Peru's underinsured base presents opportunities for growth


Though recent highs in premium income have made Peru’s insurance market one of the fastest-growing in Latin America, the country remains comparatively underinsured. Taking these two factors into consideration, it is apparent that the sector has been showing strong growth but from a very low base, and that awareness of insurance as a way of managing public and private risks is very low.


With relatively low coverage compared to the rest of Latin America, the Peruvian insurance market displays significant potential for growth. Four large insurance groups – Rimac, Pací fico, Mapfre and La Positiva – dominate the market, followed by Interseguro and Seguros Sura.

Attracted by future potential, there have also been a number of new market entrants in recent years. The total number of active insurance companies in December 2016 was 21, and around half a dozen new entrants were awaiting regulatory approval. Existing companies were divided into three main groups: life insurance, with eight companies; general insurers, also with eight companies; and a “mixed” group of five companies. Many of these smaller companies operate in niche areas, and although they have begun to make inroads, they have not yet posed a significant challenge to the existing market shares of the dominant groups.

Total premium income multiplied by a factor of four in the 10 years leading up to 2014, reaching $3.57bn. In this period, growth averaged 13% per annum. This was from a very low base, however, and total premiums are still estimated to represent 1.9% of GDP, a low number compared to other Latin American countries. In Chile, for example, the gross premiums-to-GDP ratio is 4.2%.

Informal Economy

In part, Peru’s comparatively low level of insurance penetration reflects the fact that the country has a very high rate of economic informality. While Peru and Colombia have very similar annual per capita income levels — around $6000 in both cases — Peru has a much higher informality rate, which is measured as the proportion of the economically active population that works outside the official tax and benefits system.

The level of informality in Peru is 72%, compared to 48% in Colombia. This explains to some extent why the average per capita insurance premium in Peru is very low, at $116, under two-thirds of the $194 reported in Colombia. Chile, another of Peru’s close neighbours, has a much higher per capita income at $13,000, a lower informality rate at 25% and a much higher per capita premium rate of $613 per annum. The global average annual per capita premium payment is $662.


General insurance, including property and motor, is the largest source of premiums, accounting for around 40% of total insurance revenues in 2016. It was followed by life, with 25%, death and disability (21%), and accident and illness (14%).

The general insurance market is dominated by Rimac Seguros, which had a 39% share of premium income in this category in 2015. In second place was Pacífico, with 22%, followed by Mapfre (17%) and La Positiva (14%). Rimac Seguros was also top in life insurance, with a 24% share of premiums, followed by Pacífico (23%), Interseguro (15%) and Sura (9%).

Another way of categorising premium revenues is to divide it into compulsory, conditional or voluntary types of insurance. Compulsory refers to cover which is required by law, such as motor vehicle insurance, while conditional insurance relates to cover which is linked to certain activities, such as bank borrowing, which triggers a requirement for loan repayment insurance, and voluntary refers to insurance that depends purely on stand-alone consumer decisions to seek protection against certain risks.

One industry study by Sura Seguros shows that the voluntary category’s share fell from 19% of total premiums in 2005 to 17% in 2015. This has been interpreted as a sign that the insurance sector needs to strive for more active marketing. The general manager of Contacto Corredores de Seguros, Giulio Valz Gen, told OBG that one way in which this could be done is if “brokers incorporate more technology — such as big data — into their sales channels”.


A study of the market by consultancy firm Macroconsult, published in 2016, made various pertinent points about Peru’s insurance sector. It stated that the industry is an oligopoly, and that the dominance by a few players explains the comparatively slow rate at which the industry as a whole has expanded coverage and reduced costs. In general insurance business the four top companies dominate.

“The Peruvian insurance market is one of the most concentrated in the world,” Valz Gen told OBG. “One of the keys to lowering prices to enhance penetration levels is the entrance of more foreign players.”

The Macroconsult study also maintains that much of the growth in premiums has been driven by compulsory insurance, one example being the motor vehicle sector, where mentioned drivers must be insured by law, taking out cover known as seguro obligatorio de accidentes de tránsito (SOAT).

Insurance growth is also linked to the process of formalisation and bankarication — as more people are opening bank accounts they are also becoming more interested in wider financial services.

Market Move

 The sector showed movement in terms of mergers and acquisitions in late May 2017, when Sura Asset Management (SUAM), the Peruvian branch of the Colombian financial giant Grupo Sura, signed a $268m purchase agreement with Intercorp Financial Services (IFS). IFS acquired 100% of SUAM’s insurance operations, consisting largely of life annuities and mortgage loans.

