11 November 2013

Substantial mortality protection gap in Latin America

The strong economic growth experienced in Latin America over the past decade has bolstered employment, income and savings, as well as the penetration of life insurance in the region.

However, many Latin Americans remain uninsured or underinsured by alarming dimensions, according to a new report by Swiss Re.

The mortality protection gap in Latin America is the first study of its kind covering selected Latin American countries.

It reveals that across eight major Latin America markets in 2012, this protection gap amounted to $7.2 trillion, or 138% of GDP.

This translates to a mortality protection gap of $60,628 for the average working person with dependents. The report also shows that this protection gap has increased by 10% on average per year since 2003.

"Adequate mortality protection is lacking in an alarming number of Latin American families and across all markets examined in this study," said Alejandro Padilla, Swiss Re's head of reinsurance Latin America North.

"Even after a decade of strong economic growth, the financial vulnerabilities that this gap creates for Latin American families are considerable. This is a worrisome trend for individuals and society alike."

The mortality gap spans Latin America, but varies greatly from country to country. Although the mortality protection gap exists in all of the markets covered by the study, the size of the gap varies from country to country.

While Brazil, Argentina and Mexico show the largest protection gap in absolute terms, Chile and Puerto Rico show remarkably smaller gaps. The protection gap can also be measured as the ratio of protection in place to protection needed.

From this perspective, looking at each end of the spectrum, the ratio between savings and life insurance currently in place as compared with the amount of protection needed ranged from 10% in Venezuela to53% in Chile.

"This means that for every $100 of mortality protection needed in 2012, Venezuelan and Chilean families on average held $10 and $53 respectively in financial assets and life insurance," said Oliver Futterknecht, Swiss Re's Senior Economist for Latin America and one of the authors of the study.

The wide spread of the mortality protection gap between the countries examined can be partly attributed to the differences in population size from market to market.

The report highlights the fact that industry support is needed to address Latin America’s life insurance needs. Life premiums in Latin America grew on average at double-digit rates over the past 10 years.

Even though penetration and density have improved in this time span, insurance demand is still lagging compared to other regions. On average, the region’s per capita spending on life insurance was $120 in 2012 – three times lower than the worldwide average of $373.

Helping to cover the gap not only provides protection relief for families in Latin America, but is also a significant business opportunity for life insurers.

The findings of this study provide insurers with intelligence on where and how mortality protection products could be developed to meet the unique needs of each region.

"Life insurers have a unique opportunity to help society close this gap and will play an important role in helping to educate people on the benefits and affordability of life insurance," said Margo Black, Swiss Re's head of reinsurance Latin America South.

"The onus is on our industry to be proactive in helping families across Latin America understand how to fit life insurance into their lives and budgets effectively."

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