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There is the widely held view that the insurance sector in emerging markets depends upon political stability and steady economic, plus a rising middle class. Since the 2016 peace accord with FARC, the country has become more investor-friendly. And in the 2011-2017 period, the economy saw average annual growth of 3.8%, notably outperforming the Latin American and Caribbean (LAC) average of 1.7%. Meanwhile, by 2015 the country had 3.2 million middle-class households, at 24.2% of the total. And thus far, Colombia ticks all of those boxes.

Inclusion and Penetration
While LAC account for just 3.1% of global insurance premiums, the region’s population, at north of 652 million, comprises 8.6% of the world’s population. Insurance sector growth is part and parcel of overall financial sector performance, and a moreover a barometer of public tendency for saving. Financial inclusion is a pressing issue in EMs to bring the vast informal economy into the taxable light. Financial education is one pillar of the issue, and insurers are more aware of talking to specific customer segments. Fintech, too, is a tool for inclusivity, especially for microfinance and insurance, in an alternative to brick and mortar financial institutions. Moreover, financial inclusion also creates sustainable social welfare and long-term financial planning. Penetration is measured as a ratio of premiums/GDP. The developed market average penetration rate was 8%, while that of LATAM countries was 3.1%, shy of the EM average of 3.9% as of 2016. Colombia’s rate was 2.8%. In a TBY interview, Jose Luis Plana, President and CEO of AON, comments on the social cost of inadequate insurance coverage, but sees much potential for sector-wide growth. “There is a huge opportunity in terms of the insurance market, first because our penetration is small, and second because our share in the economy is less than 2%.”
Colombia registered 36th position on the Multidimensional Index for Financial Inclusion out of 137 countries. Economic diversification, such as the country is pursuing, has as a consequence a more competitive and larger pool of employment that fosters financial inclusivity. Yet life insurance penetration is hampered by prevailing low wages and the unregistered economy where a large percentage of the workforce has no insurance coverage at all. Many perceive insurance as an intangible not worth spending on today, which, again, is why the mass marketing approach is dead in the water.

Crowded Market
And certainly Colombia has no shortage of insurers, with 48 firms vying for business as of 2017 by Superintendencia Financiera de Colombia (SFC) data. Most local firms are the insurance arms of financial conglomerates, and one might even speculate over eventual mergers in a crowded pond, even as new firms arrive. In the spring of 2018, London-based United Insurance Brokers (UIB) established its new retail insurance firm UIB Seguros, expanding its South American footprint under the UIB Colombia brand. Citing Colombia’s impressive economic tendencies, the firm said it was geared to winning business from “larger public-sector tendered business (likely) to generate reinsurance placements opportunities.” Indeed, prospective state infrastructural investments to render the economy more competitive will spur commercial insurance premium growth. At the other end of the social scale, penetration appears low as some wealthier citizens purchase insurance coverage abroad, since legislation permits foreign insurers to offer coverage within Colombian territory.

Small is Beautiful
Colombia’s national policy for financial inclusion promotes the spread of micro insurance (MI); indeed, the country boasts the highest MI coverage ratio in South America (14.6% as of 2013). A study of the Micro Insurance Network indicates that life, credit life, and PA dominate the MI arena, although there has also been experimental momentum in the agricultural sector. Late in 2018, Nespresso partnered Blue Marble Microinsurance for a pilot weather index insurance program aimed at Colombia’s smallholder coffee growers. The region is susceptible to extreme weather events, the bane of farmers, and a major supply chain risk. The scheme set out with 1,975 participating farmer covering 5,724ha of the Aguadas and Norte de Caldas cooperatives in Caldas.

Bluntly put, insurance penetration ultimately rises where people or businesses feel they have too much to lose and once their personal finances allow for consideration of the longer term. It is essential for financial literacy to erode the barrier to financial inclusion, supported by a national strategy geared toward greater inclusivity.