The gross written premium in Brazil’s life insurance market increased from BRL50.1bn ($15.7bn) in 2009 to BRL93.4 billion in 2013, and is further expected to rise to BRL160.6 billion in 2018, according to the Timetric report Life Insurance in Brazil, Key Trends and Opportunities to 2018, which is available at the IIC.
Looking ahead to 2018, among the key growth drivers for Brazil’s life insurance market include:
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- Growth of the economy and macroeconomic stability
- Popularity of open pension plans
- Prominence of the country’s middle class
- Bancassurance channel
Growth of the economy and macroeconomic stability: Brazil’s economy has grown consistently since 1993, except for in 2009 when the economy was affected by the global financial crisis. An important reason for growth has been market liber¬alization.
Financial and currency stability has therefore permitted Brazilians to plan better, raising their interest in life insurance products.
Furthermore, the rise in wages and low unemployment levels result¬ing from economic growth increased the demand for life insurance products.
Popularity of open pension plans: Life segment growth is partly driven by the attractive tax incentives provided by the government through open pension products, such as Plano Gerador de Benefícios Livres (PGBL) and Vida Gerador de Benefícios Livres (VGBL). PGBL and VGBL are essentially pure investment products.
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By GlobalDataProminence of the country’s mid¬dle class: Rising commodity exports, increased consumer spending and the gov-ernment’s social welfare initiatives jointly resulted in consistent economic growth in the previous decade, which led to millions of inhabitants moving out of poverty.
Around 35 million Brazilians were integrated into the middle class between 2003 and 2009, and an additional 20 million are expected to join by 2014.
In November 2012, the middle classes constituted around 50% of Brazil’s popu¬lation. The rise of this middle class and its purchasing power is an important driver of demand for life insurance products.
Bancassurance channel: The majority of the largest local insurers are associated with banks. To a major extent, product delivery in the case of life insurance in Brazil is based on the bank branch network and associated customer relationships.
The banking industry is well-capitalised and regulated, with banks having a dominant share of distribution of the VGBL and PGBL products.
This channel is expected to maintain its dominance, with additional Brazilians being brought into the banking fold.
There are also many challenges facing the Brazilian life insurance. These include:
- Foreign insurers subjected to heavy price-based competition
- Low levels of awareness of the need for life insurance
- Dominance of brokers
Foreign insurers subjected to heavy price-based competition: Foreign insurers oper¬ating in the Brazilian life segment are forced to compete against deep-rooted local insurers and the extensive bancassurance model.
The pricing in the industry is largely decided by competitive pressures, rather than being based on historical claims data compiled over several years.
Low levels of awareness of the need for life insurance: A large section of Brazilians are unaware of the benefits of taking life cover, or the measures necessary for preventing their wealth from being subjected to capital pro¬tection. Furthermore, individuals still fail to prioritise private pensions.
Dominance of brokers: Though the involvement of brokers is not required for every insurance transaction, consummating a direct sale requires an equivalent amount of commission to be paid to FUNENSEG – the insurance foundation established to train and certify brokers – which in turn raises the cost of distribution.
Furthermore, the average broker com¬mission is estimated at 20-25%, which again results in increasing the cost of insur¬ance policies.
The net result is that insurers end up focusing only on the rich. Brokers are also mainly well-versed with property/casualty products, leading to a shortage of specialist brokers with expertise in life products.
Competitive landscape
The Brazilian life insurance segment is dominated by three leading companies, which accounted for 66.6% of the seg¬ment’s total gross written premiums in 2013.
Bradesco Vida was the segment leader that year, with a segment share of 26%, fol¬lowed by Brasilprev Seguros and Itau Vida e Providencia SA with respective shares of 23.4% and 17.2%.
Other leading insurers in the segment were Zurich Santander, Aliança do Brasil, Caixa Vida, Itau Seguros SA, Icatu Seguros SA, HSBC Vida and Caixa Seguradora SA.
Chilean life market
Significant growth opportunities are projected for Chilean life insurance market between 2013-2018 a s its large growth potential has yet to be fully explored by insurers, according to the report Life Insurance in Chile, Key Trends and Opportunities to 2018, which is available at Timetric’s IIC.
The report explains Chilean life insurance penetration was 2.34% in 2013, while France, Germany and the UK recorded penetration rates of 5.57%, 3.35% and 8.68% respectively, suggesting that the Chilean life segment holds huge potential for expansion, with large scope for foreign insurers to expand.
Favourable government reforms for the Chilean insurance industry are also expect¬ed to support the industry’s largest segment over the forecast period.
