Speaking at a Lloyd’s “Meet the Market” event in Miami on 14 February 2018, Carnegie-Brown explained how a combination of low insurance penetration and economic growth should create the conditions for strong demand for insurance in Latin America over the coming years.
However “there is one barrier that could stop this future in its tracks”, he said. “And that is protectionism”.
“Insurance works best when risk and capital can flow freely across borders. Protectionist trade barriers reduce capacity, competition and customer choice and at the same time drive up reinsurance costs over the long term.”
Analysts predict that by 2030, the “Emerging 7” or E7 economies (China, India, Brazil, Mexico, Russia, Indonesia and Turkey) will be larger than those of the G7. According to these estimates, Mexico’s economy could be larger than the UK’s in just 15 years.
Referring to this growing economic clout Carnegie-Brown noted that “Latin America has one of the lowest levels of insurance penetration in the world”. Non-life insurance penetration in Latin America is just 1.8%, he said.
Low insurance penetration combined with a growing desire to protect high value assets in a region prone to natural disasters would lead to growing demand for insurance, added Carnegie-Brown, particularly specialist lines like energy, marine aviation, property and casualty.
Research from McKinsey, the management consultancy, has estimated that Asia and Latin America will represent 37% of the global property and casualty (P&C) market in 2020.
In order to realise this vision, the Lloyd’s chairman urged the insurance sector to demonstrate the value of what it does. “A 1% rise in insurance penetration translates into a 13% reduction in uninsured losses, a 22% reduction in the taxpayers’ contribution following a disaster, and increased investment equivalent to 2% of national GDP,” he said.
“This is a valuable contribution to society and we have to find a way to tell this story in a more compelling way. Insurers are not as successful as we should be in persuading people that insurance is an essential service with a huge contribution to make. Too often we are seen only as an unnecessary cost.”
Turning to some of the other challenges facing re/insurers, including high operating expenses and a lag between products being developed and new risks emerging, Carnegie-Brown explained how the sector is evolving to address these.
Access to more data and better risk information, he said, enables underwriters to price policies more accurately and tailor them more closely to meet customer needs. By embracing digitisation the sector can improve efficiency, he said, helping brokers offer a greater range of services while policyholders will benefit from better customer service, more bespoke policies and faster claims payments.
Meanwhile new techniques and technologies mean “we can compete with and beat the disruptors”. Change is needed, he said, and “to ensure success in the future we have to think about how we achieve it today”.