Reaching lower-income segments of the population is notoriously challenging for insurers. In a country such as Mexico, where almost half of the 129.5m-strong population lives below the poverty line and the insurance culture is still underdeveloped, this is particularly difficult. As a result, Mexico has become a leading developer of micro-insurance plans, which are tailored to customers with limited financial resources.
According to the National Commission of Insurance and Surety, in 2018 there were around 14.7m micro-insurance contracts in Mexico, making it one of the largest markets in the region. These products are generally sold by specialised agents, credit unions, banks or other institutions engaged in cross-selling. For example, customers looking to purchase a micro-insurance plan are often interested in microlending products as well.
“There are a number of niche micro-insurance players operating in Mexico, many of which operate using a disperse and distribute model,” Gustavo Méndez, partner and financial services leader at Deloitte México, told OBG. “There is a big opportunity for insurers to increase their client base in this relatively high-margin segment, particularly through the use of new distribution channels. We can expect these growing trends to boost penetration rates in the coming years.” Meanwhile, technological advances are opening new channels for firms to reach potential clients. Andrés Fontao, CEO of start-up platform Finnovista, told international media in August 2019 that the number of insurance technology (insurtech) firms on the Mexican market had increased by 37% since 2018, largely as a result of advancements in artificial intelligence and machine learning.
In May 2019 the government announced its aim to increase insurance penetration from 2.2% of GDP to 3.5% of GDP. According to Carlos Urzúa, the then-minister of finance, this will be achieved through various measures, including the promotion of micro-insurance products, with an emphasis on the housing, automotive and medical insurance segments.
In addition, a new digital payment system developed by the central bank, Banco de México, known as Cobro Digital (CoDi), is set to benefit micro-insurers. CoDi, which was first piloted in 2019 and is expected to be rolled out nationwide by 2020, enables users to make payments with a mobile phone or other handheld device. As more Mexicans have access to a mobile phone than a formal bank account, it is expected that CoDi will enable people in more isolated parts of the country to access micro-insurance. The new platform should also reduce insurers’ operational costs, allowing them to offer products at a more competitive price.
The government is particularly keen to promote micro-insurance products to the agriculture sector. According to the “National Agricultural Survey 2017” published by the Centre for Rural Development and Food Self-Sufficiency Studies, only 5.5% of farmers had access to agricultural insurance. Agricultural workers are at risk of poverty if they experience losses due to weather or natural disasters, and it is the government’s responsibility to provide residual financial support in these cases. Increased uptake of micro-insurance would therefore offer protection to small farmers and boost efficiency, as it would reduce the need for self-insurance or risk transfer strategies such as crop diversification and grain storage, which are damaging to productivity. Although greater availability of tailored micro-insurance products and new methods of payment will benefit farmers, it is also necessary to educate the rural population on the advantages of insurance.
Despite rapid growth rates, micro-insurance is still in its infancy in Mexico. Although advancements in insurtech will help firms to improve their offering, more needs to be done before the country can see a significant rise in the uptake of micro-insurance products. In the coming years insurtech players are likely to be co-opted or acquired by larger companies, which may propel uptake. While this will take time, technology will be the key factor driving the segment’s development.
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