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Latin America's largest insurance industry could see double-digit growth this year on the back of the recovering economy.
After suffering a severe recession in 2015-16, Brazil's economy grew an estimated 1% last year and is forecast by the finance ministry to expand around 3% this year.
An improving labor market is also a positive factor for the growth prospects of the local insurance industry, while low interest rates are pressuring profitability.
BNamericas interviewed Alexandre Camillo, president of São Paulo insurance broker union Sincor-SP, about the current state of Brazil's insurance sector and the trends and challenges facing insurers in this market.
BNamericas: What is your outlook for the Brazilian insurance industry this year?
Camillo: There is a very positive expectation for this year. Regardless of all the political turbulence, the insurance industry has advanced in the last four years.
It is true that before the recession we used to grow in the 10-15% range annually in terms of premiums. In 2017, the premiums grew approximately 8% so that is not that much to celebrate.
I believe that in 2018, due to the resumption of economic growth and fiscal reform, we will have an insurance market that is set to generate double-digit growth. We should see premiums this year expanding by at least 10%.
BNamericas: Which segments will drive the recovery?
Camillo: There are some insurance segments that will perform very well.
The improvement of the labor market should contribute to growth in the health insurance segment. In the past few years, with unemployment levels increasing, the health area lost many beneficiaries. Meanwhile, the reduction of the Selic [base] rate is likely to give a boost to the vehicle industry. I expect an increase in the sale of vehicles and this will be positive for vehicle insurers as well, which is a very important segment for the [insurance] sector.
In addition, businesses are resuming their investments in new machinery so we will also see stronger demand for property insurance that is linked with the protection of industrial machines.
The infrastructure area should also see more demand for surety coverage since it will be a required feature by the government at future tenders. With surety insurance, insurers become monitoring agents of the projects and this could lead to a reduction in corruption.
In general, the economic recovery will have a positive effect on the entire chain of insurance.
BNamericas: Speaking of the vehicles segment, what is your expectation for the low-income auto insurance product?
Camillo: The product, known here as seguro auto popular, has been under development for some time and aims to serve a market of older vehicles. Currently in Brazil, we have a fleet of insured vehicles of between 8mn and 10mn units. With the low-income insurance product an additional 3-5mn vehicles can join the universe of insured vehicles.
This will open up an important market for insurers.
BNamericas: Due to the rise in crime and violence in some states, insurers have sometimes refused to sell cargo insurance. What is your view on this issue?
Camillo: In the insurance business we have a rule that everything can be insured. However, in certain cases the price level makes a product unfeasible. For example, if your goods are worth 10 reais and you need to spend 8 reais on [insurance] protection, then it is not feasible.
In some places in the country, such as the metropolitan area of Rio de Janeiro, the cost is so high that it is not worth it for a company to insure their cargo.
Public security is a complicated issue and it is a very regrettable situation. I think this year, with the election of new governors, things will likely get better. Even though some states have fiscal challenges, a new government always comes in with more vigor and new ideas, which makes fighting crime more likely.
The current situation in Rio de Janeiro can be considered chaotic.
In São Paulo there are some cargo products, such as food, beverages and cigarettes, where there are difficulties to obtain insurance, especially in the metropolitan area of São Paulo because of the high level of robberies.
BNamericas: Some insurance companies have seen a reduction in profits due to the low level of interest rates in Brazil. Do you believe insurers can offset lower financial gains with an increase in prices?
Camillo: We have already seen this effect. For example, the fleet of vehicles in Brazil has not increased in recent years despite the fact that premiums have increased. This happened because of re-pricing.
It is a paradox for insurers. When you have large financial gains you tend to be more relaxed on the operational side. Now, with lower gains from financial investments, companies need to improve their service and have more attractive products in order to gain more customers.
Insurers will have to reinvent themselves to meet the needs of customers; they will have to sell more and better. This is the positive side of the coin and I am sure insurers are already re-positioning and reviewing their strategies to be prepared for this scenario.
BNamericas: Several anti-corruption investigations have led to an increase in demand for D&O insurance, which is a segment in Brazil that is dominated by foreign companies. Should local insurers focus more on this segment?
Camillo: We already see stronger interest in the D&O segment from local insurers because they and their brokers know this product better now.
Demand will continue to grow as a more managers and those in charge of companies look for this type of coverage.
BNamericas: What is the impact of technology on insurance companies and brokers?
Camillo: The use of technology gives more power to consumers.
We used to talk about consumer rights before, but that was somehow neglected.
Now, consumers have the power to choose the product, not the seller, because there are several tools for consultation, available at any time of the day.
For the brokers, I do not believe that technology will produce a reduction in the number of brokers as happened in the banking industry.
Insurance is a particular industry because you have several personal issues related to an insurance contract, which in turn demand a service that is personalized.
I do think technology provides many opportunities for the industry. In the case of Brazil, technology can help develop many areas that are still little explored.
About Alexandre Camillo
Alexandre Camillo has worked in the insurance industry for almost 40 years.
Camillo began working at Itaú Seguros at the age of 19 and later became a commercial manager for São Paulo. He started his own insurance brokerage, Camillo Corretora de Seguros, in 1990.