After approval from the regulator, Interseguro, a subsidiary of IFS, will absorb Seguros Sura Perú, of which SUAM owns 69.3% of the shares. The transaction also includes 30.7% of the Seguros Sura shares held by Peruvian conglomerate Grupo Wiese. Other Peruvian companies belonging to SUAM, most notably AFP Integra, Funds Sura and broker SAB Sura, are not affected by the transaction.

According to a statement from SUAM, the agreement comes after considering the country’s new regulatory context and a strategic review of its business units in Peru. Ignacio Calle, the company’s executive president for Latin America, told local press in June 2017, “Peru represents a key territory for the organic growth of our operation,” and he reiterated that the country remained one of the most relevant operations for the company.

“This transaction will allow us to focus on further developing AFP Integra to bring it closer to the pension saver, and to accelerate the growth of our Peru-based wealth management and institutional asset management businesses,” said Jorge Ramos Raygada, executive president and chairman of SUAM. AFP Integra, a pension funds management company, handles operations in Peru, Chile, Colombia, Uruguay and El Salvador. It managed a total of $123.4bn in assets at the end of the first quarter in 2017.

According to Fitch Ratings, the announced sale of Seguros Sura will not have an immediate impact on SUAM ratings. Seguros Sura contributed around 4.2% of consolidated operating revenues of SUAM and 4.8% of its earnings before interest, tax, depreciation and amortisation in 2016, which means that the impact was likely to be moderate. The company’s debt ratios and leverage ratios remain adequate for its current level of “BBB+” with a stable outlook.

The acquisition of SUAM showcased the concentration of the market, which comprises 21 participants, but with only five companies having 70% of the market, according to Moody’s. The ratings agency stated in May 2017 that in the last five years the insurance market had grown by an average of 10% per annum, with general insurance growing by 10% and pension premiums rising by 9%. Moody’s also highlighted that the investment portfolio of Peruvian insurance companies was significantly exposed to corporate bonds, which represent 36% of the total insurance market.


Some obstacles to growth were also highlighted in the 2016 Macroconsult report, including the scarcity in skilled insurance professionals and the low level of financial education in the population.

Unlike in the banking industry, where there have been high levels of cooperation to develop new payment systems, insurance sector players have, on the whole, not been collaborative. Fitch Ratings agreed that there was a highly concentrated ownership structure in the Peruvian insurance industry.

However, it said that the sector had been experiencing “a gradual process of de-concentration” in recent years. In its opinion, the process might gather pace in the event of sudden entries by new companies attracted by the potential of the still underinsured local market.

Performance In 2016

According to industry players, 2016 was a challenging year for the Peruvian insurance industry. Following five consecutive years of strong premium growth from 2011-15, when total revenues grew by over 12% per annum in nominal terms, there was a contraction in 2016.

Final figures had not yet been compiled at time of publishing; however, according to the Superintendency of Banking and Insurance (Superintendencia de Banca y Seguros, SBS), premiums had decreased by around 4.2% in constant local currency terms in the first nine months of 2016.

The fall was attributed mainly to the contraction of investment across the economy, and to weaker private consumption, which had a negative impact on demand for insurance from both households and corporations. APESEG estimated the fall in premiums for the whole year to be in the 4-5% range.

Analysts also noted that the arrival of six new insurance companies over the last three years was creating some competitive pressure and restraining growth in premium rates.

Another factor contributing to the decline in industry fortunes in 2016 was an increase in the number of claims – which were up by 10% in the general insurance category – caused in part by adverse weather conditions.

Another factor that impacted the industry negatively was the introduction of new legislation allowing individual contributors to the private pension system (known as Administradoras de Fondos de Pensiones, AFPs) to freely withdraw up to 95.5% of their accumulated pension funds at the point of retirement. Before this law was passed, a retiree was required to allow 100% of his or her pension fund to be used to purchase annuities that provided a revenue stream to fund monthly pension payments. However, this law gave retirees the freedom to withdraw and spend or invest almost their entire pension fund in whatever manner they liked.

Because many retirees chose to exercise this freedom, insurance companies saw a sharp fall in premiums on the sale of annuities.

