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SPECIAL INSIGHT: INSURANCE
An Industry Coming of Age
Mexico’s insurance companies are undergoing rapid professionalization in response to stringent regulatory con- straints. After a period of transformation, industry experts predict significant growth thanks to regional trends, greater efficiencies, and improvements in client education.
“Insurance is born of an agreement of trust between two parties,” says Fernando Eguiluz, CEO of Ban- comer Insurance. Simplicity and transparency in policies are paramount to the success of the industry.
He points out that insurance, unlike most other financial products, is not always an easy sell. “A banking product helps to solve an immediate need, while an insurance prod- uct addresses a future possibility.”
MAKING IT MODERN
Mexico is rapidly developing a sturdy middle class; even so, many of its citizens remain uninsured: insurance market penetration stands at around 2 percent of GDP. Naturally, insurance companies see this as an opportunity—insurance sector growth for 2017 is expected to be over 9 percent, while GDP will rise at a rate of 2 percent.
According to Carlos Latorre López, the CEO of insurer Prolomer Seguros, the insurance industry will reach 3.5 percent of GDP or more over the next 10 years. For the market to keep growing, he says, “We must continue
demanding the modernization and restructuring of our laws and regulations in order to guarantee certainty and level the playing field for everyone.”
REGULATORY TRANSFORMATION
One of the main reasons for this growth is the implemen- tation of Solvencia II, a new regulatory framework based on European standards. Most observers agree that the new compliance rules, which force companies to develop mature risk-management models and professional reporting mech- anisms, will have a positive impact on both consumers and businesses—although some smaller firms may look to con- solidate with larger operations to accommodate the stricter regime. In essence, Solvencia II institutes capital require- ments that are based not on industry averages, but on the specific risks held by each company. The long-term effect
of these requirements should be to ensure that no business puts aside more or less capital than it actually needs to offset its risk—an increase in efficiency and stability.
REVOLUTIONARY TECHNOLOGY
Even with professionalization, Mexico’s insurance industry faces serious challenges—most notably, an insurance gap that can only be described as a social gap, with basic cover- age still lacking in most of the country. Many organizations aim to utilize emerging digital communication methods to reach clients who may not consider insurance options and offer them affordable plans. In Mexico, 83 percent of the population has a cellphone, and nearly half use internet— presenting ample opportunity to educate clients about the benefits of auto, home, and life insurance. About one-third of the country’s insurers are considering microinsurance to meet the needs of low-income clients.
Key to this process will be the use of big data analytics, a growing aspect of advanced insurance markets. Once analysts “associate all that data, all that information, and turn it into knowledge about what’s happening,” says Dr. Ernesto Ríos Patrón, CEO of IMP, executives will be better able to make informed decisions about company strategy. Since the average age in Mexico is 26, the future favors insurance. As Dr. Fernando Solís Soberón, CEO of Seguros Banorte, points out, “Over the next few years, families will form and will want to buy houses and cars, as well as life insurance.” As the industry continues to professionalize, companies will be better poised to take advantage of the opportunity.
Many Mexican insurance companies are not capable of meeting basic reporting requirements. The adoption of Solvencia II will require a fundamental shift in the way many insurers do business—but after a period of adjustment, regulations should spur growth throughout the industry.
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