With nearly double-digit growth in premiums over the last several years, Peru’s insurance sector is gaining strength. However, penetration rates in the country remain among the lowest in the region. Insurance premiums constitute only 1.5% of GDP, compared with a regional average of 3%. The government is attempting to address this shortfall through a series of reforms aimed at insurance and pension fund practices. The year 2012 saw the first stage of the implementation of the private pension fund (Administradoras de Fondos de The drop in annuity sales is most likely a result of the diminishing impact of a policy known as the Special Scheme for Early Retirement (Régimen Especial de Jubilación Anticipada, REJA). The REJA applies to Peruvians over the age of 55 who have been unemployed for at least the past 12 months and were previously contributors to the AFP system. It enables these workers to access the retirement funds they saved prior to the official retirement age of 65. When the REJA was first established in February 2010, there was strong growth in annuity sales through 2011, as several unemployed AFP affiliates took advantage of this early retirement option. The deadline for AFP affiliates to choose early retirement under the REJA is December 31, 2013.
Car Insurance Premium Sales
Sales were up in most product categories in 2013. In terms of general insurance, car insurance premiums saw an increase of 19.68% y-o-y, as of July 2013.
Raúl de Andrea, general manager of the Peruvian Association of Insurance Companies (Asociación Peruana de Empresas de Seguros, APESEG), told OBG that the rise in car insurance is linked with an increase in new car purchases. “There are predictions that there will be 220,000 new cars on the road in 2013,” said De Andrea. Indeed, as of July 2013, 119,808 units had already been sold since the beginning of the year.
The downside of an increase in car sales is a corresponding rise in traffic, which leads to more accidents, car thefts and ultimately, insurance claims. This is particularly true in Lima, a city notorious for its traffic jams. The average cost of vehicle insurance claims paid by insurers has been on the rise since November 2010, according to a recent APESEG presentation.
De Andrea told OBG that APESEG put a programme in place four years ago to help prevent vehicle thefts by installing GPS tracking systems in cars over a certain value and coordinating with local law enforcement. Though De Andrea claims the programme has helped to reduce auto thefts, this form of robbery accounts for only 1.4% of auto insurance claims, while accidents account for 64.1%. Auto insurance is primed for growth in line with car sales, but this segment is also subject to significant claims.
Similar to auto insurance, group life insurance is also on the rise, up 6.82% y-o-y, as of July 2013. Francisco Noya, general sales manager at La Positiva Vida, one of the larger insurance companies, told OBG that sales of this form of insurance have risen along with bank lending levels (see Banking chapter), as group life insurance is provided to bank loan recipients.
Other important growth segments include fire, up 15.18% y-o-y in July 2013, and robbery and assault insurance, with a 13.2% rise in total premiums y-o-y. Individual life insurance, which is purchased by private citizens, rose by 12.58% and 43.45% y-o-y for long- and short-term policies, respectively. However, despite these impressive figures, Noya told OBG that growth in individual life insurance is not “what it should be”. He added, “The majority of individuals that purchase individual life insurance products are among the wealthiest Peruvians, coming mostly from [the highest-income] socioeconomic sectors A and B. In terms of penetration, individual insurance remains underutilised in Peru.”
As highlighted, despite strong growth in premiums, insurance penetration measured by premiums as a percentage of GDP remains low. Sector leaders have various theories as to why penetration has not advanced, despite a high-quality product offering and the sector’s relatively long history.
De Andrea pointed out that it was not just a Peruvian issue, claiming that insurance was hard to sell anywhere. “First, it is a type of product that you buy before receiving any type of benefit. You simply have faith that the insurance company will fulfil its end of the contract. Second, while insurance is shown to be an important tool to protect you from unexpected events, you use it only when something bad happens to you. In this sense, it is a product with a negative connotation.”
