Interview: David Bojanini
Although starting from a low base, the insurance sector has seen double-digit growth for a decade. How sustainable is this level of expansion?
DAVID BOJANINI: While insurance penetration in Colombia is still low compared to neighbouring countries, it has risen at a constant pace. In fact, Colombia had one of the largest insurance growth rates in the world in 2012. The sector will be able to maintain double-digit growth as long as the economy keeps the positive dynamism it has shown in recent years. Premiums have increased by 16%, which represents greater market penetration and more demand for credit in the financial sector.
Another factor that has nurtured sector growth, as was also the case in Chile, is the evolution of social security. The development of pensions and annuities is contributing decisively to the industry’s growth, while improved penetration depends heavily on the rise of different insurance products, such as life insurance, which are accompanying the increase in the population’s purchasing power and a growing middle class.
How much potential do infrastructure project investments represent for pension funds?
BOJANINI: A great deal, although these investments have not yet seen the take-off they need. The government plans to launch several major infrastructure projects. Pension funds are interested and willing to invest, provided the concessions are carefully administered and appropriately structured, making them the long-term, secure investments these funds seek. The construction phase of these projects can be risky, as they depend heavily on two essential and relatively uncertain factors: timing and cost of the initial investment, which is not a great match for the funds’ investment profile.
After the concessions start operating, the flows become more stable and there is less insecurity about profitability. Infrastructure projects can last 20 or even 40 years, making them ideal for pension funds. Investment groups interested in infrastructure projects can issue long-term debt titles to fund their needs. Grupo SURA had a very positive experience in 2009. We issued bonds with 20 and 40-year terms and inspired a remarkable response from the investing public.
How has regulation and legislation affected growth?
BOJANINI: This segment is now much more flexible. A few years ago, the regulator established the rates and these had to be the same for all insurers. This prevented the sector from enjoying free market competition.
Of course, the new regulation still stipulates certain compulsory forms of insurance, such as mandatory traffic accident coverage and health insurance. The regulator imposes the applicable rates on these obligatory products. Otherwise, the sector has enjoyed significant freedom for the past few years, which has increased competition, improved efficiency and, ultimately, contributed to overall economic growth.
What impact will Law 1328, which allows Colombians to purchase foreign insurance, have in terms of increased competition in the market?
BOJANINI: The lack of insurance penetration in Colombia has been due, in large part, to a lack of clear information from the industry. People do not always know what they are really getting when buying a product or hiring a service. Law 1328 represents a breakthrough in that it grants consumers the ability to bet ter compare products and services by requiring providers to inform customers more completely and more clearly about the conditions of their products.
If we want the insurance market in Colombia to be ruled by the free market, we first need to emphasise the fundamental importance of educating the public.
It is important to remember the rule does not pertain to price regulation. In that sense, competition is welcome no matter where it comes from. The ratification of legislation like Law 1328 helps to make foreign investors feel more comfortable, as legal stability is the primary concern of foreign investors. The entry of foreign firms will only further enhance sector development.
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