Insurance Sector Could Contract by Up to 7.7 Percent

Given the impact of the COVID-19 pandemic, the International Monetary Fund expects Mexico’s economy to contract by up to 9 percent during 2020, a slightly more encouraging scenario than the 10.5 percent contraction estimated a few months earlier. However, the improvement of Mexico's economic forecast does not remove the pressure economic sectors currently face. For example, the insurance sector will contract between 5.2 and 7.7 percent in premiums due to the pressure a shrinking GDP might exert on the insurance industry, according to Fitch Ratings.

Lack of work and wage reductions could affect people’s solvency and their ability to keep up insurance payments. Consequently, not only would these individuals be unprotected, but the insurance industry could face problems of profitability and solvency. Prior to the pandemic the Mexican Association of Insurance Institutions (AMIS) revealed that only 7-8 percent of Mexicans had private medical insurance. Moreover, new generations’ increasing reliance in self-employment and freelancing prevent them from buying insurance, making the contraction of the sector even more worrying. In solid numbers, according to INEGI 51 percent of Mexicans born between 1980 and 1995 earn up to MX$7,952 (US$377.3) per month and only 4 percent earn more than MX$13,254 (US$629).

On the other hand, El Economista using AMIS data revealed that COVID-19 has become the costliest disease for insurers, surpassing acute respiratory diseases, diabetes and kidney failure. This means that treatment costs for COVID-19 have reached an average of MX$429,615 (US$20,389) in just five months. Acute respiratory diseases cost MX$365,821 (US$17,372) on average, renal insufficiency MX$364,292 (US$17,300) and diabetes mellitus MX$307,816 (US$14,618). In addition, AMIS revealed that the average cost of COVID-19 could further increase of the patient is moved to intensive care, which could raise medical bills to MX$907,997 (US$43,114). Costs for patients who are intubated but not admitted to intensive care exceed MX$4.5 million (US$213,613). 

The situation is not positive for other types of insurance, either. Mexico is considered a country with low insurance penetration and low contract levels, according to AMIS. Today only 17 states mandate auto insurance with liability coverage. In this segment, MetLife has the largest market share with almost 12 percent, followed by GNP with approximately 10 percent, BBVA with 8.5 percent, Banorte with 9 percent and Axa with 8 percent, according to the latest industry analysis report by the CNSF (Comisión Nacional de Seguros y Fianzas).

In addition, AMIS data reveals that higher socioeconomic levels have a greater penetration of auto insurance, while lower-income sectors have a gap of more than double in insurance enrollment. In other words, eight out of every 10 people of high socioeconomic level in Mexico have car insurance, compared to three out of every 10 people in the lower socioeconomic bracket. 

Younger generations are opting for new forms of mobility such as the bicycle. Moreover, according to INEGI data, it is estimated that out of a total of 5.9 million households in Mexico City and the Metropolitan Area, 35.9 percent have a bicycle that, in addition to being a means of transport, also serves other purposes, such as recreation. Currently, of the total road mobility in Mexico City, bicycle transportation represents 1.5 percent according to SEMOVI, just under 200,000 trips per day. However, it is expected that by 2024 the nodal mobility by bicycle will increase to at least 3 percent.

In view of this situation and due to the socio-economic trends of future generations and the increase in the use of bicycles, products to insure cyclists and their bicycles appear to be a potential market for insurers. As of today, one of the most complete and best insurances in the market is from Axa Seguros known as Rodar Seguro, according to Consultores en Seguros. Among its benefits, this insurance offers 24/7 medical service, coverage for reimbursement of medical expenses due to accidents, compensation for material damage to the bicycle, compensation for damage caused to third parties due to the use of the bicycle, ambulance, telephone assistance and cab service in case of an accident. Other insurance companies that offer services to cyclists are Seguros SURA Mexico, Seguros S and Electrobike.

Considering that five out of every 10 cyclists that circulate in Mexico City have had some type of accident and given that the number of people that use this vehicle as a means of transportation continues to increase, Francisco Oliveros, CEO of Seguros SURA explained in an interview with Dinero Imagen that the bicycle and cyclist insurance market presents itself as an opportunity to grow insurance penetration in Mexico. Especially for users who are looking for coverage that includes protection against theft with violence, accidental total loss, civil liability for damages to third parties and medical attention in case of an accident.