More advanced regulators leading to fragmented practices: Mapfre

The role of regulators and supervisors is essential in the new technological and disruptive context of the insurance market, but different levels of advancement are leading to fragmented regulatory and supervisory practices, Ricardo González García of Mapfre told FIDES Today.

García, who serves as director of analysis, sectorial research and regulation at Mapfre Economic Research, explains that regulators should have adequate background and training to be able to assess the risks of these new technologies, otherwise they may be reluctant to facilitate their implementation by regulated entities.

“There is still a long way to go. The regulators who have advanced the most tend to be more open, which is leading to fragmented regulation and supervisory practices. That fragmentation is always detrimental to business development, so it should be prevented,” he adds.

Supranational organisations and technology service providers can play a fundamental role in facilitating access to knowledge, he says, adding that this is also the aim of the financial technology (fintech) hubs and regulatory sandboxes.

The phenomenon of new technological advances applied to financial services has been analysed by various international organisations, says García, with all highlighting the need for regulators and supervisors to deepen their knowledge on this matter.

In its latest strategic plan for 2020–2024, the International Association of Insurance Supervisors (IAIS) named technological innovation as a theme. According to the plan, fintech presents significant opportunities for financial inclusion and policyholder value, but it also poses operational and underwriting risks.

Setbacks
Later this month, Mapfre Economic Research will present its latest report on the Latin American insurance market in 2018. At the FIDES conference, García will be offering attendees a preview into the report in advance of the full version being published.

In 2018, total premium volume in Latin America and the Caribbean amounted to $150.6 billion, a drop of 5.5 percent, compared with growth of 8.6 percent in 2017, according to the report.

In aggregated terms, premiums of the life insurance segment represented 46.6 percent of the total premiums, suffering a setback of -7.2 percent (compared with 9 percent growth in 2017), while non-life insurance premiums accounted for 54.4 percent of the region’s total premiums, falling by 4 percent (compared with 8.2 percent growth in 2017).

“These setbacks have been due, to a large extent, to the effect of the depreciation of some of the Latin American currencies (especially the Argentine peso and the Brazilian real), since most of the insurance markets experienced real growth in their respective currencies,” says García.
Notable exceptions include Argentina and Brazil, with the latter “deepening the fall of its life business, affected by lower interest rates derived from the accommodative monetary policy adopted by the Central Bank of Brazil”.

Exchange rate behaviour, coupled with the economic slowdown of some countries and the impact of various monetary policies, has contributed to a “less dynamic and unequal growth landscape” in the insurance markets of the region, he says.

García adds: “Large economies such as Mexico or Brazil slowed down slightly. Argentina fell into recession, requiring financial assistance from the International Monetary Fund, and the situation of extreme recession in Venezuela deepened.”

Other regions, such as the Andean and Central American countries (with a few exceptions) maintained high economic growth rates, which had a positive effect on their insurance markets.

Regional gross domestic product grew 1 percent in 2018 (1.2 percent in 2017), “reinforcing the idea that the region is facing difficulties to grow in the long term”, says García.

Despite these setbacks, the aggregate net result of the Latin American insurance market in 2018 stood at $12.1 billion, a growth of 35.8 percent over the previous year.

He concludes: “The development of medium and long-term internal savings as a source of stable financing, infrastructure investment and productivity is a task that the region should undertake to accelerate its potential growth.”