Retirement Hurdles

Mario Ventura, general manager of insurance company Seguros Sura, told OBG that withdrawals of pension fund capital had been greatest among the smaller AFPs, and also among lower-income retirees who had the greatest need for cash. Research showed that these retirees were, in effect, raiding their pension funds to pay off bank debt. Bank debt represented 56% of the total value of AFP accounts. Ventura felt that the new law, combined with what he called the low level of insurance culture in Peru, was having negative effects on peoples’ retirement planning.

According to Ventura, there have been multiple cases of people who were withdrawing pension funds that could have gone into annuities generating 6-7% annual rates of return, and putting them instead into bank savings with much lower rates of return. While in some instances “cashing out” pension funds was rational, particularly if the money was used to pay off high-interest bearing debt, public awareness of the relative costs and benefits of capital and revenue management was limited.


On the plus side, Ventura felt that the law had served as a warning both to insurance companies and to the regulator to better communicate the benefits of planning for retirement and the way annuities work.

Raúl De Andrea, secretary-general of the Inter-american Federation of Insurance Companies ( Federación Interamericana de Compañías de Seguros, FIDES) said that the fall in premium revenue had intensified in the second half of 2016, but that the industry was expecting a recovery during the course of 2017. By segment, the year’s performance to November 2016 was mixed. Accident and illness insurance premiums were up by 5.5% and life premiums rose by 10.6%. General insurance premiums – including building and vehicle – were down by 1.4%, while premiums linked to the private pension system, including annuities, saw a significant drop of 24.6%, for the aforementioned reasons.

Compulsory Motor Insurance

The law in Peru requires motor vehicle insurance for all drivers. The basic and compulsory third-party insurance is known as SOAT. However, it is widely evaded.

According to Carlos Navarro, head of vehicle insurance at Pacífico Seguros, as many as three out of 10 drivers are not properly insured. Navarro attributes this to low awareness of the law and of the benefits of insuring against accident risks.

“We have realised that one of the main underlying causes of road accidents is the aggressive driving style used by many vehicle owners,” said Renzo Zapata, a manager at Pacífico.

In an attempt to encourage more responsible driving, the company launched a new product, known as GPS Smart motor insurance, whereby a fitted GPS device tracks vehicle speed and other details, generating a “safe driving” score card, which can reduce annual premium rates.

Navarro also pointed out that despite having a population of over 30m, Peru only has approximately 2.2m vehicles in circulation. In addition, roughly half of those vehicles are more than 10 years old. This low vehicle density and high vehicle age suggest that there is plenty of room for growth in car ownership, and, therefore, that there is a strong prospect of growth in car insurance premium income.

Navarro also noted that only 40% of the vehicles currently circulating in Lima have additional cover, such as comprehensive insurance, over and above the SOAT minimum: a fact that also highlights the potential for future revenue growth.

Fire Risk

A fire at the UVK film theatre in the Larcomar shopping mall in the Lima district of Miraflores in November 2016 raised concerns that many companies are underinsured for fire risks. Four people died in the incident, which was attributed to an electrical short-circuit.

According to Hugo Cavassa, head of multi-risk insurance at Mapfre Perú, only 10% of small and medium-sized enterprises (SMEs) in the country are insured against fire risks, and most have policies that offer only partial protection of their assets.

Cavassa argued that there were compelling economic reasons for why this type of insurance cover should be extended. A small business could easily insure its property or other assets against earthquake and fire risk. Insurance for assets worth PEN20,000 ($5930) could be bought for as little as PEN5 ($1.48) a month in premium payments.

The smallest economic units – known as micro-enterprises – could also significantly benefit from this type of cover. Many micro-enterprises that are turning to a bank for the first time – for example because they need a loan – may at that point be offered insurance against risk of fire.

Cavassa said that in the first 10 months of 2016, Peru’s insurance companies paid out PEN$193m ($57.2m) in fire claims. However, he stressed that this related to insured losses only: uninsured fire losses would be much higher.

Regulatory Changes

In recent years there have been a wide range of regulatory changes in the sector. They include a new law on insurance contracts introduced in 2013, new requirements on information transparency, updated regulations for the payment of premiums and updated regulations on the payment of insurance claims.

In addition, new requirements have been introduced regarding capital reserves, as well as on the standard formats of insurance contracts, and on permissible investments by insurance companies.

