Daniel Schydlowsky, Former Superintendent, Superintendence of Banks, Insurance and AFPs: Interview

Interview: Daniel Schydlowsky

What will be the impact on consumers in terms of premiums and product quality as Peru’s insurance market becomes less concentrated?

 DANIEL SCHYDLOWSKY: Given that the legal framework for the insurance industry was last updated in 1902, the Insurance Contract Law of 2012 was an important step towards modernising the sector. Since its approval, new competitors have arrived in the Peruvian market, and there are some other companies following the licensing process. This has helped raise the quality standards of incumbent companies that now have to work harder to retain their market share. As many of the new players are niche-based, looking at the overall market to analyse concentration could be deceiving, because competition is fierce if analysed product by product. One of the consequences of this is that premiums have come down and the diversity of available products has increased.

What are the main challenges the sector needs to overcome to increase penetration?

SCHYDLOWSKY: There are three main challenges involved with selling insurance in Peru. First, people only see the benefits if something goes wrong, otherwise they just see the expenses. Second, there is a lack of information that prompts distrust. Last, in the informal economy there is usually a scarcity of cash and an abundance of free time, so the people involved in the informal sector are less inclined to purchase products with cash, which has an affect on the demand for insurance products.

Can the lack of consumer confidence in insurance be addressed from a public policy standpoint?

SCHYDLOWSKY: One of the main approaches has been to increase financial inclusion through education. Different channels of financial education include marketing campaigns and informing school teachers so that they can educate the new generations on the benefits of being included in the financial system. Another priority is to make people see that this is a reliable industry, and in 2014 Congress approved a law making it easier for the heirs of a deceased person to access information regarding the life insurance and pension contracts that this person had, and thereby reducing the red tape involved in claiming the benefits.

What steps can be taken to increase training in the field of actuarial science?

SCHYDLOWSKY: We are advancing in promoting actuarial science as a profession, and the creation of the Peruvian Association of Actuaries is a step in this direction. Also, there are talks taking place with some universities in the hope that they will offer a course in actuarial science, which is currently not offered in Peru. The main challenge is to convince universities that demand is high enough to justify offering actuarial science as a field of study. The human capital gap is currently being covered either by Peruvians who go abroad to study or by foreign professionals.

How would you characterise the enforcement of Solvency II standards in Peru?

SCHYDLOWSKY: We have been working to build up Solvency II standards in the market risk modules, which is why we have already approved a regulatory framework for currency exchange, equity, real estate and concentration risks. Right now we are working on approving the framework for spread risks and interest rate risks modules. This legal framework is meant to produce indicators that will allow firms to compare themselves against the Guarantee Fund. However, our capital requirements are still not linked by law to those of Solvency II, as the market’s liabilities are still closer to the Solvency I standards. Raising the standards to Solvency II is a high priority, but this needs to be done gradually, step by step.