Q: How would you describe the insurance market in Brazil today?
Although we are the largest market in Latin America, the insurance penetration [as a percentage] of GDP still quite low. And there are several reasons for that -- one of them is the macroeconomic situation. Every two years, we have some up and downs on the economy and the insurance penetration for that reason is not high like in countries like Chile, like our neighbors in Latin America. The insurance culture in Brazil still lacks that culture of protecting. Doing a self-analysis of the industry, we are still way behind the international market, in terms of products, in terms of ways to mitigate risk from our clients. [This] also does not help to create that insurance culture. We have some old products, we are modernizing everything right now with SUSEP, but we still have a long way to go on that. Although we are a large insurance market, I think the potential is much higher than the size of the market today. So, it's an underdevelopment situation here —and on the other hand, it's a big opportunity.
Q: What challenges are you facing in the Brazil market today?
On the macro level, we have the outcomes of the Ukraine [war], the outcomes of COVID. We have high inflation — which is not ideal for Brazil. People tend to not spend the money with insurance. They don't see insurance as a protection, they see insurance as a cost. In a macroeconomic scenario where the jobs are not there, the growth are not there, inflation is very high, people cannot plan ahead. They are more worried about the daily needs that they have than on planning the future. This is probably the main challenge on the macro level.
On the product side, the way that we sell insurance today… we cannot sell insurance directly until now. So, we still are working on that regulation. We cannot close the insurance policy digitally. This is something that makes us far behind other the other industries. It's a combination of those factors, and also the perception of the value that insurance company can provide to a client or to an enterprise or to a company. There is still a lack of understanding about how we can protect, and how can we be alongside a person or a company, to make them grow even more.
Q: How do you shift that culture to switch from viewing insurance as a cost to something that’s a worthwhile protection?
It’s a great question. We are working on that. We have a digital initiative right now where we are renaming insurance. We are using easier terminologies. The terminology that we use today is quite hard to understand. The purchase experience of insurance is not ideal right now in Brazil. You buy a piece of paper, which is not very well written. So people don't really understand what exactly we are covering. And when they have a loss, they are really afraid that we are looking for a small clause or letters within the contract to avoid payment. This is the general perception. In order to change that, I think we need to be more closer to the clients, we need to be more closer to the consumer, and really understand their needs, and add services to that. This is really something that we as the insurance industry, we can link different industry segments, and provide good service to the client -- not only when they have a loss, which is not an ideal experience. And by doing that, by having a more friendly way to construct the insurance policy and have a more transparent way to deal with claims and adding services, I think gradually, we can change that perception to a more a service- and client-oriented product.
Today, we don't compete with only insurance companies, we are competing with Amazon, with Uber, so clients are expecting the same experience when they are buying something. The bar is really high. We are far behind that type of service. This is my benchmark that I have in mind, we have to deliver the same kind of experience that all those tech companies they provide to the clients and be more transparent -- and service as well. I think it's a combination of those initiatives can change the perception of insurance in Brazil.
Q: How is Brazil rebounding from the pandemic, inflation, and supply chain?
On the supply chain, the crop insurance risk that we are underwriting has increased because the lack of fertilizers. With the sanctions and the problems with the supply chain, the farmers are using less fertilizer, and that has an impact on the productivity. So, this is a risk factor that we are seeing. Also the commodity prices are pretty high. So, we have in the same volume of land … but you have more exposure, because the price of the commodities are high.
Although many people think that we are not a catastrophic country, we do have some climate catastrophes here in Brazil. For instance, the last season on the agriculture side we have the worst draught in 100 years and, as we are not considered a cat country, we don't have reserves for IBNR for cat. So, this is another problem we are dealing with.
I see this crisis on the COVID, we have more demand prices, right now we are suffering with supply crisis and that affect also the inland cargo. So, with the low economic activity, decrease in the economy [impacts insurance, which] is a very sensitive sector. Insurance is very correlated with the economy. On the personal lines, people are driving their resources not to insurance but to all the basic things that they need.
It is affecting three pillars: we are seeing an increase in risk, pressure on income and pressure on claims.
Q: You said sanctions are impacting fertilizer — that’s the sanctions against Russia?
Eighty-five percent of the fertilizers utilized in Brazil are imported. And our main exporter is Russia. [This won’t impact] this season, but definitely the next one. In September, we're going to see some problems — depending on the outcomes of the unfortunate conflict in Ukraine.
Q: I was hoping to speak to you about crop insurance. You began using AI to underwrite crop insurance in 2020. How’s that going?
This is a wonderful project that is kind of a model that can be replicated to different lines of business. We saw one competitor with 60% of the market, and because they have that position — like forever — they have always been the leader of the market. They are a bank that provides credit. They have never invested too much on technology because they don't need to. We saw a huge opportunity there to invest in technology in order to be more predictive in terms of the season. We established a partnership with Farmers Edge,
which is a company that is also owned by Fairfax. It's a Canadian company, a precision agriculture company. We started to explore all the technologies that they have, because everything that I heard from them, I saw an insurance link to that. We have today some micro weather stations in order to capture the microclimates in Brazil, and then you can be more predictive, you can rate better, you can develop new products, parametric products. We are capturing all of that information to put on this engine and have AI also helping us to in terms of risk selection and in terms of pricing.
We also have on the group level, with have a Lloyd’s syndicate Ki which is a partnership with Brit, BlackRock and Google as well. They have this algorithm and provide quotes. We have been working very close to them to understand exactly how they're working and sharing, in order to develop something in Brazil like this platform. We are capturing data from different industries. This is what I see for the future: I see insurance companies meet risk mitigation, which will be probably one of the pillars of insurance company, but you will have also a lot of data, then you can link that data to other industry segments, like banks, for instance. This is a model that, we developed in the agriculture, utilizing everything that you can imagine in terms of technology, but it also can be replicated towards the other lines of business.
Q: How else do you see the insurance market evolving going forward?
I think it's a risk for Brazil insurance companies -- because at some point, a tech company will see that opportunity, will see that undeveloped segment, and will probably be a competitor to us. When this happens, they are much more agile, they are much more fast, they are lean.
SUSEP have a very good initiative with which is the open insurance. Ideas are being discussed. And it's a very good forum. But the keys is the implementation and the speed of the implementation of those innovation.
What we did in Fairfax, we have that vision 2025 that, firstly, we call in a professionals for different industry segments trying to dream about what will be the world in 2025. So, I have a 7-year-old son and science tells me that he will live 130 years. This is quite scary for life insurance, for instance. And health insurance. There are a lot of feedback that we need to start to build the bridges right now. Otherwise, when we blink another industry can start to be a competitor for us. I see some improvements happening, but the speed of those improvements is something that worries me.