The life segment’s gross written premium valued CLP3.2 trn (US$5.1bn) in 2013 and is expected to rise to in 2018.
Growth drivers
Looking ahead to 2018, among the key growth drivers a ccording to the I IC for Chile’s life insurance market include:
- Robust economic growth
- Rising working-age population and life expectancy
– Increased sales of retirement annuities and pension products
Robust economic growth: Chile has one of the fastest-growing economies as well as one of most stable economic and political environments in Latin America. Accord¬ing to International Monetary Fund (IMF) statistics, Chilean GDP at constant prices is projected to rise at a CAGR of 3.56% between 2013 and 2018. This will support growth in life segment over the period.
Rising working-age population and life expectancy: Economic growth in the country has created a large number of employment opportunities, with unemployment falling from 7.8% in 2008 to 6.5% in 2012.
According to World Bank Statistics, 7 million Chileans escaped poverty during 2004-2012.
As the earnings of the low-income population improve, life insurance as a basic long term savings instrument is expected to become more prominent between 2013 and 2018.
Increased sales of retirement annuities and pension products: Increased sales of retirement annuities and pension products have made a substantial contribution to the overall premium growth recorded by the Chilean life insurance segment.
Premiums earned through sales of these retirement products accounted for 68.4% of total life segment’s gross written pre¬mium in 2013, while the combined gross written premium earned from general annuity and pension plans increased from CLP1.4trn in 2009 to CLP2.3trn in 2013, at a CAGR of 12.9%.
Retirement products’ dominance of the life segment is primarily due to Chilean employees being legally required to contrib¬ute to a private pension plan in addition to the state pension scheme.
In spite of plentiful opportunities in the Chilean life insurance market, the sector also faces several challenges. These include:
- Rising tax rates
- The impact of reforms in the public pension system
Rising tax rates: Tax reforms in Chile are projected to contribute CLP4trn (US$8.2bn) to the country’s revenues every year.
Corporate taxes will increase from 20% in 2013 to 25% by 2017, while taxes on alcohol, energy drinks, tobacco products and diesel fuel will also rise.
The high tax rates are expected to affect individuals’ sav¬ings, thereby affecting long-term savings products, including life insurance.
The impact of reforms in the public pension system: The dominant position of retirement products in the life segment is primarily due to legally mandatory con¬tributions by employees to private pension plans, in addition to the state pension scheme, since 1980.
The system’s scope was previously limited and covered only a small number of pensioners in Chile, but was widened when the Chilean government introduced reforms in 2008 and 2014.
The reforms will support the growth of public pension and will emerge as a challenge to private pensions between 2013 and 2018.
Competitive landscape
Chile’s life insurance segment is moderately concentrated, with the ten leading compa¬nies accounting for 75.5% of the segment’s total gross written premium income in 2013.
As of 2013, there were 33 companies authorized to offer life insurance products and services in the country.
The five leading companies, MetLife, Chilena Consolidada, Consorcio Nacional, Sura and Corpvida, together accounted for 49.7% of the segment’s gross written pre¬mium in 2013. Metlife remained the lead¬ing company in the segment and accounted for a 14.5% share in 2013.
Distribution fact facts:
- Agencies were the largest distribution channel for life insurers, accounting for 46.4% of the country’s total life insurance gross written premium gen¬erated through new business in 2013
- The direct marketing channel is one of the most popular distribution channels among life insurers in Chile.
- Although e-commerce distribution is still in an early stage of development in Chile, the channel is emerging rapidly and was one of the fastest-growing dis¬tribution channels during 2009-2013.
Colombia’s life market
Colombia’s life insurance market also offers numerous growth opportunities, and challenges, according to the Timetric report, Life Insurance in Colombia, Key Trends and Opportunities to 2018, which is available at the IIC.
The gross written premium of the life insurance segment increased from COP4.9trn (US$1.9bn) in 2009 to COP-9trn in 2013. It is expected to rise to COP¬17trn 2018 in terms of gross written pre¬miums.
Growth drivers
Looking ahead to 2018, among the key growth drivers for Colombia’s life insurance market include:
- A conservative investment approach
- Strong performance of pension insur¬ance category
- Improved economy to support the insurance industry
Conservative investment approach: Colombian life insurance providers tend to invest in government and corporate bonds, and investment funds. However their investment approaches have been some¬what conservative.
A large proportion of life insurers’ investment goes into government securities, which provide a modest return on maturity. Such a conservative investment approach leads to financial stability in the segment.
