In Latin America, life insurance is frequently purchased from banks rather than from traditional life insurance agents.
This wasn't the first time I heard about this, but it was the first time I've heard it firsthand from experts in those markets.
Last week, I had the opportunity to participate in an international life insurance conference hosted by Fasecolda, the Colombian federation of life insurers, in Bogota, Colombia, where many of my fellow speakers were actuaries who spoke about challenges and trends in countries such as Mexico, Brazil, Chile, Peru and of course, Colombia.
The conference was presented via live translators in Spanish and English. (Note to self: Next time you are presenting in front of a predominantly Spanish-speaking audience, it would be a good idea to have your PowerPoint slides translated into Spanish.)
Communication barriers notwithstanding, the conference, by design, had a decidedly international feel. The organizer wanted to bring the audience, consisting mainly of Colombian insurance executives, a sense of what is happening in some of the markets around them. Discussions also revolved around issues related to changes in consumer behavior and product distribution trends, with the goal of helping attendees identify innovative alternatives to reach more customers with the highest return.
While I was only able to attend a handful of the second-day sessions following my own (on challenges and opportunities in the U.S. individual life insurance market), I came away with an enhanced understanding of the way life insurance is being sold in Latin America.
The thing that struck me the most was just how big the bank insurance model, also known as bancassurance, is in the region.
In Brazil, around 80 percent of life insurance premiums are secured through the bancassurance channel. Over half of Chile's banking institutions promote some form of life insurance, and 44 percent of Colombia's banking institutions promote some form of risk life insurance. Banks are estimated to account for 15 percent of life insurance premiums in Colombia.
Around half of Mexico's banking institutions promote some form of life insurance, and life insurance grew at an annual rate of 10 percent between 2008 and 2012 in the country. Mexican life insurance distribution in 2012 can be broken down as 33 percent traditional agent, 41 percent bancassurance and 26 percent payroll deduction, according to one of the speakers.
Risk life insurance is commonly offered by Peru's larger banking institutions, and credit unions in Peru are particularly strong in the distribution of microinsurance.
Ernst & Young’s "2013 Latin America Insurance Outlook" says the region is poised for growth. In addition to economic expansion, opportunities exist for insurers to improve chronically low market penetration rates by tapping the growing middle classes.
Emerging middle classes in Latin American countries present opportunities for sustainable premium growth. Ernst & Young says approximately 2.7 million Brazilians moved into the middle class in 2011, and estimates indicate that 40 million people have gone from living in poverty to the middle class in the past decade. Fifty percent of Mexico’s population has also entered the middle class, compared with 80 percent of its population being impoverished in 1960.
According to speakers at last week’s conference in Colombia, banks are not cannibalizing from traditional agents — they almost always sell to customers who do not already have life insurance and aren't being contacted about it by agents.
Bancassurance is extremely popular in countries such as Spain, France and Austria, and China recently started allowing banks to buy insurers and vice versa. Some major global insurers in China have seen the bancassurance product greatly expand sales to individuals across several product lines.
In the United States, the bancassurance market penetration is estimated at just 2 percent, according to “2020 Foresight: Bancassurance,” a report from Timetric. The report says the United States and the United Kingdom are the only markets with declining bancassurance commissions and attributes the lack of growth to “the almost total separation between the insurance provider and bank distributor in the U.S. market, where banks essentially just sell third-party insurance products to their clients.”
The 1999 Gramm-Leach-Bliley legislation was expected to contribute to significant growth of the bancassurance channel in the United States, but that growth has failed to materialize. Timetric’s report said the model is low-risk and offers high commission and fee incomes, but also higher costs than the integrated model. “Thus, the insurance market in the U.S. is dominated by more established channels such as agencies and brokers.”
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