Bloomberg Línea — Latin America has remained apart from the high market penetration by insurance companies in other parts of the world amid its constant financial crises, low purchasing power and a lack of financial education and savings capacity across the region.
However, the low take-up of health insurance specifically could begin to change as a result of the Covid-19 pandemic, and which continues two years since its outbreak.
The insurance market in the region suffered an 11.9% decline in premiums in 2020, to $134.3 billion, of which 57% comprised non-life insurance and 43% life insurance, as the region’s GDP and currencies weakened, according to the latest report from Mapfre Economics. Latin America’s participation in the global insurance sector declined further to 2.1%, way below the OECD country average of 8.9%.
Chile was the market most severely affected, with a decline of 15.3%, followed by Ecuador ( down 5.3%), Mexico (3.1%), Peru (2.4%) and Brazil, with a decline of 2%.
In contrast, and according to Swiss Re Institute, the industry showed more resilience to Covid-19 than expected, with the World Bank forecasting regional GDP growth of 6.3% this year.
The most recent report by the risk analysis firm estimates a 7.5% growth in real premiums for the region in 2021, 4.4% for 2022 and 3.5% for 2023, driven by the increase in premiums for health and life insurance, which are seen increasing by 3.6%. The Swiss Re Institute said “the profitability of insurance is backed by a greater awareness of risk in the life and non-life insurance segments as a result of the pandemic”.
“Whenever there is a catastrophe, it touches customers’ sensibility. When the earthquake struck, people started to insure their homes, now with Covid-19 we also saw an upturn in insurance policy buying, and above all in the search for accessible solutions that would provide protection and help in case of contagion, and what the market did was to look at how to provide this type of coverage and support,” said Luis Márquez, deputy director of solutions at Seguros SURA Mexico, in an interview with Bloomberg Línea.
Puerto Rico (which does not belong to the OECD) is the country with the highest insurance penetration rate in Latin America. Its insurance market accelerated its growth trend as of 2015, driven by non-life policies, as the volume of premiums in this market includes health insurance for the low-income population, which is managed by the private sector and financed by the government budget.
In 2020, the country’s insurance sector recorded 13.7% growth, to $16.07 billion in premiums due to strong activity in the health insurance segment, according to Mapfre Economics.
According to Seguros Sura, Chile, Uruguay and Brazil have consolidated their position in Latin America as the countries with the highest penetration of the sector in terms of premiums as a percentage of GDP. “However, they are far from the peaks reached by developed economies such as South Korea, the United Kingdom or Japan,” the company says.
In Chile’s mixed health system, 14.8 million people are beneficiaries of Fonasa, the public health agency, while 3.3 million people are affiliated with private health insurers.
In Argentina, private medical companies have 6.3 million affiliates, meaning that just over 7% of the population have private medical coverage.
In Brazil meanwhile, companies tend to offer health and pension plans to their employees, which may be deductible as an operating expense, for the benefit of their workers. Nearly 25% of Brazilians, but mostly middle- and high-income earners, have private health insurance, according to The Commonwealth Fund.
Covid-19, the Most Expensive Event
In Mexico, with 120 million inhabitants, the Covid-19 pandemic already ranks first on the list of the most costly events for insurers, with $2.52 billion in payouts, according to information from the country’s association of insurance companies (AMIS).
The industry saw a solid rebound in demand for health insurance in the wake of the Covid crisis. The primary challenge now is to retain the people who signed up for their first policy so that they do not drop out once the pandemic is over, and at a time when most countries are reopening their economies.
“During this pandemic, it was very interesting how there were people who accessed medical insurance for the first time. There was a segment that dared to become aware and allocate part of their pocket to be protected,” according to Márquez, who explained that the increase in demand was also due to the fear of not being able to receive adequate medical attention in the saturated social security system, and a shortage of medicines, as was the case in Mexico.
The great challenge ahead is “to see how we can win the hearts of those people who have given their trust, and see how we can retain them, so that it is not an occasion sale and that they are not only motivated by the fear caused by the pandemic”, he added.
Only nine out of 100 people in Mexico, 9% of the population, have health insurance, according to official data.
