Mexican market potential enormous, but no ‘El Dorado’
The Mexican insurance market has vast potential, but the prospects are less than they are portrayed to be, according to Manuel Escobedo, president of the Mexican Association of Insurance Institutions.
The general understanding is that the Mexican insurance sector makes up 2.3 percent of gross domestic product (GDP), says Escobedo, a number which is close to the regional average (3.1 percent). But this number is lower than in countries such as Brazil (3.9 percent) and Chile (4.6 percent). Mexico places as the 15th economy in the world, although many believe it will move its way up the ranks into the top 10 in the coming years.
This growth, coupled with increased penetration, has led to the idea that Mexico is the ‘El Dorado’ of insurance, and that “it’s just a matter of finding where the lost city is and thus a matter of time before somebody hits the jackpot”, warns Manuel Escobedo, president of the Mexican Association of Insurance Institutions (AMIS).
However, the more successful international companies have not been deceived in this endeavour. Escobedo adds that it has not been an easy journey for these players, and he’s seen many “‘Conquistadores’ lose their appetite and their grit in the attempt”.
There is another way of looking at the market, however. AMIS members’ premium amounts to 2.23 percent of gross domestic product, a relatively low amount compared to other economies.
“However, this number needs to be properly interpreted because it does not consider premiums included in other counts, so it is not necessarily comparable. There is no world standard for measuring insurance penetration,” says Escobedo.
Private health insurance covers only 8.5 percent of the Mexican population, but public coverage gives limited benefits to just over half of the population.
Add in the mutual agricultural market known as Fondos de Aseguramiento, and surety and bonds, and insurance penetration in Mexico would actually add up to about 5.16 percent of gross domestic product which “gives space for growth but also sheds more light on the real potential of the market”, he adds.
An exponential explosion
Technology will play a fundamental role in the development of the Mexican market, says Escobedo, adding that the country has low penetration of insurance and of internet and telecom services.
Fresh initiatives are intended to increase the telecom network, providing access to more than 92 percent of the population in the next five years.
“This, together with the initiative creating financial platforms to open access to more people in the financial services market, means an exponential explosion would be within reach of the insurance sector in the short term,” notes Escobedo.
The other major source of future innovation is information, according to the president. “Better and more comprehensive data allows insurance companies and agents to create new products, better understand risk and hence better manage capital and pricing, and it attracts a wider set of players into the reinsurance and capital markets into our country,” he adds.
Escobedo believes that the enforcement of compulsory insurance will increase the insurance penetration rate.
He says: “In Mexico there are about 600 different types of such insurance, but very few are regulated and even fewer are enforced. Today in México only 30 percent of all cars are insured. Out of 32 states in the federation, 19 have regulation enforcing motor insurance, but none of them enforces it efficiently.”
Finally, a comprehensive, strategy in risk management is fundamental to insurance penetration, says Escobedo. The Mexican administration is currently working on the idea of establishing a public policy on risk management.
A policy which has the ultimate goal of financial stability and a strategy of including risk management considerations in all other rules and policies, among other things, will “result in the promotion of better risk management in all areas of the economy and the financial system”, he concludes.
