The Business Year

Carlos Vanegas

ECUADOR - Finance

Opportunity to Sell

Executive President, Liberty Seguros

Bio

Carlos Vanegas studied Business Administration at the Universidad de Los Andes, and went on to specialize in Finance at the same institution. He has more than 20 years of experience in the insurance business in Latin America and Southeast Asia. Over the past six years he has participated actively in the setting up of one of the most successful operations in the Vietnamese market. Before working in Vietnam, he was working for more than a decade with Liberty Seguros S.A. in Colombia, and for more than six years with FASECOLDA, the Federation of Colombian Insurers.

"The market is changing and evolving into something better."

What prompted Liberty Seguros to enter the Ecuadorean market?

Liberty has a large footprint in Latin America. We started operations in the region in 1995-1996 by entering the market in Venezuela and Colombia. We subsequently entered Chile, Brazil, and Argentina. The intention of the group is to keep developing its footprint not only in Latin America, but in emerging markets worldwide, for example in Asia and Europe. The Ecuadorean market has been of great interest to the group for a number of years. In 2012 the regulator essentially divested the insurance business from the banking sector in Ecuador, which created an opportunity for Liberty to enter the market. Also, the market has grown significantly over the past decade, in fact exceeding GDP growth, although it is still a small market. Premiums in Ecuador border $1.7 billion today, which makes it an interesting niche market to enter. Therefore, a combination of factors was involved in our decision to enter the country. I think it is preferable to maintain our momentum and keep entering additional countries in Latin America because having a greater footprint is beneficial. Another positive about the Ecuadorean market is that the insurance penetration level remains low. As the population’s purchasing power increases, this creates opportunities to sell insurance.

Over the past 10 years Ecuador has seen an economic transformation. Do you think that has changed the nature of the insurance market?

I think all factors are connected. When the economy is doing well and the purchasing power of the middle class is increasing, then there are more opportunities to sell insurance to that class. Certainly it is important to recognize that when there is an appropriate and stable economic and political climate, it is also a good time to do business and seek foreign investment.

What is the significance of Ecuador for Liberty globally?

I believe Ecuador to be an important market for us. It is developing, and one where we can find an interesting niche and incorporate best practices from other companies in the group worldwide. And certainly we are starting to do that. The market is changing and evolving into something better. This is not only because Liberty is here, as a good number of foreign multinational companies have entered the market and we expect to have competition based on services, improving technologies, and the further organizing of the sector as a whole. This is all extremely positive. Another factor here is related to growth, where GDP growth in 2014 is at around 4.5% and for the insurance market is at approximately 12%, meaning there is a sizeable room for competition. Stability over the past decade is another important factor. In the past, Ecuador saw 10 presidents in 10 years; however, since President Correa came to power in 2007 we have seen stable government. This is quite positive and has been coupled with solid economic results. There is stability in terms of inflation; Ecuador has controlled it well, which in Latin America is unique and important. Unemployment has dropped significantly over the years, and there has been huge investment in the wellbeing of people and in infrastructure projects. Since 2006 investments relative to GDP have approximately doubled. We advanced from investment in infrastructure and government at 2.6% of GDP in 2006 to 5.3% in 2009. All these are indicators of an appropriate market to enter and compete in as a multinational.

“The market is changing and evolving into something better.”

Ecuador has a competitive insurance sector where most companies compete on price. Do you see Liberty taking a different approach to distinguish itself in the market?

In general, Liberty competes in markets that operate with good services. Price is of course important in insurance; however, aside from that factor, we always work in all our operations around the globe to differentiate ourselves from our competitors. For example, we value customer relations, pay claims in record time, issue policies within an appropriate timeframe, and have all the necessary data in place to give our customers a better experience when dealing with us. We are still competing on price in the segments of the industry that we believe are profitable for the company. And we undertake extensive data analysis in order to categorize risks, so that we can offer different rates for different risks. Hence, we offer a very competitive price for good risks. It is just that we don’t see price as the only mechanism for competing in the market. It is a much more complicated mix of factors. Service also encompasses how we serve our distributors, such as giving them technological tools to make doing business with us, and their final customers, easy. Also, we make sure that communications and an understanding of the products are clear for our distributors, who are mainly brokers.

Do you see significant growth potential in the individual and corporate health and life segments in Ecuador?

I do indeed, because as long as the population increases its purchasing power, and the middle class continues to grow, there will be an insurance requirement when these people purchase their first car, house, and so forth. Demand develops as society grows, and this growth needs to be sustained by insurance. Therefore, we will be supporting this growth in certain segments where the population has needs.

How do you see the influx of international insurance players affecting the reinsurance sector in Ecuador, which remains underdeveloped?

Ecuador is a unique country in Latin America as the percentage of reinsurance to foreign reinsurance is perhaps one of the highest in Latin America. Around 52% of the risk is reinsured overseas. Companies such as Liberty have been doing the opposite to what local companies have been doing, because we came here bringing our own full capacity and retain the business in the country as much as we can. In certain lines we cede a slight percentage. When I came to Ecuador the percentage that we had in the two local companies we acquired was roughly 50% of retained business and 50% reinsured business. By the end of 2014 we will have around 95% of the business retained in the company. This signals a significant change not only for this company but also for the market. I believe all the insurance companies, particularly the multinationals, are doing likewise. When you retain more business you have to be stricter with the type of business you are writing. You have to have more discipline and enhance your pre-inspection capabilities, as well as having well-aligned and tougher guidelines in order to retain that type of business. Then you need to have good expertise; you need excellent underwriters and data with sound analytics backing those up. We don’t want to write business here and then send it abroad to our own, or other international reinsurers.

What are your key objectives for Liberty over the next 12 months?

Our key objective is to complete the merger. We made great advances in 2013 and believe we are almost at the conclusion. The paramount issue we need to keep working on is enhancing our capabilities locally, which means improving our technical and our technological capabilities. The other issue we are working on is to address deviations in certain business lines in the portfolios of the two Ecuadorean companies we acquired. We are set to restructure in 3Q2014 to accommodate our employees in Quito. Currently, our two locations are inefficient in terms of productivity. Meanwhile, we also need to build our brand. Liberty entered the market in Ecuador in 2012 through our acquisition of two companies, one of which had an excellent name and presence here. Now, it is our objective to build the Liberty brand in this new market.

What is your vision for Liberty in Ecuador in the medium term?

We foresee having become the premier insurance company in the market. This means the best company in every respect, including in terms of the people who work here, our customers, and the brokers and distributors we work with, and also in terms of the best prices, commissions, services, and support. Company wide, we want to have a unique offering in terms of operational excellence, which will ultimately target much better service in the market for the customers.

What makes Ecuador an attractive destination for international investors?

I think Ecuador, as a country, offers diversity. Although a small country, geographically it is diverse, the market is growing, and the economic prospects are encouraging. Stability is improving substantially in the market and the consumption habits of the population are changing. The value that Ecuadoreans add to international brands is important. This mix of factors, together with strong players coming to Ecuador from around the globe, is a positive indicator in terms of a place to live and do business. It is also important for Liberty as a group to be here, so we can continue growing our presence in Latin America. We would like to be in more countries and build our brand further by leveraging the strength of the group, in terms of capital strength, size, and reach.

© The Business Year – August 2014

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