INCREASING PENETRATION

Mexico 2017 | FINANCE | REVIEW: INSURANCE

As the Mexican insurance industry continues to develop, analysts and industry leaders are confident that they can tap into the country's potential, increasing low penetration rates and expanding underwriting figures.

Though there have been challenges in recent years, Mexico's insurance market is showing signs of stable growth in both profitability and premiums. While there is still some uncertainty regarding the larger macroeconomic picture, especially in terms of the potential for new protectionist economic policies in the US and the potential decline of key trade agreements like NAFTA and the TPP, Mexican insurance companies are likely to remain strong throughout 2017. As penetration rates improve and premiums rise, insurers are confident in the direction their industry is moving. Additionally, as the Mexican economy begins to record even more impressive growth rates, analysts are confident that the insurance market will grow accordingly.

Mexico has remained an insurance leader in Latin America, and its implementation of a new insurance regulation framework modeled after the EU's Solvency II framework is one of the most comprehensive in the region. This framework ensures that Mexican insurers remain the gold standard, and this year a new series of regulations relating to risk-based capital, cybersecurity and Insurtech will be implemented. That being said, reporting systems and infrastructure in Mexico still have a long way to go before they can fully adhere to the requirements enumerated in the Solvency II framework. Still, strides have been made, and Mexico is in a much better position in terms of implementation than many other Latin American countries.

While insurance still accounts for less than 3% of Mexico's GDP, that figure is on the rise. According to the Mexican Insurance Industry Association (AMIS), the insurance sector in Mexico finished 2016 with 9.3% growth and is forecast to finish 2017 with 7%. In the third quarter of 2016, vehicle insurance grew by an astounding 19.9%, and life insurance notched an impressive 12.9%. Overall, the auto insurance industry achieved nominal growth of 20.4% in 2016. According to Quálitas, the 36 companies operating in the industry had total combined written premiums of more than 91 billion pesos. The top five companies in terms of written premiums were Quálitas, G.N.P., AXA Seguros, Aba/Seguros and Banorte, representing roughly MXN28.7 billion, 11.6 billion, 9.9 billion, 6.2 billion, and 5 billion, respectively. These five companies controlled nearly 65.5% of market share in terms of earned premiums, clocking in a 29.2%, 13%, 13.2%, 4%, and 6.1%, respectively.

Insurers in Mexico are expected to make greater efforts to reach lower income segments of the population, a strategy that requires heavy investment in customer education. In order to reach these segments, analysts expect new technology and innovative business models to become integral aspects of many firms' expansion strategies. In Mexico only around 33% of cars are insured, and major firms see this category as one ripe for expansion. According to Standard & Poors, government mandates are only a part of the equation, and the most important aspect is tailoring insurance products to meet the requirements of the vast customer base. Another strategy is increasing the points of contact and number of contacts between insurers and customers, a tactic that is intended to increase communication and prop up premium levels.

In an exclusive interview with TBY, Francisco Oliveros, Director General of Seguros Sura, discussed the exciting potential in the Mexican market. “The Mexican market is the second largest in Latin America, while also being one of the least penetrated markets,” said Oliveros. “There is a great deal of potential to grow.” According to Oliveros, the market's relative nascency—reflected in a scant 3.5% penetration rate and tiny ratio of three insurance agents for every 10,000 people—makes it strikingly rich with opportunities. The most important thing insurers can do now is “work together to change people's perceptions, attitudes, and knowledge of insurance,” accordin`g to Oliveros. As the industry continues to make headway in its marketing and awareness efforts, leaders in the insurance industry are confident that they will continue adding customers to their roles and bolstering their bottom line.

Another market that analysts have identified as ripe with potential is the SME market. The Mexican economy has more than 4 million SMEs, yet a mere 6% of those enterprises are covered by insurance. Opportunities abound for firms willing to tailor their product offering toward this segment, and a number of large firms have begun making inroads in this space. According to insurance giant AIG, as many as 25% of SMEs are forced to shut down due to lack of adequate insurance. This puts a serious strain on the economy, hampering growth within a segment vital to the country's overall fiscal balance and wellbeing. Firms like Seguros Sura are focusing particularly hard on this segment, crafting offerings that appeal to smaller firms. “We have less than 1% of the insured market share, although we have 5% of the SME insurance market,” said Oliveros. “We have thus focused a great deal on SME products, and we work to make them more robust and compelling, adding a key element policy for life and cyber coverage.”

Opportunities for insurance products aimed at the cyber sector also abound. As more and more of the Mexican population and Mexican businesses come online, insurance vehicles that focus on safety and security in the digital world are gaining importance. Insuring data and client information is vital to large companies and SMEs alike, and Mexican firms have begun unveiling new products designed to address exposure in these areas. Insurtech has also enjoyed increased penetration with the industry as insurers make efforts to reach their more and more technological clientele.

Health insurance coverage has been expanding in recent years, too, and the publicly subsidized plan, Seguro Popular, currently offers coverage to more than 50 million Mexicans, according to the OECD. The success of this plan has succeeded in reducing the incidence of impoverishing health costs to a slim 0.8% of the population. Thanks to this program, which extended coverage to those not already covered by the Instituto Mexicano del Seguro Social (IMSS), The Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE) or the State Health Services (SHS), nearly all Mexicans have access to some form of healthcare. That being said, recent surveys have indicated that nearly 18% of the population reports having no insurance, indicating that they are unaware that they may be covered under current schemes. Additionally, nearly 10 million Mexicans are thought to have duplicate health insurance coverage, underscoring an important inefficiency that public and private insurance firms are trying to correct. Secondary insurance markets could provide additional coverage while improving outcomes and increasing the efficiency and quality of the market and the healthcare system as a whole.