Power to the People


The sector represents 2% of GDP, a low figure compared to the regional average, but one that is expected to rise in tandem with GDP growth. “We will hopefully see […]

The sector represents 2% of GDP, a low figure compared to the regional average, but one that is expected to rise in tandem with GDP growth. “We will hopefully see the sector’s contribution to GDP closer to 3%. That would be a big jump,” said Roberto Flores Rangel, General Director of ACE Seguros. As for growth, the sector expanded by 14% in 2012, according to José Ramón Tomás Forés, Executive President of Mapfre Mexico. This continued into 2013, with total written premiums reaching $9.9 billion, up 6.6% on the same quarter the previous year, according to Business News Americas. In 2012, total life insurance premiums were worth $9 billion, while non-life premiums were worth $10 billion, according to Ernst & Young. Analysis suggests that the growth of the middle class—50% of the population is now considered to have entered the middle class, opposed to 80% being low-income in 1960—has led to increased consumption and post-secondary school education enrollment, factors that have had a positive impact on the insurance industry.

There are currently 104 insurance companies in the Mexican market, with a large foreign presence—approximately 70% of premiums written in the sector are with foreign companies. The sector remains attractive, thanks partly to a reduction in market share amongst the top five—while the top five insurers once owned 65% of the market, they now own only 45%.

“Vehicle insurance products, among others, grew considerably last year, and we believe that automotive insurance and individual life insurance are the segments that will drive the growth of the industry over the next few years,” said Tomás Forés, whose firm, Mapfre Mexico, grew 22% in 2012 and is represented by 425 branches across the country.

The majority of the sector’s insurers are gathered under the Mexican Association of Insurance Institutions (AMIS). A total of 85 firms work under its umbrella, composing 90% of the market. Fernando Solí­s Soberón, President of AMIS, shared his thoughts with TBY on Mexico’s low penetration rate when compared with regional countries; “There are some individuals who are earning between $100 and $400 per month, and therefore their disposable income is not enough,” he said, adding that, “the other reason is that many households are very young, and thus the demand for insurance is very low.” According to Ernst & Young data, 28.2% of the population is under 15, while only 6.6% is over 65. However, Solí­s Soberón sees this as an opportunity. “That is going to change in the future, which is why there is a lot of opportunity.” There is, however, still a long way to go. According to AMIS, only 5% of households that are not linked to a mortgage are insured. At the same time, only 15% of the labor force has an insurance policy, while only 26% of the cars in Mexico are insured. This is due to a historical lack of compulsory motor insurance that is only just being addressed. According to AMIS data from 2011, 21% of the population has some kind of insurance coverage, meaning that up to 85 million people are without coverage. The wider problem of economic informality is also having a long-term negative impact on the sector. According to data from the latest census, 4.8 million firms have between one and 10 employees, with 3 million, or 3% of the total, employing more than 51 people. This points to a large base of micro and informal firms “not contributing to social security and that are not insuring their property or their employees,” added Solí­s Soberón.

In 2013, AMIS is now looking to see a law implemented on compulsory motor insurance for vehicles driving on federal roads. It is also hoping that differences between the sector’s players and the Mexican Insurance Commission, which has imposed costs that are considered unnecessary on firms, will be ironed out in the coming years. “Something that will actually help is that the new labor law increases the liabilities of third parties significantly,” said Solí­s Soberón, concluding that, “many individuals will find out that it is a good idea to be insured.” A new insurance law, expected to be implemented sometime in 2014, is also set to implement a new regulatory regime that will lead to greater capital resources and risk management, while also improving transparency and supervision, according to Fitch. However, it warns that a return to aggressive policing policy would have a negative effect on profitability.

AMIS is also working on micro insurance policies, which are a key took in expanding insurance coverage in lower-income communities, possibly spurred on by the rise and success of such products in Brazil. Long-term growth will now rely on public education regarding the benefits of insurance, the development of household incomes, and the introduction of new, innovative products. GDP growth will also be significant in the future success of the sector, which shares its fate with the economic empowerment of the Mexican people.