Interview: Mauricio de la Guardia
How much consolidation can be expected in the short-to-medium term, and what is the impetus for recent merger and acquisition activity?
MAURICIO DE LA GUARDIA: There are currently 32 players in the market, so competition is high. That said, three companies dominate the market and account for the vast majority of the industry’s profits. Most of the remaining companies are suffering from losses, leading to several consolidations in health and automobile insurance. In 2015, there will be one or two more mergers and we will certainly see further consolidation in 2016. This will lead to a more balanced market landscape over time, whereby smaller companies decide to merge and create medium-sized players, or larger companies buy assets from their smaller competitors.
In this context, the insurance sector will continue to grow faster than the country’s overall GDP growth. Whereas in 2014, the first quarter saw better performance than the second quarter, as elections took place during the latter, 2015 will be defined by significant growth during the second half of the year, fuelled by government projects that will need to be insured.
How important is it to adjust the price of premiums to achieve sustainable growth in the industry?
DE LA GUARDIA: Competition is always beneficial for the sector. However, many companies have entered the market with little financial backing, forcing new players to lower their prices to gain market share. This is especially true in the automobile insurance segment, which offers products that are high in demand and easier to sell. Moreover, some areas may face a surfeit of claims as the number of accidents increase. This is already happening in the automobile segment, which has experienced losses for four consecutive years. Some companies have even been forced to exit the price war as it was no longer sustainable for them to operate with such low premiums. Others no longer offer products in areas that are not very profitable, such as health. Even so, prices should not be regulated. It is a free market and it regulates itself. In fact, some players have increased their prices, and many of the benefits that were previously awarded for free now have a cost. The regulator should focus on ensuring that financial requirements such as mandatory liquid assets and solvency margins are met by all players.
What can be done to decrease fraud in the system?
DE LA GUARDIA: Generally speaking, the relationship between insurance companies and health care providers is excellent, and both parties are working together to decrease levels of fraud in the system. Technology is the key tool being used to combat fraud and reduce losses. Current technology enables health care providers to determine whether a patient does or does not have coverage, what type of coverage they have, and what kind of usage they have made of their plan. This is where the industry is heading, which will certainly minimise the impact of fraud in the sector and will further improve the relationship between health care providers, insurance companies and insured customers.
What role will private insurance companies play in the health sector once the Ministry of Health and the Social Security Administration are integrated?
DE LA GUARDIA: The decline in service quality at public health institutions under previous administrations was partially responsible for the growth of the private health insurance sector. We must also take into account that, as the labour market becomes more competitive and unemployment decreases, employers have been encouraged to offer more benefits for employees, including private health care plans. Moreover, a growth in private insurance has been fuelled by an increase in the purchasing power of middle-class families.
Therefore, if this merger were to finally take place as expected, it will be critical to find a solution to the inefficiencies that have already cast a blight over both institutions. Otherwise, citizens will continue to choose private coverage over public health care provision.
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