Living it up: Industry players are innovating in the life line

The life insurance sector has achieved impressive growth in recent years. According to the Superintendencia de Banca, Seguros y Administradoras de Fondos de Pensiones (SBS), life premiums rose 17.8% in 2014 to PEN4.93bn ($1.6bn), well ahead of the premium growth rate across all insurance products, of 11.9%. Both rates were a multiple of GDP growth, which that year was 2.4%. According to one life firm, Interseguro, this strong performance is a sign of how a life insurance culture is taking root in the country. More individuals are said to be realising the benefits of life insurance for themselves and for their families.

Culture Change

SBS data for the first nine months of 2015 shows that total net life premiums were PEN4.18bn ($1.3bn) and 12 firms sold life policies. Rimac led, with 23.48% of net life premium income, followed by El Pacífico Vida (22.94%), Interseguro (15.33%), La Positiva Vida (10.67%), Seguros Sura (8.91%) and Mapfre Perú Vida (7.84%). Together they control almost 90% of net life premium income.

Data for 2014 as a whole reveals group life policies were the single most-sold product, with premium revenue of PEN793.7m ($253.3m); followed by individual policies, with PEN604.02m ($192.8m); and annuities, with PEN478.3m ($152.7m). The figures appear to confirm a pattern whereby Peruvians’ first contact with insurance products comes from intermediary organisations: employers, banks or car dealers.

The life insurance companies also need to do their share of direct marketing to build up more awareness of their products. Armando Mejía, manager of the division of direct channels at Pacífico Seguros, said companies are gearing up to provide a basic assessment of an individuals’ life insurance needs at a first, one-hour meeting. In more developed life insurance markets, the first point at which to consider life insurance is when an individual has dependants. “In other countries, people buy life insurance as early as when they are 18 or 19, because there is more awareness. We need another generation in Peru to begin to get to that point,” he said. It is also worth noting that the Peruvian consumer has a choice between a simple life policy, which will pay out to the family in the case of death, or a more sophisticated policy that includes protection and a savings element. The latter is usually structured to pay out at the time of a significant event, such as retirement or the point at which children or grandchildren need support for education. Mejía said the average annual premium paid to Pacifico Seguros for a protection and savings policy is PEN2900 ($925), and a protection-only policy costs half that.

Extending Their Reach

As part of the trend to reach those who have previously been excluded from life insurance products, in 2015 La Positiva Vida launched a low-cost life insurance policy targeted at domestic workers. La Positiva Vida’s commercial manager, Raúl Fermor Baracco, said many female domestic servants are the main income earners for their families, which are at risk if they fall ill or die.

Life policies are sold both by mixed-insurance firms and by life-only companies. Neither of the segments seem to have an intrinsic competitive advantage. Pacífico Seguros enjoyed a life insurance boom in 2011-13, when life premiums grew around 20% per annum. However, it had to reposition itself in 2014 in response to lower margins and greater competition. This led it to seek cost savings by integrating its general, health and life insurance sales teams. Some insurers sought to reduce reliance on brokers and agents in favour of direct sales, but this trend seems to have stopped. APECOSE, the Peruvian association of insurance brokers and agents, said its members used to account for 90% of premium income, but now make up 70%, though it is unlikely to fall further.

Given low current levels of penetration and the expansion of the middle class, annual premium income is set to continue growing at double-digit rates. However, new entrants will increase competition as well.