Strong performance of pension insurance category: During 2009-2013, life insurance emerged as the largest segment in the industry, accounting for 47.4% of the gross written premium in 2013.
The growth of the life segment was main¬ly due to the strong performance of the pen¬sion insurance category, which accounted for 30.9% of the segment’s total gross writ¬ten premium in 2013.
The country’s aging population was an important driver for the growth of pension-related products during 2009-2013 and this trend is expected to continue between 2013 and 2018.
Moreover, the implementation of Act 100 on the lines of Social Security Act of 1993 is expected to bring growth in the area of pen¬sion insurance and retirement-related plans. This is further expected to drive the growth of the pension category over 2013 and 2018.
Improved economy to support the insurance industry: The World Bank’s 2013 Global Economic Prospects report ranked Colombia fourth in the Latin American region in terms of GDP. Colombia?s growth is expected to reach 4.3% by 2014, in comparison with the Latin American average of 2.9%.
Colombian GDP at constant prices increased from COP340.5trn in 2008 to COP364.6trn in 2012, at a CAGR of 1.7% during 2008-2012.
This trend is expected to continue between 2013 and 2018 which should lead to an increase in per capita disposable income, encouraging Colombians to invest in pension and retirement related products.
Looking ahead to 2018, the main chal¬lenges for Colombia’s life insurance market include:
- A rise in poverty
- A lack of financial education among low-income groups
- Violence and corruption constraining economic growth
Rise in poverty: Poverty is a key challenge in Colombia. In 2009, 46% of the total pop¬ulation was affected by poverty, and 29% were subject to extreme poverty.
Based on the poverty index published by National Administrative Department of Statistics (DANE) in 2013, over 10% of the Colombian population lives on little more than a dollar a day.
Lack of financial education among low-income groups: Low-income groups in Colombia lack access to financial education and services. Issues such as high-cost finan¬cial products and credit constraints add to the problem.
Violence and corruption constraining economic growth: The Colombian economy has been affected by conflict and violence involving illegal armed groups and drug cartels for more than 40 years.
The government has also introduced an Anti-Corruption Statute (Law No. 1474 of 2011). The country faced several cases of money laundering in 2010, which adversely impacted consumer confidence and eco¬nomic growth.
Competitive landscape
The life insurance segment in Colombia is concentrated, with the five leading compa¬nies accounting for 70.5% of the written premium in 2013.
As of 2013, 19 insurance companies were operating in the life insurance segment. Positiva Compañía de Seguros is the leading company and accounted for 24.1% market share in 2013, followed by Suramericana Vida SA, Mapfre Colombia Vida Seguros SA, Vida Alfa SA, and Seguros de Riesgos Profesionales Suramericana with respective shares of 14.7%, 13%, 11% and 7.8%.
A new insurance law came into existence in July 2013, liberalizing the industry in Colombia.
According to this law, foreign insurers can establish branches in Colombia with the same rights and obligations as domestic insurers.
Admission requirements will also be the same for both domestic and foreign insur¬ers. The move is expected to encourage the participation of foreign companies as it will result in cost savings for multinational com¬panies by eliminating the necessity to have a local fronting insurer or any local placement.
Distribution fact facts:
- Agencies were the leading distribution channel in the Colombian life insur¬ance segment in 2013, accounting for 36.6%of the gross written premiums new business
- Bancassurance was the second-largest distribution channel in Colombia dur¬ing 2013, accounting for 21.3% of gross written premiums new business
- Brokers were the third-largest distribution channel in the Colombian life insurance segment in terms of new business in 2013
Antonio Clemente, technical vice president of MAPFRE Colombia, tells Life Insurance International that Colombia’s life insur¬ance market will continue to develop over the coming years.
He says other factors like banking, access to credit and the widespread use of the internet will be growth drivers.
Asked what innovations MAPFRE is working on in the Colombian life and health insurance industry, Clemente cites applica¬tions that enable consumers have real-time information; online communication with intermediaries to facilitate communication with the insurer; and the development of saving products associated with retirement.
Commenting on the Colombian life market. Neil Beresford, a partner at Clyde & Co, says the sector is being impacted by the country’s growing middle class.
Beresford says there has also been a lot of controversy over the way in which health claims are settled in Colombia.
In his view, Colombia’s health insurance market is a market that needs a certain amount of maturity in a short space of time.
He says: “It is catching up with the growth of the middle market and keeping pace with a very fast-growing economy, and inevitably you are going to see some tensions in it.”
