Staying safe

Insurance companies face an intriguing challenge in trying to address Mexico's low insurance penetration rate.

Insurance companies have never had an easy time in Mexico. The country has one of the lowest insurance penetration rates in the Latam region, clocking in at 2.3% of its GDP, according to 2018 OECD numbers. For comparison, the OECD average is 9%, while Chile has a rate of 5% and Brazil has 3.3%. Still, these low numbers represent a welcome challenge for insurers in Mexico, who see it as an opportunity to roll out new strategies to attract potential clients in the underserved market.

The challenge and opportunity for insurance companies lie in exactly the same place: Mexico’s young population. With a population of around 130 million, 65% of whom are under the age of 40, many do not think about the benefits of having insurance until much too late. Another driving factor is the regulation itself: there is no mandatory insurance for Mexico, even for homes, in spite of the fact that the country lies on a major fault line. An even more subtle reason underlies all these challenges: the country’s lack of an insurance culture. This may have a variety of different roots: lack of trust in institutions, lack of knowledge about financial tools (a problem which becomes apparent when looking at Mexico’s large unbanked population), and a preference for holistic, traditional medicines over doctors’ visits.
Funnily enough, however, it is precisely Mexico’s youth that make it stand out for insurance companies. Mario Vela, President and Director general of Prudential Insurance Mexico, speaking to TBY, explained that around 20 million people will enter the workforce in the near future. Furthermore, he went on, “For the millennial generation, retirement will be a hot topic. The reality is such that they will face a loss of income of around 70% upon retirement and will pay a heavy price should they fail to make the right, timely decision.”
To combat this lack of awareness, Prudential is specifically pursuing an expansion by increasing its number of agents: it plans to hire 1,000 agents in 2020, 2,000 agents in 2021, and so on, until it reaches 10,000 agents in one year. The goal is to be Mexico sixth-largest insurer by 2025. To do this, it is offering products that will particularly appeal to millennials and using agents that are the same age of those they are selling to, fighting fire with fire, so to speak.
Meanwhile, Qualitas Seguros, a major auto insurer that serves not only Mexico but the US and Peru as well, is also planning to grow its market share by going to the market, rather than waiting for the market to come. One way to achieve this has been through increasing the number of its branches specifically in small towns. Having these smaller subsidiaries also ties into its low-cost strategy, allowing it to have a wider reach without breaking the bank. Currently, Qualitas insures 50% of Mexico’s truck fleets and has captured around 30% of its auto insurance market.
While approaching potential customers helps in raising awareness about companies, it may not create the shift needed to create the right insurance culture. Rather, companies should continue to focus on education and awareness programs in order to create the right kind of environment for the market to grow. In a 2018 report by EY on Mexico’s insurance market, recommendations are made for fostering an insurance culture, especially through initiatives like early age prevention and mandatory financial education. Furthermore, it states the industry needs to directly address society’s skepticism about the value of buying insurance and create more flexible products at a range of price points.
Another critical actor in this drama is the government itself. Companies should advocate for more regulation that mandates insurance, especially for homes, autos, and high-risk employees, such as miners, founders, and so on. By working from both the top and the bottom, insurers can better help address the needs of Mexico’s uninsured population.