Latin America’s insurance penetration rate hovers around 2.7%, well below the global rate of 6.5%. In the US, a global market leader in insurance, the ratio between premiums and GDP hits 7.4%.
In a study by the MAPFRE Foundation, one of Latin America’s largest insurers, Latin America’s Insurance Protection Gap (IPG), calculated as the difference between current penetration and the amount of insurance needed to economically benefit society, stands at $254.3B in 2018. Latin Americans spend as little as 247 dollars per year, on average, on insurance, leaving the population significantly underinsured.
So why is insurance, life and non-life, still so uncommon in Latin America?
1. Low financial inclusion makes insurance less accessible.
Less than 50% of Latin Americans have access to traditional financial services, including insurance policies. Since insurance, especially in the Life category, is often distributed by banks and other financial institutions, the same pattern of exclusion tends to follow both finance and insurance in the region.
Brazil is the exception to this rule, where banks play a significant role in distributing life insurance policies. Chile’s public-private healthcare system also helps mitigate some of the challenges related to distributing health insurance to a region with low financial inclusion. However, regional exclusion from financial products continues to slow the local insurance market.
2. Technology has been slow to catch on – but startups are helping grow the industry.
Most insurance companies in Latin America today rely on traditional risk-calculation methods to price insurance plans. While three companies cover 42% of the regional life insurance market, there is still significant room to innovate in the non-life category, and startups are beginning to bolster existing insurance companies with new technology to improve risk calculations and customer experience.
Importantly, these companies are also helping develop the digital channels needed to reach the growing middle class. Startups like Jooycar, Mango Life, and ComparaOnline are using new technology not only to reach customers, but also to calculate risk more accurately and provide insurance that rewards good behavior to align incentives. While innovation within the insurance industry has been challenging, insurtech startups are collaborating with the traditional market to make premiums more accessible for customers, and more accurate for providers.
3. The growth of insurance products is still catching up with the new middle class.
In the past decade, Latin America’s middle class has grown by 50%, now representing 30% of the population. Many of these young professionals come from families who struggled in some way to meet basic needs like education, nutrition, or proper healthcare, so insurance products often seem too “intangible” when daily challenges seem more pressing.
There is a need to change the perception of insurance products from a “just in case” cost to something more tangible, with daily implications and updates. Rather than only hearing from an insurance company when something bad happens, like a car crash or illness, these clients should also be rewarded for good behavior, so they can see the benefits right away. As more insurance companies partner with startups to provide IoT and AI technology, these policies could become more attractive, tangible, and attainable for the growing middle class.
A well-insured population is less vulnerable to shocks and unexpected events, promoting stability in the local economy in the long-term. As Latin America’s insurance market becomes more modern and tech-forward, these policies can help lift and maintain parts of the population out of poverty, and insure those who have previously been excluded by the traditional system.
Rodrigo Labbé is the CEO of Jooycar, a connected car and insurtech platform for Latin America. He has built an extensive career working in multinational companies like Procter & Gamble, and prior to Jooycar he acted as Head of Marketing for DIRECTV Chile.