In 2016 the regulator, the SBS, also introduced further regulations on micro-insurance, reserves and actuarial calculations. More regulations are currently in the pipeline, including further updates on actuarial calculations and on reserve requirements for catastrophic risks. In addition, the industry is monitoring recent government promises to take new initiatives on the insurance of work-related risks, on unemployment insurance and on insurance for those employed in artisanal fishing. In early 2017 the SBS announced a new circular on how insurance companies conduct marketing activity.

It recognises and regulates a range of marketing channels including the use of on-staff sales forces, independent sales agents and brokers, and bank assurance marketing models. The circular specifies what type of training sales staff and agents require, and what type of information should be given to prospective customers. There are also requirements on communicating the timescales within which premiums must be paid, as well as those for settling claims and terminating policies.

The regulations also cover new marketing platforms such as telephone, internet and mobile sales. Among other things, they establish that no less than 15 days after completing a sale the insurance company has the obligation to deliver all relevant information and policy details to the customer.


Peru has a comparatively high level of exposure to natural disasters, including earthquakes and extreme weather, such as heavy rains, floods and mudslides caused by the recurrent El Niño weather pattern. Coverage against these risks, however, has traditionally been relatively low.

According to Alex Guillamont, a partner in law firm Kennedys Miami, “The number of natural catastrophes in the region has tripled since the 1960s, and statistics show that there is a huge gap between total economic losses and insured losses in Peru.” Guillamont said that new products, like insurance policies that protect production infrastructure and transport investments, were beginning to close the gap, but that much more still needed to be done.

In March 2017 heavy rains, floods and mudslides across the centre and north of the country caused serious damage. By the end of that month a total of 94 people had died, with an estimated 700,000 left homeless in 12 of Peru’s 25 regions. Reports said that there had been widespread financial losses for SMEs and agricultural enterprises.

The minister of agriculture and irrigation, José Hernández, said that an earlier government catastrophic risk insurance programme for agriculture in certain regions, known as Seguro Agrario Catastró fico (SAC), was being extended to the national level. The scheme was being offered in addition to an “emergency bond” worth PEN1000 ($296) per ha that was being paid to farmers that had suffered damage to their crops. The SAC covers a range of crops, including peas, barley, beans, maize, quinoa, wheat, potato, forage oats and barley.

New Products

The insurance industry responded to the natural disaster by offering special free products, and at the same time renewing efforts to raise awareness of the benefits of insurance.

APESEG announced that it was offering free life and disability insurance to up to 20,000 volunteers operating in rescue and reconstruction activities in the affected areas during the months of April and May. Registered volunteers would benefit from PEN$50,000 ($14,800) worth of life insurance coverage, with an additional PEN$3000 ($889) of coverage for funeral costs. Together with the Peruvian Automobile Club, APESEG companies were also offering free vehicle insurance for trucks and other vehicles that were used in emergency work.

Market leader Rimac Seguros said it had been developing new products and systems to better assess catastrophic risks. In 2013 the company created a mobile software tool known as Risk Inspect. It was also using data analytics to improve the assessment of a range of catastrophic risks and to determine optimum reinsurance coverage.


 “Looking forward, the main challenges for the sector include developing new sales channels, innovation, new product development and the need to focus on new market segments,” De Andrea told OBG. “We will also need to adapt to the new regulatory requirements that the SBS is going to be introducing over the next few months.”

A survey of the insurance sector across Latin America by consultancy firm EY maintained that the roll-out of new insurance products and distribution platforms at a time of low insurance penetration could generate medium-term premium income growth of 6-7% or higher.

It also suggested that more sophisticated insurance products were likely to gain a significant share of the Latin American market, including coverage for business interruption, cybersecurity, civil unrest, and errors and omissions.

An important reason for optimism is that Peru is still underinsured. Pierina Papi, an executive at Pacífico Seguros, said that there is strong potential for growth and evidence of rising consumer interest in insurance products. She said that her company was receiving a growing number of calls from consumers confused over insurance cover and policy details. As a result, it decided to launch a web portal on the “ABCs” of insurance, designed to educate the general public about insurance products and principles, including definitions of key terms.

The CEO of Pacífico Seguros, Álvaro Correa, also noted increased interest in the sector, saying that after estimated growth of 3-4% in 2016, his company expects a 7-8% increase in premiums in 2017. Premium growth, he said, is expected to reach roughly double the rate of the country’s GDP expansion.



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The Report: Peru 2017

Insurance chapter from The Report: Peru 2017

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