To address some of these issues, APESEG continues to hold regular conferences with journalists in which two or three insurance products are discussed. De Andrea noted that most issues related to trust generally abated during a session. “At the beginning of the session, the journalists do not really seem to trust us, but by the end they become much more enthusiastic about insurance as their understanding of the products increases.”
Noya, like De Andrea, has seen some progress in increasing potential buyers’ awareness of insurance products and the benefits they have to offer, but he agreed that there was still a long way to go.
“People know more about insurance than they did in the past, but we have not yet managed to penetrate the general population beyond sectors A and B. We need to continue to work on designing products that work towards the bottom of the pyramid,” said Noya.
Juan Carlos Puyó, the CEO of ACE Seguros Perú, which has insurance interests in Peru as well as elsewhere in Latin America, also highlighted that the development of higher-end products has often been emphasised over products for the lower end of the market. “Insurance products in Peru became sophisticated long before the country achieved proper penetration, due to the influence of neighbouring countries and alliances with international chains,” Puyó told OBG.
Microinsurance seems to be an obvious answer to the issue of developing insurance products for the general population. Noya said, “Below socioeconomic sectors A and B, there are 20m inhabitants. Of these individuals, 11m live in extreme poverty and are not as concerned with insurance as they are with fulfilling their day-to-day needs. However, there are another 9m individuals that could potentially be served by microinsurance products.”
The microinsurance sector has grown accordingly. As of December 2012, the latest year for which statistics are available, the Superintendence of Banking, Insurance and Pension Funds (Superintendencia de Banca, Seguros y AFP, SBS) reported that there were 40 microinsurance products on offer, a rise from 37 products in June 2011. The same SBS report revealed that the microinsurance market covers 637,061 affiliates and accounts for approximately PEN5m ($1.88m) in premiums. Popular plans on offer include Pacífico Seguros’ family protection plan, accounting for 19.1% of total microinsurance premiums and Sura’s Mujer Segura (“Secure Woman”) plan with an additional 13.3% of microinsurance market share.
Microlenders are also participating in the microinsurance sector. Gustavo Morón, business director at Edyficar, a Peruvian microfinance institution, told OBG that the lender’s efforts to pilot microinsurance products have proven very successful. “We have launched two products: life and accident insurance. Now, 55% of our loan disbursements are accompanied by some form of insurance policy,” he said.
However, Morón did concede that microinsurance products are not always easy to design and deploy. In particular, Edyficar faced difficulties launching a business insurance product, which Morón believed proved untenable because “a lot of businesses did not qualify. There were too many exceptions.” According to Morón, for a microinsurance product to succeed “it must have no exclusions and be easy to sell, understand and recognise coverage when there is a claim”.
Morón’s comments highlight an issue that is currently on the regulators’ agenda – defining microinsurance. According to Alfredo Jochamowitz, chairman of the board of directors at Protecta Insurance, microinsurance is defined as any product with a premium of PEN10 ($3.77) or less. Michel Canta, the deputy superintendent of private pension funds and insurance companies at SBS, told OBG there is a plan to develop microfinance regulations which would offer a new definition of microinsurance. “There are three different ways to define a microinsurance product,” Canta said. “You can define it by the size of the product’s premium, whether or not the product is easy to use and understand, or by the product’s ability to provide coverage to a large proportion of the currently underserved population.”
SBS will choose which definition to follow at some point in the next year and a half, according to Canta. The new regulations are aimed at streamlining regulation of the microinsurance sector and the marketing of microinsurance products.
Law Of Insurance Contracts
Another major piece of legislation being discussed is the recently passed Law of Insurance Contracts. Canta told OBG that the law was created to fill a gap in insurance legislation. “Previously, there was no law that established what clauses and requirements an insurance contract must have. Any company could develop their own product with different clauses. This law seeks to bring order to the insurance sector,” he explained.
The law contains several elements that insurance companies argue are so heavily in favour of consumers that they may be detrimental to the sector.