According to the Márquez, the age group that showed the greatest growth in the acquisition of insurance policies was between 28 and 35 or 40 years of age. “The segment in which people are productive, and which is beginning to have a certain purchasing power to be able to worry about it and can pay for it”.
A person of approximately 30 years of age in Mexico, for example, must pay the equivalent of about $23.80 per month for coverage of this type, and which provides the insured amount of $47,607 with a service called Ala Azul. While for insurance that raises the payout to $714,108, a person must pay an amount of $31 per month for the Ala Azul Plus policy.
In Colombia, the Covid-19 pandemic has spurred the largest amount of claims in the history of insurance in the country where, between January and August 2021, companies paid out $2.82 billion to their policyholders across all policies.
About 4.7 million people have voluntary health plans, which represents 0.6% of GDP, and 8.2% of the country’s health expenditure, according to a study by the federation of Colombian insurers (Fasecolda) and the Colombian association of health companies.
One feature that influences insurance penetration in Colombia is the existence of permanent insurance policies that are renewed for more than five years, and which are well positioned in that country.
The Evolution of the ‘Health’ Concept in the Insurance Industry
Márquez said that Sura Mexico is currently focusing on a prevention approach to accompany policyholders in matters of nutrition, psychology and dentistry, among other “care issues that were traditionally considered prevention, and therefore were not offered by health insurance policies”.
The insurance company seeks to address the everyday ailments of the population that may be linked to factors such as poor diet, habits or sociodemographic issues through its preventive approach in a bid to slow down the progress of certain diseases.
“We believe that it will always be more efficient to focus on prevention than to pay claims once the condition has already deteriorated,” Márquez said.
In the Covid-19 era, psychological assistance in Mexico has been “undoubtedly one of the services that was best given via telephone. This occurred mainly at patients’ ages at which the subject of mental health is no longer a taboo, younger ages with other capacities and a different vision, and of being able to understand the needs of mental health”.
In Chile meanwhile, of the total number of medical licenses processed in 2020, most were focused on mental disorders, representing 28.7% of the total, followed by muscle and bone diseases, with 17.4%, and Covid-19 licenses, according to a report by the country’s health authorities, the social security agency (Suseso) and Fonasa.
According to Márquez, the priority is to reformulate the concept of “health” as it is traditionally handled in the insurance industry in Mexico. “We call the policies medical insurance for major expenditure, and even the name sounds strange. We talk about our solutions being health solutions because what I don’t want is to only be there when you are already sick, or when you are already in the hospital,” he said.
The goal “is to prevent people from reaching that point, but rather how to protect and take care of them to preserve their health and not just show up until the last moment, and that obviously impacts on physical and mental health, which we are seeing is quite a complex problem,” he said. “We want to remove the labels (from the issue of mental health) and include it as a benefit and basic coverage”.
What Are the Costs of Not Having Health Coverage?
Heavy costs can crop up at any time. Regarding the cost of Covid-19 care in a private hospital, the average bill in Mexico is approximately 200,000 pesos ($9,521) as a conservative estimate. And added to the monetary cost is the anguish and uncertainty of being able to face additional expenses for rehabilitation, medication and attending to possible consequences, among other expenses.
Among the bases for promoting a culture of take-up of such policies without there being a catastrophe such as a pandemic are digitization, ease of collecting payments, long-term alliances with hospitals, a close network of collaborators, coverage for catastrophic diseases such as neurological issues and cancer, unlimited co-insurance, and the deductible operating as a franchise.
The pandemic led to digitization. Research by Swiss Re found that the pandemic transformed consumers’ receptiveness to interacting with insurance companies digitally, which points to a potential for growth.
The insurance market then shifted toward a new dynamic with its customers in the face of the current challenges, and insurers accelerated their innovation processes by launching 100% digital contracting of policies, and by developing apps and remote assistance.
“The market is always competitive,” according to Márquez, “and we are looking to see how we can deliver different values in the current context. “The reality is that concepts such as telemedicine, remote consultations and home delivery of medicines have been something that the sector has been working hard on”. The insurance industry, he adds, “is focused on resolving the issues of time and processes so that the provision of services is much more agile”.