from social security, covering around eight million Colombian workers. The five lines of auto, group life, professional risk, retirement, and health insurance generate in excess of 60% of total premiums.


The performance of Colombia’s insurance sector—the sixth largest in Latin America, accounting for 2.6% of GDP (2.2% in 2010)—is determined by factors that include natural events (flooding in 4Q2010 saw insurers shell out $600 million), demographics, and largely by economic performance. Close to 30% of the population of 42 million is aged below 15 year old, hence a growing pool of potential conversions.

Ernest & Young’s (EY) 2014 Latin America insurance outlook makes recommendations for the insurance sector to increase penetration, while mitigating resulting risk. Accordingly, products and services should aim to convince the middle class customer of their value proposition by, among other steps, simplifying policy terms, and reducing and broadening options for premium payment and loss reimbursement. It concludes that Colombian insurers should not be perceived as remote from the client through over-dependence on agents for market intelligence. And meanwhile, EY’s 2015 Global Insurance Outlook report pointedly states that; “Successful insurers in 2015 will increase market penetration by reaching out to consumers underserved by traditional distribution channels such as brokers and banks.“ In short, insurers need to address customers directly in terms they comprehend, over media they actually use, with mobile insurance in clear relief. This updating of the sector’s modus operandi presupposes improvements to the talent pool of insurance professionals. “A key factor in the hunt for underwriting talent is the opening of the reinsurance market less than a decade ago, which fostered profound changes in how insurers underwrite business,“ EY notes. And predictably, “…as demand for underwriting talent grows and brokers and insurers compete intensely for these skills, costs are rising.“


In light of the arguments above regarding the socio-economic landscape, Colombia’s insurance regulation has tended toward “…a risk and economic value-based solvency framework, with tightened capital market regulations,“ according to EY. Consequently Colombia is observed having outperformed many rapid growth markets in reforming its regulatory environment, lifting commercial efficiency, while better serving the consumer.

A landmark of Colombia’s insurance universe was Article 101 of Law No. 1328 of 2009, which coming into effect on July 15, 2013, liberalized the market. Notably, citizens were now at liberty to purchase insurance coverage abroad with the exception of, among others, social security-related or compulsory insurance products. State entities, too, are ineligible. Moreover, foreign insurance companies may establish branches in Colombia, with equal rights and obligations to their Colombian counterparts. The reform effectively fostered sector growth, while spreading risk given the domestic sector’s limited ability to do so independently. In March 2014, the SFC authorized Brazilian reinsurance provider Terra Brasis Re to enter the local market. The move was part of Terra Brasis Re’s broader Latin American growth strategy, and positioned the firm among the close to 60% majority of foreign-based insurance entities in the Colombian market.


Colombian financial holding Sura is Colombia’s market leader in the property and casualty (P&C) market. According to data compiled by ANAmericas, for 2014 its life insurance subsidiary, Seguros de Vida Suramericana, topped Colombia’s list for that branch in premium terms. SFC data indicates that for 2014 Suramericana claimed a 24.7% stake of the total life market, where its premiums climbed 15.1% YoY. In 2013 the company was named “Best insurer in Latin America” and “Best Insurer in Colombia,” by Euromoney. It was followed by Seguros de Vida Alfa in premium terms, with a 13.9% market share of the total, while in third was Mapfre Colombia Vida Seguros, just shy of a double-digit performance, on 9.9%. Compañia de Seguros Bolivar sat on an 8.7% market share. Meanwhile, ARP Sura, the workers compensation division of Sura took fifth place on its 8.5% market share. Alfa posted the swiftest premium growth among Colombia’s top 10 insurers, on 34.4% in 2014.
While oil malaise will impact the economy, the Colombian insurance sector has longer-term homework to do. The message seems to be that efficient action on accurate analytics can boost policy conversions. New opportunities such as are presented by widespread use of social media will increasingly be pursued in 2015 to direct much more honed messages to a still largely indifferent population.

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