Canta conceded that some parts of the new law may need to be readdressed after SBS receives input from insurance companies. However, Canta emphasised that the law’s intention is to make contract clauses clear and easy to enforce, and by doing so, to generally help build and reinforce trust in the insurance sector.
In addition to the passage of new regulations, insurance market penetration may be affected by an expansion of the number of players in the sector and increased competition. At present, Peru has 14 insurance companies; five offer general insurance products, another five specialise exclusively in life insurance and four cover both areas.
The largest player is Rimac Internacional, a general and life insurance company that accounted for 32.55% of net premiums, as of July 2013. The company was formed by the merger of Rimac Insurance Company and International Insurance Company of Peru in 1992. Grupo Brescia, one of Peru’s largest business conglomerates, maintains a controlling stake in the company. According to a recent report by Apoyo y Asociados, a local investment rating company and associate of Fitch Ratings, Rimac’s strategy going forward is to maintain its market position by controlling costs while attempting to penetrate new segments of the market.
The second-largest player is Pacífico Seguros, with nearly 14% of net premiums. The company is a subsidiary of Credicorp, the largest financial conglomerate in Peru, of which Banco de Crédito del Perú is also a part. Apoyo y Asociados reports that Pacífico Seguros’ main strategy, similar to that of Rimac, will be to expand while developing strong risk management mechanisms.
Although the insurance sector is highly concentrated and not prone to rapid changes, 2012 was marked by several important developments. InVita, a life insurance company, was acquired by Grupo de Inversiones Suramericana (Grupo Sura) in November 2012. The Colombia-based Grupo Sura is a leader in the insurance sector in Colombia and throughout Latin America. The company also acquired ING Bank’s insurance and pension fund subsidiaries in Latin America in 2011, including Integra, one of Peru’s largest pension funds. Along with the InVita acquisition, the year 2012 brought the entrance of another new player in the insurance market – Magallanes, a Chilean company specialising in auto insurance. This marked the company’s first international expansion, and as of April 2013, it was cleared for operation in Peru.
In addition, in January 2013 Canta told OBG that SBS had received six applications from international insurance companies interested in entering Peru. Three companies have advanced in the application process and are nearing the process of drawing up final operating agreements, while the remaining three companies had recently initiated talks as of the beginning of the year.
Another important development in the sector is the vertical integration of insurance and health care services. In an effort to address rising health care costs, several of the country’s largest insurers have been investing heavily in the purchase of clinics and other health care centres.
Rimac and Pacífico Seguros, in particular, are in competition with one another to acquire health care industry assets. In July 2011 Pacífico Seguros bought Clí nica San Borja, a clinic. It also owns El Golf in Lima, and acquired clinics in Piura and Trujillo. Rimac owns Clí nica Internacional, along with various other medical centres (see Health chapter). In 2011 the company announced plans to begin a two-year expansion project for Clínica Internacional.
Meanwhile, plans to launch a universal health insurance scheme known as Universal Health Insurance (Aseguramiento Universal en Salud, AUS) appear to have stalled. The plan, which was launched in 2009, was supposed to provide health insurance for every Peruvian in the country by the end of 2012 (see Health chapter) but has fallen short of these expectations. Sector leaders point out that much needs to be done to expand the health care infrastructure, and especially the congested public health care system, in order to make AUS possible. Further, De Andrea pointed out that there is no established method to reinforce the AUS.
Over the next year, leaders from the insurance industry anticipate that the sector will continue to experience strong growth. However, changes in lending policies aimed at preventing an overheating of the economy may impact the group life insurance segment as well as auto insurance to a lesser degree. The year 2013 is also marked by important changes in regulation for pension funds (see analysis).
Overall, low market penetration and economic growth mean that the insurance industry holds a lot of unexploited potential. Competition in the sector is likely to heat up with the entrance of several new players. This increase coupled with stronger regulation will help to ensure that citizens benefit the most from international insurers’ newfound interest in the Peruvian market.
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