Insurtech: hope in a gloomy world?

As the global economy slows, geopolitical tensions heighten and Amazon rainforest wildfires rage, we still can find some hope in the disruptive world of digitisation, Ingrid Carlou, chief executive officer of Carlou Consulting, told FIDES Today.

The economic optimism of 2018 has been replaced by uncertainty this year, according to Carlou. Economic growth in most of the world is beginning to slow and business confidence is falling, affecting expansion plans and exposure units.

“Geopolitics in general are fraught as the US and China emerge as aggressive rivals in a new Cold War. Will the US devalue the dollar to help exports and bolster its hand in its trade war with China? What would be the implications for Latin America?” asks Carlou.

In the insurance industry, rates in most lines of business are rising and the market is beginning to truly harden for specialty lines such as energy, marine and aviation.

She adds: “This will probably continue, so good times are around the corner for many insurers; however, reinsurance terms are tightening. Latin American insurers will have to drive primary rates higher otherwise their profitability will be squeezed by the higher reinsurance costs.”

Will the adoption of insurtech cause a revolution?
The capital invested in insurtech reached $3.18 billion worldwide in 2018, almost double the $1.65 billion invested in 2017, according to data from the FinTech Global database.

There has been significant growth in Latin America in the formation of startups related to the financial and insurance industries. This growth is estimated to be close to 50 percent in the last 12 months, as reported by Finnovista in its Fintech Radar Report of 2018.

Brazil, Mexico, and Colombia are the leaders in the region regarding the number of fintech and insurtechs created as of June 2018, although insurtechs represent barely 6 percent of the total of the startups in this segment, she adds.

“The growth in Latin America insurtech is logical since insurance plays a vital role in stabilising emerging economies and minimising risk,” says Carlou.

She notes: “Latin America is generally under-penetrated and underinsured, despite steadily growing incomes over the past two decades. Currently, insurance penetration is between 2 and 4 percent across the region. Latin America remains behind the rest of the world in insurance coverage with the exception of some parts of Asia and Africa.”

A solution for underinsurance?
Carlou believes that insurtech companies are not trying to disrupt the insurance industry, but are instead developing innovative products and solutions to improve the value that traditional players provide to their clients. This is particularly true in areas such as policy issuance and claims processing, as well as gaining insights from data and analytics.

“Insurers are beginning to watch the tech industry with a mixture of interest and concern even though many experts consider that an insurance revolution in Latin America is some years away.

“Unfortunately, the low level of financial inclusion combined with high economic inequality continues to exclude a portion of the Latin American population from insurance policies,” she adds.

According to Carlou, who previously served as chief executive officer of Patria Re, explains that there’s still space to innovate and provide more targeted products to this underserved market.

She says: “There’s room to deliver insurance products to people who are not currently in the market, including the emerging middle class, where small payouts for life insurance, car insurance and others can mean the difference between slipping back into poverty and staying in the middle class.

“Where micro insurance did not have such a large impact, could insurtech prevail?”

Technology could be a significant driver of improved insurance penetration in Latin America, says Carlou, if insurers use developments to provide more tailored products to their customers, and if regional governments cooperate with regulations.

“Insurtech must be seen as a significant potential tool to bring improved insurance outcomes and increased economic stability to Latin America,” she concludes.