The insurtech sector is growing in Latin America and expanding beyond Brazil, the market that has most supported the industry in its infancy.
New insurance companies have popped up in recent year in places like Mexico, Chile, Colombia and Argentina, as they try to find ways to close market gaps and increase protection in a region that remain vastly underinsured.
According to a report by the Digital Insurance Latam consultancy, the number of Latin American Insurtechs increased by 22% in 2021, reaching 393. The volume of funds raised by the segment went up by 231% to close the year at $391mn.
The report estimates that one third of all insurtechs in the region are based in Brazil, but Spanish speaking countries have also seen the sprouting of initiatives in the past few years.
In Mexico, for example, the number of insurtech start-ups increased 46% in 2020 alone, and more than 80 companies were operating in the country last year, according to a survey by consultancy Endeavour and the Mexican Insurtech Association.
“There are still many opportunities in Mexico. Last year insurtechs raised $30mn, and we estimate that in 2022 the number will reach $45mn,” says Marisol Sánchez Navarrete, the president of the association. “There remains a large gap between Mexico and markets in the US and Europe. Conditions are different, but we believe that are many technologies that can be implemented in the Mexican market.”
It is not hard to see why entrepreneurs see potential in a country like Mexico. Endeavour estimates that 89 million Mexicans, or 69% of the population, are unique mobile phone users. At the same time, insurance penetration in the country is very low, reaching 25% of the population. Spotting opportunities to close protection gaps among a population that has embraced digital technologies is therefore not an impossible task.
Navarrete’s own Insurtech, Clupp, provides a good example of it. Launched in December 2020, the company offers pay-per-use insurance covers for cars and motorbikes. Drivers can pay premium rates that vary according to the monthly mileage of their cars, which is something that traditional insurers do not offer even though it was revealed as a glaring market failure during the Covid-19 pandemic.
“Many people stopped using their cars, claims slumped, but insurers were not offering a product that was adapted to that new situation,” Navarrete says. “Clupp was born to solve an immediate market need and it has worked very well.”
Cover includes theft, third party liability, road assistance, and even Uber credit in case the user cannot use her vehicle for a while. Capacity is provided by Munich Re, and in the case of some specific liability covers, by HDI and Mapfre.
A similar reasoning was applied to Mexico’s fast-growing motorbike fleet, to which traditional insurers were not too well prepared to offer competitive covers. Clupp spotted it as a niche to be explored, and now more than half its policies are owned by motorbike riders.
“We are helping to increase insurance penetration not only by working a market that is already served by insurers, but also others that are not,” she says. “There is a lack of trust in the sector today. Insurers do not trust policyholders, and policyholders mistrust insurers. But we have noticed that offering a closer experience with clients help to generate trust.”
Targeting customers who have been poorly served by traditional insurers has also been the strategy by Kinsu, another Mexican insurtech, which is defined by founder Matias Gordillo as an Uber-like tool that can turn regular people into money-earning insurance intermediaries.
The problem Kinsu strives to solve is that insurance in Mexico, in Garrido’s words, is a relationship business where buyers need to know where are the brokers, agents or banking channels that sell the policies they need. To enter the market as a broker or agent, one finds significant hurdles and as a result the average age of professionals active in the country is quite high at 57-years-old, Gordillo says.
“Our value proposal is to start developing a new generation of insurance intermediaries,” he stresses. “We offer an app that is very easy to use and can enable anyone to start earning money with insurance.”
Registered users of Kinsur, called Kinsurers, can help solve this problem by using the platform to introduce people they know to insurance products like life, health, motor, pet and travel insurance coverage. If the potential clients end up buying a policy via the platform, those who brought them in earn a commission.
“A Kinsurer can start making money from day one, and it makes it easier to enter the insurance industry,” Gordillo says.
Launched earlier this year, Kinsu already has 3,000 Kinsurers, 20% of whom are currently active, according to him. The initiative has the support of insurers like Mapfre, HDI, Chubb, Quálitas and others.
More experienced is Argentina’s 123Seguro, which was created in 2010, but has taken a leap in recent years to new markets such as Chile, Colombia and Brazil. The main goal of the company is also to make it easier for regular consumers to have access to insurance products.
“Our target was to solve a problem, which is to say, the relationship of clients with their insurers,” says founder Martín Ferrari.
With over 20 years of experience in the industry, Ferrari came to the diagnostic that Argentinians arrived at insurance via traditional channels that were not efficient. They basically had to know a broker or a banking branch where insurance was sold.
“That fact limits the access to insurance to the middle and upper middle classes and beyond,” he says. “With technology, this barrier to access can be breached. One can reach any part of the country where there is access to internet.”
123Seguro has digitalized a number of services from underwriting to the management of claims to make sure that clients can go through the whole insurance experience digitally if they want so. For those who still prefer a degree of personal contact, services by phone, chat or WhatsApp are also available.
“Claims management, renewals and payments of monthly instalments are all made via 123Seguro,” he says. “We have concluded that a successful model in Latin American needs to solve not only access to insurance, but also how to use the policies.”
123Seguro sells life and motor insurance, and is now starting to offer covers for SMEs, a public that, in Ferrari’s views, is ignored by the insurance industry.
Not all Latin American Insurtechs are focussed on mass markets, though. Some, like Chile’s LISA Insurtech, has looked for solutions to make the whole insurance process smoother for underwriters and, consequently, less painful for users.
Created in 2019 by Gino Bustamante, an IT engineer with experience in the insurance and banking sectors, LISA has developed data analysis and artificial intelligence tools to speed up the claims settlement process and to reduce the suffering of policyholders when dealing with an accident.
“The world of insurance in general, and of claims in particular, shows very little human empathy. It is also very rudimentary. Both traits are painful for policyholders,” he says. “Using technology to enhance it requires a change of mindset by the industry. We can process in a couple of minutes a claim that, by traditional means, could take over 40 days to be settled.”
Bustamante notes that this change of mindset is not an easy one for many insurers, who still see this kind of solution as “esoteric”. But it can happen. After starting with only three clients, in three years, the company has been able to gather a total of 23 spread around Chile, Colombia, Mexico, Peru, Ecuador, Argentina, Spain and the US. LISA has recently moved its HQ to Columbus, in the US, and its technology has been embraced by the Zurich Group, which, in his view, increases the company’s potential for international development.
Which is a long way for a company that started with funding from friends and family and did not close its first fund raising round until last year. Which is a common story for Latin American Insurtech firms, which just now are really drawing the attention of venture capitalists from around the world, even though investments may become hard to come by in the current global market.
“The market has been affected by the global funding slowdown, but there is still plenty of VC appetite for the Mexican insurance sector,” Navarrete says.
