Mexico’s Low Insurance Penetration under Fire at 2023 AMIS Conference
Mexican insurers must work towards boosting penetration in the country and, with new technologies and regulation in place, they are running out of excuses not to do it.
At the same time, insurers must adapt themselves to a fast-changing technological environment while playing a vital role as active investors in the transition economy.
Those are the main messages aired during the 32nd conference of AMIS, Mexico’s insurance sector association, in Mexico City.
Debates in the course of the two-day annual event put the spotlight on the country’s insurance gap. Among other unflattering statistics, insurance penetration barely breaches 2.6% of GDP, which is low even by Latin American standards, and only 21% of all Mexicans have access to private health insurance. One out of every four people has any kind of insurance products, and only 0.8% of the portfolio of industry is allocated to microinsurance, which is seen as key to integrate vulnerable populations into the market.
With those kinds of numbers in mind, the president of AMIS, Juan Patricio Riveroll, said that bringing more consumers into the fold is at the top of the industry’s agenda.
“Financial inclusion must be a priority for our country, and the insurance sector must play a preponderant role in it,” he said.
Riveroll highlighted initiatives developed by the industry to boost financial penetration and inclusion, such as the Minerva Project, which offers free personal finance workshops to women. He also expressed hopes that technological advances like digitalization, artificial intelligence and blockchain will prove to be valuable tools to achieve the goal of broader inclusion.
Regulatory improvements can also drive the quest for a wider presence of insurance in the Mexican economy. The government has recently approved new rules for microinsurance, enabling industry to design products that are more adapted to the needs of consumers, especially to those who are poorly served by insurers today. But other participants warned that insurers have to show more willingness to make use of such tools.
“Insurance companies have much responsibility for the lack of attention endured by vulnerable people today,” said Ricardo Ochoa Rodríguez, the head of Comisión Nacional de Seguros y Fianzas, CNSF, Mexico’s insurance regulator. “There is nothing in terms of regulation that prevent the offering of products that are easy to sell, easy to collect and easy to understand.”
He urged insurers to work with zeal not only for the interest of shareholders, but also with a firmer commitment to the development of society. For his part, Héctor Santana Suárez, the head of the Insurance, Pensions and Social Security department at the federal government’s Finance Secretary, said that the low participation of microinsurance products in the market reflects a lack of interest by insurers for this product. He also criticized the high concentration of the market in certain segments, such as credit microinsurance covers linked to loans and a lack of diversity in marketing strategies.
“It is a sector that is virtually concentrated in a couple of companies, and this is an issue that we will have to take into account,” he said. “And the participation of women (in the market) is well below what it should be.”
In his view, the market needs to work hard in order to design simpler contracts that new buyers can easily understand, while avoiding small print and other practices. Which takes insurers to another of the challenges ahead of them in Mexico: earning consumers’ trust.
“We have noticed that certain factors have an impact on consumers’ trust, and one of them is the reputation of companies,” Ochoa said. “Reputation has much to do with the ability that companies have to honour the commitments that they have taken. Another element is how understandable a product is.”
Insurers representatives mentioned several times during the proceedings that the pandemic provided an opportunity for the industry to show its mettle by paying record amounts of indemnification without the controversies that arose in other countries.
But Oscar Rosado Jiménez, the chairman of CONDUSEF, a government agency that protects the rights of consumers of financial services, warned that that policyholders are left with quite a different perception from their dealings with insurers.
“In 2019, we responded to 37% of all the complaints made by policyholders, and insurers dealt with 63%. In 2021 and 2022, the numbers were reverted, and we became the actual customer service department of the insurance industry,” he said. “As long as we have this situation, this theme (of insurance penetration) will have no future. Clients are making the decision to appeal directly to CONDUSEF, and not to their insurers.”
He contrasted the numbers with the banking industry, where only 3 out of every 10 clients try to enforce their rights by talking to the agency rather than to their banks. He also warned that one third of all complaints received by CONDUSEF are related to administrative issues, and not to the payment of claims. Topics such as payment decisions that drag for too long and difficulties to cancel policies are among the most common administrative complaints.
“This is very, very serious, as it reveals poor communication, poor quality of services and so on,” Rosado said.
But there are roads to change this scenarion, one of which is the adoption of digitalization and the use of customer data via AI and other technologies to deliver products that Mexicans really want at prices that they can afford. New technologies can also reduce the friction in the underwriting process, as pointed out by Salvador Alonso y Caloca, the CEO of Banorte Seguros. But making them work will impose significant changes on organizations.
“Change must be built on the ground of an organizational culture that provides agility,” he said. “Such cultural changes will have to be built up. They have to be designed, rewarded and punished, and they will require a different kind of leadership.”
But not only the industry must up its game to boost levels of protection in Mexico. Public policies can also accelerate the process, even though they do not necessarily need to focus directly on subsidying insurance purchases, remarked Manuel Aguilera Verduzco, the CEO of MAPFRE Economics.
“What makes sense is to for public policies to adopt insurance as an efficient tool to achieve goals that are much more important,” he said.
One example is the introduction of mandatory third-party motor liability insurance, a measure that aims to improve road safety which is being debated in Mexico. Or tax incentives that help people to buy medical insurance, as a means to reduce the burden faced by public health services.
Mexico has much to explore in this area. According to data from MAPFRE Economics, 31% of the total insurance penetration in Latin America can be attributed to public policies. The number reaches 67% in Puerto Rico or 58% in Brazil, but in Mexico it lags at only 4.4%.
The conference also debated the challenge of meeting societal expectations about the role to be played by the industry in the transition to a greener and fairer economy. Insurers are vital institutional investors in Mexico, managing assets that are equivalent to 7.1% of GDP, and they must make use of their financial heft to help Mexico achieve its sustainable goals, said Gabriel Yorio González, Mexico’s undersecretary of Finance.
“It is of essence that insurers, in their roles as institutional investors, be active players in the sustainable transition,” he said. “This can be done by incorporating ESG criteria into their portfolios and by diversifying their investments towards high quality assets.”