Last Wednesday during the Retail Insurance Conference (in Spanish: “Cumbre Internacional de Seguros Masivos”) I had the pleasure of moderating a session panel about “The Future of Retail Insurance in Latin America” with the participation of Hilario Itriago, Director of IT & Operations Latin America for Royal Sun Alliance Group; Felix Chan Head of Science, Commercial Specialty for Chartis Insurance North America; Doyle Ray Oakey Director, Application Solutions – Financial Services Group for CSC and Paul Oudenhoven Vice President of Communication / CMO Latin America for Liberty Mutual Insurance.
The impressive background and experience of the panelists provided the audience with the possibility to look into the most important aspects around retail insurance. As a participant at the conference told me after, “It was great because they were able to summarize the most important things we have been listening during the entire conference!”
The panel covered the current state of retail insurance in the region, the opportunities and threats looking forward and discussed about the key elements and challenges in the path of pursuing this future.
The panelists agreed in 6 key elements and we could not perceive major disagreements, although we did see more emphasis in certain topics depending on the panelist:
1) The market is clearly a strong intermediated market and it will remain like this. In some cases it is because of regulation and a strong culture of intermediation, like Brazil. Even in the US, where Geico and Progressive are the best examples of successful direct insurance companies, the majority of the market remains to be intermediated.
2) Customers propose new ways to interact. Insurers and Intermediaries need to understand and engage accordingly. Segmentation provides a way to understand what products, at what price and using what channels.
3) They could expect consumers to go direct for the purchase of simple products at the beginning of their wealth cycle (when they have less assets and wealth to protect), but would always expect them to need of an advisor as their needs get more complicated (and they advance in their wealth cycle).
4) We have seen new players enter the market, especially in the intermediary side as it is the case of Falabella in Chile, but we can expect this trend to continue and increase. While Google’s move into the space is of their attention, they do not consider it an immediate threat in the Latin American market.
5) Technology is an enabler to pursue this market, along with new ways to imagine the best operational model. Structures and processes to deliver products in the region can be re-imagined through the use of BPO and Shared Services for example and significant budgets need to be invested in IT if you are going to enter the direct insurance market.
6) Detect, educate and retain human capital with the required knowledge and execution capabilities is one of the toughest challenges. While innovation is important they believe that whatever results of it constitutes a competitive advantage difficult to maintain. Instead, the main differentiation can only be achieved by people and discipline in execution.
It was interesting to learn that CSC fosters innovation internally by a special program for its employees to work on innovative projects with impact on their customers. The advantage of CSC is that they are able to protect innovation by means of intellectual property. ClimatEdge™ is a result of this program. It is an innovative new suite of offerings that exploits historical data from sources such as NASA and NOAA to help commodity traders, risk managers and analysts better leverage government satellite, modeling, and earth observation data to minimize risk and make better-informed financial decisions.
In summary, panelists believe that aiming for the 4.2% of insurance penetration (premiums as a % of GDP) as verified in Chile, should be the first goal in terms of growth in the retail insurance market and that a delicate balance between innovation and execution is required while at the same time protecting the business margins. Immediate threats and challenges reside in having the correct skillsets to execute. In a longer term, the outsider players – especially those we still do not know or we are just starting to perceive – and also some technological developments such as the driverless car which could alter the way insurance looks at these risks. Most of them did not perceive threats or an imminent disruption. Significant changes if perceived would take no less than 10 years.
In my opinion, while I agree that changes do not occur overnight – at least not in this industry – we should expect a more accelerated disruption triggered by technology which impacts in consumer behavior and as an enabler of new business models and offerings:
1) Mobiles/smartphones, internet and social media, all of which present higher adoption patterns in the region as compared with the rest of the world, enable new consumer behavior.
2) Outside players, specially those that are more used to serve these new type of customers, will gain importance on the intermediation side but also becoming a threat to insurers eventually.
3) On Demand, Cloud and SaaS are all enablers for smaller and new players to take advantage of technology, that was before only at the reach of bigger insurers, to serve those new segments of consumers.
Traditional players could still have an important role if they do not underestimate this wave of change.