Interview: John Nelson
What are the greatest challenges facing Colombia’s insurance sector, and what role can insurance play in supporting economic growth?
JOHN NELSON: Colombia’s economy continues to grow in the face of some challenges; however, it is clear that the recent peace agreement will further boost the economy down the road. Currently, there is a greater propensity for foreign direct investment in Colombia, which is a sign of an attractive market. These investments are often directed towards infrastructure development, which is one of the main features of Colombia’s public policy today.
When it comes to the insurance sector, there are opportunities in many emerging economies due to a substantial level of under-insurance. For instance, Colombia is a growing economy that is making significant investments for the future. However, its insurance penetration – at 1.6% of GDP – is one of the lowest in Latin America. When compared to the global average of 6.1%, the sector’s huge potential is evident.
Colombia is on a path to realising its economic potential. Insurance and reinsurance can play a key role in supporting this economic growth by improving resilience, taking risks out of the country and helping the economy recover after catastrophes. Consequently, increasing insurance penetration will prove beneficial to the country and its citizens.
How can the public and private sector work together to reduce under-insurance levels?
NELSON: The most common government response is to liberalise the system and let foreign insurers enter the market. This allows the local industry grow in terms of capacity and expertise, simultaneously growing insurance penetration in the country and developing an insurance ecosystem. In fact, it is interesting how closely insurance levels correlate with GDP. According to the City Risk Index, recently produced by Lloyd’s in collaboration with Cambridge University, Bogotá and Medellín will generate $2.5trn in economic growth over the next decade, but could have as much as $44bn at risk from a series of threats. The top three risks in terms of monetary value are: earthquakes ($15.03bn), market crashes ($14.57bn), and human pandemics ($3.8bn).
What impact has the entry of foreign insurers had on the sector’s growth, and what are the associated risks, particularly for local insurers?
NELSON: It is quite early to gauge the impact of market liberalisation on local insurers. Colombia’s government is in the process of liberalising the insurance market, which is a very important step for the country’s economy. Colombia is a very attractive market and it will become an important market for many multinationals; therefore, skill transfer and knowledge transfer play key roles. For instance, Colombia’s reinsurance sector is underdeveloped due to low insurance penetration. Since it’s very important to diversify the risk, having foreign reinsurance take the risk out of the country.
What segments could be potential growth areas for Colombia’s insurance industry?
NELSON: Currently, the main insurance lines in Colombia are property, aviation, marine, energy and infrastructure. One area of expected future growth is the agricultural sector, as it is a large economic contributor that remains underdeveloped in terms of insurance.
Furthermore, in line with global trends, new emerging risks such as cyberthreats and drone-related perils should be taken into consideration. Colombia is developing new technologies based on knowledge transfer from Western countries. These new emerging risks could eventually become a pressing issue if they are not anticipated far enough in advance; that’s why knowledge transfer in the insurance industry is so important. As it develops its industry, Colombia should observe what is already being done overseas and begin to apply these technologies and products domestically.
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