In February 2012, Alfredo Jochamowitz, the president of the Peruvian Association of Insurance Companies (APESEG), estimated that the insurance penetration rate in the country was about 1.6%, measured as the percentage of premiums to GDP. This figure lags behind regional leaders like Chile (4.5%) and the total average for Latin America (2.5%). Despite the gap, Peru is home to a wide array of affordable insurance products, on offer by both public and private operators.
INSURANCE FOR ALL: Diversity is particularly strong for health care coverage. The government subsidises two health care initiatives, Integral Health Insurance (SIS) and EsSalud, to meet the needs of low-income Peruvians. The two plans are integrated into one programme known as the Universal Health Insurance (AUS) plan. AUS aims to bring together, expand and supervise all existing health insurance plans to ensure that all Peruvians have some form of health care coverage.
In the private sector, Peruvians can access microinsurance products for as low as PEN5-10 ($1.83-3.66) per month. It is worth noting that insurance is not a young industry in Peru; industry leaders have over 100 years of experience in the country. Given the variety of options available from well-established insurers, the question arises as to why many Peruvians continue to remain unprotected against risks and injuries.
Sector leaders say this is a two-part problem. First, despite the age of the business, a culture of insurance does not exist. Few Peruvians understand or realise the benefits of insurance products. Second, while the government would like to see programmes such as AUS lead to universal health care coverage, there is no will to make buying health insurance mandatory.
SPREADING THE WORD: According to Jochamowitz, creative marketing is not enough to overcome some of these barriers, which he believes will ultimately require a strong push from the government. Jochamowitz likens insurance to taxes, “You do not pay taxes because you want to, but because you must, knowing the consequences otherwise. If people do not understand the risks they assume by not buying insurance, they will not buy it no matter how well packaged.”
An early draft of the law that established the AUS included a proposal to make health insurance mandatory. In this iteration of the legislation, all citizens would be required to present proof of health insurance in order to perform a variety of everyday functions, such as opening a bank account, applying for a passport or enrolling children in primary school. This measure was eventually abandoned, as many protested that such a requirement would stop parents from enrolling their children in school or accessing financial services.
In the past, however, mandatory insurance programmes have been successful at increasing insurance penetration in the country. For example, the statutory auto liability insurance (SOAT), has been required for drivers since 2002. Jochamowitz points out that, “When it [SOAT] first came out, no one wanted to buy it. Everyone resisted, but now, a decade later, people consider this a natural part of owning a car. They realise that SOAT is a good product worth purchasing.”
PROVIDING IMPETUS: Another solution that is encouraging Peruvians to purchase their first insurance product is the use of alternative distribution points, such as microfinance banks, supermarkets or other retail outlets. Industry leaders told OBG that the average Peruvian does not know how much insurance should cost, and thus is reluctant to take insurance companies’ word that they are offering an affordable product. However, if a potential customer sees many people buying an insurance product at their favourite store, they feel more confident they are getting a good price and are less reluctant to buy. This has made the sale of microinsurance through alternative distribution channels one of the fastest-growing areas in the industry.
While rising incomes are likely to also increase the purchase of insurance products, in the long run, efforts to address the problem of low insurance penetration will require a multi-faceted approach, incorporating initiatives from both lawmakers and private insurers.
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