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Analysis

Better Insurance Culture for General Insurance Coverage

Wed, 09/05/2018 - 12:13

A 2018 OECD analysis on the global insurance market showed that gross premiums of domestic insurers in Mexico rose approximately 8 percent in the nonlife segment only. Insurance penetration remains low, impacting health coverage for much of the population. This all suggests there is much room for growth

The private insurance sector in Mexico faces challenges both in relation to financial sustainability and in relation to the business model itself. The country is also going through an epidemiological transition and the gradual aging of its population, which amounts to another hurdle. According to AMIS, 97.4 percent of health coverage is destined to major medical expenses and the rest to health insurance; moreover, in the last seven years, the country has experienced more accidents and an increase in the average cost per accident that affects the financial health of insurance companies. The total private insurance market in Mexico represents around 2.1 percent of the country’s GDP. The potential, say key industry players, is vast.

“Mexico’s private healthcare market remains small in terms of insurance coverage. The country has 120 million inhabitants but there are only 10 million people covered by health policies. Private health insurance remains expensive for many, so the sector is looking for alternatives to reach a larger segment of the population through the generation of more accessible products,” says Luis Francisco Galván, Vice President and Head of Pricing Latin America at SCOR.

According to AMIS, between 2000 and 2017 the value of private sector insurance grew by approximately 63 percent, while coverage remained at 34 percent. In this context, some recommendations have emerged, with solutions such as the improvement of existing insurance products or the introduction of new products that are more attractive to users. “One alternative are indemnity products, which pay monetary amounts to the insured or beneficiary in case of a serious health condition or hospitalization,” says Galván. “The sector could also introduce products aimed at older people, such as long-term care policies that cover costs related to the services for a population not able to perform activities for daily living.”

Some in the industry, such as Francisco Llamosas, president of Grupo Valore, say that government action could help improve penetration rates by making insurance mandatory by law because most people do not recognize the usefulness of having insurance until an accident occurs. However, the general challenge is to offer flexible products. These products, according to the OECD, would also require joint action between the government and the private sector to improve the availability and accessibility of the product portfolio.

Culture is another factor that is holding back penetration. “It is necessary to strengthen prevention measures through the introduction of small and large cultural changes and this can also be done through government initiatives,” says Omar Viveros, Director of Health Benefits at Willis Towers Watson.

A BETTER INSURANCE CULTURE

When it comes to insurance culture, among the main problems Mexico faces is its poor level of education. “Mexico is still creating an insurance culture, but the need already exists. The penetration of insurance practices in the Mexican population is increasing but it varies from state to state. While insurance is prevalent in major hubs such as Mexico City, other cities have lagged behind,” says Llamosas.

Without doubt, the insurance sector and the government need to work together to bolster annual growth in premiums and coverage. Mexico has a fragmented health management and most of the services are concentrated in big cities, so private and public services must integrate to better address the existing demand for health services, says Alejandro Sancen, Director General of MASZ. “In relation to insurance contracting, the public and private sectors have made a great effort to raise awareness and promote the culture of investment in prevention. Insurance is considered an investment and not an expense,” adds Luk Vanderstede, Director General Mexico of Bupa Global Latin America.

Mexico is changing, which is why the insurance sector must also evolve to ensure its sustainability and access to services by users. “AMIS, insurers and government authorities have significant interest in promoting insurance as it is a key strategy to protect and preserve capital. Insurance is essential for the economic health of families and companies, both large and small. Larger companies are fully aware of the importance of insuring their assets, medium-sized companies are aware, but not all small companies are conscious of this need,” explains Llamosas.

FILLING IN THE GAPS

With Mexico’s epidemiological transition and the aging of its population, the insurance sector has an opportunity to fill the gaps that the public sector cannot. “Thirty years from now, Mexico will have a much older population and the government will be unable to afford to look after everyone,” says Leonardo Alves, CEO of Plan Wealth MGMT. “Mexico represents one of the greatest opportunities globally as the country is one of the leaders for opportunity investments in the healthcare sector. Mexico’s economy is doing well, its middle class is growing and its population is becoming aware of the importance of insuring themselves. In comparison to other countries in Latin America, Mexico is ahead of the curve in insurance penetration.”

RISK FACTORS IN MEXICO

  • Consumption of excess saturated fats (school population)

  • Daily consumption of sugary drinks

  • Drinking five or more alcohol drinks per occasion

  • Time in front of screens (> 28 hours per week)

  • Tobacco consumption: 11.4 monthly packages per capita

  • Lack of physical activity

The challenges and opportunities for new entrants in the insurance market, according to Willis Towers Watson, are in the gaps where current players lack the capacity or expertise to meet emerging need or niches. During 2018, as estimated by Thomson Reuters, the insurance industry will continue to grow between 10 and 12 percent, but as the market is controlled by dominant insurance brokers, the nontraditional channels and niches will become more accessible to those new entrants or companies that want to explore other opportunities.

  • Consumption of illicit drugs (men)
  • lliteracy
  • Housing without proper drinking water • Ground floor
  • Consumption of illicit drugs (women)
  • Rural areas lack electric power