The insurtech industry worldwide received over US$2.3B in investment in 2017, a 36% increase from the year before. From 2014 to 2017, the Latin American share of the insurtech market grew from 1% to 7.6%, and the number of insurtech startups increased by 114% in 2017. This uptick is logical as insurance plays a vital role in stabilizing emerging economies and minimizing risk.
Latin America is underinsured, despite steadily growing incomes over the past two decades. Currently, insurance penetration, calculated as the ratio between insurance premiums written and GDP, hovers between 2-4% across the region compared to 6.2% globally and 7.3% in the US, the world leader, in 2015. Latin America still lags behind the rest of the world in insurance coverage.
As Latin America’s most developed economy, Chile is also the most developed insurance market in Latin America. Earthquake insurance is required for all mortgages and after Chile’s 2010 earthquake, a group of mostly international insurers paid out claims that reached around 4% of Chile’s GDP.
Compared to the rest of the region, Chile has a relatively open and well-regulated insurance industry. While Brazil has become a top player in insurtech, the insurance industry in Brazil is mired in complex regulations. Still, growing middle classes across Latin America have yet to invest heavily in comprehensive insurance policies for a host of reasons.
Why is insurtech so important for Latin America?
While the life insurance market is quite concentrated, with three main companies making up 42% of the market, the more lucrative non-life sector is still an open playing field for the region. The three largest insurance companies represent only 15.3% of the regional market, with no apparent leader among them. There is still space to innovate and provide more targeted products to this underserved market. There’s also room to deliver insurance products to people who are not currently in the market, including the emerging middle class, where small payouts for life insurance, car insurance and others can mean the difference between slipping back into poverty and staying in the middle class.
The lack of widespread insurance penetration in Latin America goes hand-in-hand with the challenges faced by the region’s financial market. A significant portion of Latin America’s population is still low-income, undereducated, unbanked, and excluded from more traditional insurance policies.
However, a recent report from EY shows that over half of international insurance companies plan to begin offering mass-market products for emerging economies. Some of these offerings would bring unbanked groups into the financial market through insurance; others are using digital services to improve access to younger, tech-savvy populations.
Technology could be a significant driver of improved insurance penetration in Latin America if insurers use developments to provide more tailored products to their customers, and if regional governments cooperate with regulations. Improved insurance coverage could stabilize Latin American economies by preventing large-scale economic losses from natural disasters and other events that harm vulnerable populations.
Integrating technology that helps provide appropriate insurance policies for the Latin American market of almost one billion people also has the potential to be extremely lucrative for local and international insurance companies.
Emerging technologies in Latin America’s insurance market
Brazil is currently the largest market for insurtech in Latin America. In April 2018, Brazil hosted the Insurtech Brazil conference in São Paulo, bringing together startups, industry professionals, and investors for the second time since last year. This conference creates a dialogue about the nascent industry and allows Brazil’s insurtech startups to follow the path of its fintech unicorns.
Despite its frustrating regulatory environment, Brazil continues to be a regional power for fintech, with fintech startups like NuBank and PagSeguro reaching unicorn status this year. Insurance experts in Brazil are betting that insurtech will be the next big battlefield for innovation in Brazil.
Brazil has just one insurance regulating body, the SUSEP (Superintendence of Private Insurance), for a population of 210 million people. This environment makes Brazil a significant opportunity for companies that are innovating in the insurance industry. There are already 55 insurtech startups active in Brazil, including Bidu and Youse, both of which are fully digital platforms that improve the accessibility of insurance purchasing in Brazil.
Bidu is an online insurance aggregator that helps customers research policies online and receive offline consultations with insurance professionals. The platform uses modern digital marketing to increase conversion rates and simplifies the process of purchasing health and life insurance.
Similar services available in Brazil include Minuto Seguros and Ta Certo. Youse is a 100% digital insurance provider that targets the younger millennial generation that tends to find the insurance industry frustrating and old-fashioned. With over 1000 options for a personalized quote, Youse make is easy and fast to purchase an insurance policy without going through a broker.
Beyond Brazil, Chile, Colombia, Mexico, and Argentina are looking to technologies like the blockchain, artificial intelligence, the Internet of Things, automation, and Peer-to-Peer lending to transform their insurance markets. Chile is home to Latin America’s largest platform for price and insurance comparisons, ComparaOnline. Colombia offers significant opportunities for insurtech as well, as it is home to Suramericana, the most prominent insurance provider in Latin America that is not based in Brazil. SURA is well-known for investing in innovation and could be a pioneer in bringing technology to the Latin American insurance market at scale.
That being said, a majority of the players in these markets are still international companies that operate across several regions. For example, BIMA is a Swiss insurtech startup that provides insurance via mobile phones in emerging markets and now serves 30 million people across Africa, Asia, and Latin America.
While insurers are beginning to watch the tech industry with caution, many experts consider that an insurance revolution in Latin America is still some years in the making. Since banks are still providing much of the insurance sold in Latin America, the low level of financial inclusion and high economic inequality will continue to exclude a portion of the Latin American population from insurance policies through the near future.
Although some insurtech companies are bypassing traditional companies to provide lower cost or more agile service, many insurtech startups seek to help industry leaders improve their processes. As insurtech develops on a global scale, it is likely that insurance companies will follow in the footsteps of banks and start to build their own digital products that rival disruptive startups. While insurtech is still in its infancy worldwide, new technology is already showing tremendous potential to bring improved insurance outcomes and increased economic stability to Latin America.