New international entrants have increased competition and lowered prices for consumers, trends that should lead to growth in one of Latin America's lowest-penetration insurance markets.

The insurance sector in Peru has traditionally had low penetration; currently, the insurance market is worth about 1.6% of GDP. While up from recent years, this figure is well below those of neighboring countries; Chile (4.2%), Colombia (2.5%), and Mexico (2.1%) are all well above Peru in this regard. The low insurance penetration rate is due to a number of reasons, including the country's young population, high levels of informality, and limited infrastructure outside the major coastal provinces. However, this has started to turn in recent years, as a concerted effort to make Peru a more attractive country for international investment has resulted in a more sophisticated and robust insurance market.

APESEG, the Peruvian Association for Insurance Businesses, reported that the insurance sector grew 9.9% in 2015. This came from increases in penetration in all sectors save work risk insurance, which saw a decrease due to the fall in construction work in the country in 2015. Health insurance in particular saw strong double-digit growth thanks to a governmental push for universal health insurance and a growing private sector. APESEG expects insurance penetration to increase to 2% of the GDP in 2016, a figure still below that of the rest of the region but double what it was only a decade ago. As of 2014, non-life premiums totaled USD1.84 billion, a growth of 12%. In 2015, gross premiums reached a new high of USD3.5 billion. E&Y reports that general insurance makes up 39.5% of the market, followed by private pension system (PPS) insurance (26.6%), life insurance (21.2%), and accident and health insurance (12.6%).

Today, Peru's insurance market is largely concentrated among a few companies; Rímac (31.91%), El Pacífico Vida (11.40%), Pacífico Seguros Generales (11.28%), and Mapfre Perú (9.09%) control over 60% of the market. On the reinsurance side, AON Benfield and Guy Carpenter, two major international reinsurance brokers, both have offices in Lima. Though small and with a limited number of participants, the structure of the insurance market is far from decided. There are questions over how much support the government can and should provide; Antonio Huertas, the president of Mapfre, recently argued that the Peruvian government can support the insurance sector by promoting limited free health insurance, which would allow companies greater flexibility in their offerings. Little is likely to change in the near future, especially with the transitional period between administrations; however, debate over the role that the government should play will no doubt continue. Meanwhile, the growing market is attracting new entrants—US insurer American Liberty Mutual Group recently entered Peru with its subsidiary Liberty Seguros. The arrival of a company listed as one of the 100 largest US corporations by 2014 profits signals the emerging nature of the market and the rapid growth that should soon be under way.

Within the market, insurers are shifting to better provide the services needed from the Peruvian market. Though Peru's population is young, annuities grew 15.1% in 2015, with the majority of the growth coming from retirement plans. This can be expected to grow in the near future as the market continues to develop and the population continues to age. Life insurance has been named another market with the potential to grow dramatically in future years, with an emphasis on providing a wide spectrum of plans to capture the entire Peruvian market. Insurers now have more flexibility and choice as well as a result of a recent change in regulations by the Peruvian Superintendency of Banking and Insurance (SBS). The new regulations allow for more flexible management of portfolios by removing prior requirements for insurers to seek authorization from the SBS whenever they wanted to invest managed funds. These regulations also include additional internal evaluation requirements to ensure that insurers remain fiscally prudent. These changes will thus benefit customers as well, by incentivizing investment and robust institutional checks to increase transparency and ethics. However, several proposed changes have not yet taken place, and there is no established timeframe for their implementation.

Luis José Pardo, CEO of Aon Benfield Peru, sees a landscape that is slowly moving towards increased efficiency. “Peru is still an attractive country for international investment and the macroeconomic politics have become more of a state policy rather than a government policy," he told TBY. “[This] is good news, but the country still needs to change a lot institutionally to allow the wheel to start running faster than it is currently." Pardo's comments echo industry sentiment that things are improving, but red tape and the lack of Solvency II standards remain barriers to the optimization of the financial industry.

In a positive development for the market, SBS has begun take a more active role in the market to ensure that standards of professionalism and quality are being met. In June 2015, it took over and auctioned off bank assets for the first time, taking the Caja Señor de Luren due to management problems and infighting among shareholders. This newfound commitment to creating a stable marketplace bode well for the future of the industry. A recent Fitch Ratings report praised the Peruvian insurance market for its strong capitalization and profitability, but cited relatively volatile financial income as a risk factor moving forward. As of November 2015, it reported the industry registered a ROAA of 2.9% and ROAE of 18.8% and is expected to match those numbers in 2015. In Fitch's opinion, these levels of profitability will remain in 2016. As the market continues to mature, this volatility should decline. The new government's commitment to streamlining regulations and encouraging more economic activity should bode well for the industry.

The future of the insurance market will be about expanding coverage to underutilized markets. In auto insurance, for example, APESEG reports that 40% of vehicles do not have the required auto insurance (SOAT). APESEG calls this a result of poor oversight on the part of Peru's National Police, which is in charge of transportation enforcement and oversight. Increasing the insured rate will also allow the national funds that benefit victims of accidents to grow and pay out to the reported 865 claimees who have not received their owed compensations. Another vastly underutilized sector is earthquake insurance for buildings. APESEG reports that only 6% of homes in Lima are insured against seismic activity, an area of great concern in a city with an estimated half a million homes are at risk of a major earthquake. Over 60% of houses have not been built according to international earthquake standards, making this issue central to public health and safety. Improving this area would both grow the insurance sector and provide Peruvian citizens with a much-needed safety net in case of disaster.

Much-needed changes are coming to the Peruvian insurance market. Increased infrastructure means that insurers are working on new ways to reach out and connect with their clients, and the resulting improvements in communication should result in better outcomes for consumers. This is an area where Peru has long lagged behind its neighbors; however, the combination of increased competition, streamlined regulations, and increased access should produce a more efficient market that benefits all Peruvians.