Colombia: Insurance growth potential
Despite strong macroeconomic growth and rising income over the past decade, insurance penetration in Colombia remains low. However, major infrastructure projects are expected to generate opportunities for coverage, and providers are seeking new ways to reach the retail market.
In early 2013 Superfinanciera, the regulator of the insurance sector, announced that insurance penetration – as measured by the ratio of premiums to GDP – grew to 2.48% last year. This is one of the lowest rates in Latin America, where the average stands at around 3%, according to market participants.
The lack of coverage extends to businesses, with about 10% of companies carrying policies. This is particularly true for small and medium-sized enterprises (SMEs), Raúl Fernández Maseda, president of Mapfre Colombia, told OBG. “Many SMEs are unfortunately not aware of the need to ensure until it is too late and they have a problem,” he said.
Drivers, on the other hand, should be well aware of the need to carry insurance, which is mandated by law. Nonetheless, as of 2012, it was estimated that only 71% of drivers carried “obligatory insurance against transit accidents” (seguro obligatorio contra accidentes de tránsito, SOAT). This is despite a 2011 SOAT reform that introduced new security elements like specially designed, anti-photocopy SOAT certificates, which are aimed at reducing fraud.
International insurers see low penetration rates as an opportunity for growth. After shutting down its representative office in Bogotá during the global financial crisis in 2009, the Swiss Reinsurance Company (Swiss RE) recently applied to the Superfinanciera for permission to open a new office.
Swiss RE is likely to be searching for opportunities to develop its business in the areas of SMEs and infrastructure. According to news reports, the company expects its business to grow by 18% during its first year of local operations.
Similarly, Lloyd’s, the British insurer, is optimistic about its growth opportunities in Colombia. The company’s gross written premiums in the Latin American country have doubled over the past five years, standing at about $125m in 2012, most of which was reinsurance.
Lloyd’s, like Swiss RE, expects that government plans to invest in roads and other major infrastructure projects will create demand for coverage. According to statements by company officials, other promising areas include energy (oil and coal) and coffee.
While some insurance companies are set to grow on the back of infrastructure projects, others are taking steps to reach out to retail customers via new distribution channels. In particular, there is growing interest in marketing products online.
Fernández told OBG, “Colombia is one of the largest countries in the region in terms of internet use, so insurance companies are using the internet as a platform to educate people and also sell products.”
Two local insurers, QBE and Sura, allow users to purchase SOAT policies via online portals. Almost a year ago, a representative from Sura told local press that around 5% of visitors to the company website end up purchasing a car insurance policy. According to a report by El Colombiano, the project manager for QBE, Rafael Pérez Navarro, predicts that 30% of SOAT purchases will take place online by 2015.
The potential for growth in the insurance industry has attracted the interest of some independent entrepreneurs like Cali-based Alexander Vélez Ojeda, who recently launched Seguradeuna.com. The site offers users looking for vehicle or business insurance the opportunity to enter their details online and receive quotes from eight different insurance companies within minutes.
Whether growth comes from marketing efforts to individuals or public investments in infrastructure, the insurance sector is expected to continue to expand. Increased penetration would provide benefits not only to the newly insured but to the economy as whole as income directed towards covering uninsured damages and losses could be put to better use elsewhere, fuelling both increased consumption and investment.