Page 82 - STRATEGY Magazine (G)

INTERVIEW: SOMIT
PEDRO CUPERSMITH
CEO SOMIT
Despite a prevailing soft market, Guatemala’s insurance industry has experienced a dramatic awakening in the past three years, with growth of more than 25 percent and total premiums of US
$732.4 million. Pedro Cupersmith, CEO of SOMIT, one of the nation’s largest insurance brokerage firms, attributes this growth to vigorous activity in the life and health insurance lines, which grew 25 and 33 percent, respectively.
While non-life insurance still dominates the market, with 51.4 percent of all policies sold in 2014, the sector has diminished somewhat due to shrinking property values as a result of challenges in the real estate market. That said, property does still lead the non-life segment with approximately half of all premiums in the sector, followed by motor, which comprises roughly one-third of non-life.
REGULATORY PROGRESS
Growth is not the only factor shaking up the industry. Insurance reform was needed and anticipated for many years in Guatemala, until July 2011 when Congress approved sweeping new legislation—the Insurance Activities Act— that strengthened supervision of the insurance sector and allowed foreign insurance companies to open branches in the country. Previously, the industry lacked vigorous oversight, and foreign insurance carriers were not granted license.
In addition to increasing supervision by insurance authorities over insurers, reinsurers, and intermediaries, the new law also strengthened regulations concerning the so- called “solvency margins,” now known as “risk exposures,” and introduced controls, prohibitions, and penalties to reduce non-admitted insurer activity.
The new law further tackled the prickly problem of brokerages and intermediaries and legally dealt with the notion of true brokerage for the first time. Until that point, intermediaries were referred to as either dependent agents—those who worked within one insurer only—or independent agents—those who became licensed through one insurer though with “authorization to place business with other insurers.” While numerous intermediaries practiced within Guatemala, there had been no formal legislation to specifically address licensing or to govern their conduct. Under the new act, there is now greater supervision by insurance authorities, and all intermediaries regardless
Insurance Sector Maturity Enables Growth
While Guatemala remains one of the go-to destinations for labor intensive production in the Western hemisphere, it also offers plenty of opportunity for service-oriented industries such as insurance.
of level are required to be certified through an examination process validating basic understanding of the industry and the intermediary’s role within it.
FOREIGN ENTRIES
With the entry of foreign competitors, Guatemala’s insurance industry has entered a period of consolidation, with many smaller agencies merging to create large, regional entities or being acquired by big conglomerates. The sector has also seen rapid growth of local insurers through expansion to other nations in the region. Cupersmith views this inclination toward regionalization as a key growth strategy in the industry, and he expects to see the trend gain momentum in the coming years.
Cupersmith notes that new products have also arisen as a result of this international penetration, mainly in the realm of high-income medical insurance. More attention is now given to medium-income life products, which were largely ignored in the past, when life products existed almost exclusively to satisfy high-income consumers.
FUTURE PROSPECTS
Insurance premiums today represent only 1.2 percent of Guatemalan GDP, while penetration is 2.1 percent of GDP in neighboring countries Costa Rica and Panama. This suggests there is room for significant growth; however, Cupersmith points out several factors that are holding the industry back.
In the health insurance sector, for example, taxes and expenses drive policy costs up and claim payments down in a country where premiums are not deductible from individual income taxes. A stamp tax of 3 percent is charged and paid by the insured on every claim payment; value added tax (VAT) of 12 percent is deducted from every health claim reimbursement; and in 2012, insurers began burdening health insurance premiums with a 5 percent issuing charge. Still, a rising tide lifts all boats, and Guatemala’s economy is certainly on the rise. GDP has been growing steadily for the last three years, at a rate from 1.9 percent to 3.1 percent annually. And as the most populous nation in the region, Guatemala certainly has an enviable position for insurance business development.
While insurance is a necessity to business activity and protecting a nation’s wealth, it also serves a far broader public interest. It is the essential means by which disaster to an individual or community is shared by many.
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