Despite Latin American market conditions of low insurance penetration and strong economic growth being favourable for an upsurge of re/insurance demand, the region’s protectionist stance could put a damper on efficient risk transfer and consequently hinder socio-economic development, Lloyd’s chairman Carnegie-Brown warned at a recent Lloyd’s Meet the Market event in Miami.
Carnegie-Brown called protectionism the “one barrier that could stop this future in its tracks,” and challenged the industry to put greater emphasis on demonstrating its contribution to the smooth functioning of society.
Although insurance works best when risk and capital can flow freely across borders “protectionist trade barriers reduce capacity, competition and customer choice and at the same time drive up reinsurance costs over the long-term,” Carnegie-Brown said.
By 2030, the “Emerging 7” or E7 economies of China, India, Brazil, Mexico, Russia, Indonesia and Turkey, are predicted to be larger than those of the G7.
Therefore in just 15 years Mexico’s economy could be larger than the UK’s and with non-life insurance penetration at just 1.8%, Latin America has one of the lowest levels of insurance penetration in the world.
Research from McKinsey estimates that Asia and Latin America will represent 37% of the global property and casualty (P&C) market in 2020.
To capitalise on this huge opportunity, the re/insurance industry should find a way to demonstrate its contribution to society, said Carnegie-Brown, “insurers are not as successful as we should be in persuading people that insurance is an essential service with a huge contribution to make. Too often we are seen only as an unnecessary cost.
“A 1% rise in insurance penetration translates into a 13% reduction in uninsured losses, a 22% reduction in the taxpayers’ contribution following a disaster, and increased investment equivalent to 2% of national GDP.”
“This is a valuable contribution to society and we have to find a way to tell this story in a more compelling way,” he said.
Specialist lines like energy, marine aviation, property and casualty are on the cards for considerable growth in the Latin America region as low insurance penetration combines with the need to protect high value assets.
And although new techniques and technologies mean the industry can compete with disruptors, to grab hold of the full-scale of emerging market opportunities, Carnegie-Brown said that more change is needed; “to ensure success in the future we have to think about how we achieve it today”.
Re/insurers are forewarned to seek out opportunities for enhanced marketing within Latin America and other emerging economies, demonstrating the contribution the industry makes to sustainable socio-economic development, while collaborating with governments and regulators on policies that might hinder the free flow of risk transfer.