Latin America has become the region that currently presents the highest financial appeal for insurance companies compared to the global average, encompassing North America and Europe.
According to the Global Insurance Report 2023 by McKinsey & Company, the insurance market in LATAM is valued at USD$174,000 million.
The report indicates that the financial profitability for insurers in Latin America was 22.3% in 2019 and decreased to 16.6% in 2022. Globally, profitability was 10.4% in 2019 and decreased to 8.8% in 2022.
In Europe, insurers’ profitability was 7% in 2022, while in North America it was 8.3% and in Asia it was 10.6%.
The report highlights that the profitability of insurers in LATAM is mainly based on the financial income generated by investments, which help compensate for the relatively limited operational gains in the region.
“Insurance companies can play a key role in the fight against the financial inequality affecting Latin America,” as stated in the McKinsey & Company document.
Despite the global COVID-19 crisis, the insurance sector in LATAM showed remarkable resilience, although margins in 2022 continued to be lower than pre-pandemic levels.
The report also emphasizes that less than 15% of the population in Latin America has life insurance, in contrast to 50% in the United States. In terms of insured vehicle fleets, less than 25% are insured in Latin America, while in the United States the percentage is 70%.
Despite these figures, insurance penetration in LATAM is increasing at a faster pace than in other regions of the world. In 2022, insurance penetration in Latin American markets represented 3.2% of GDP, experiencing a 2.5% increase.
This increase, as detailed in the report, will require insurance products to reach new segments beyond the relatively small group of individual and corporate customers they have traditionally served.
“The growing insurance innovation market (insurtechs) in Latin America comprises more than 460 companies. These companies typically do not compete directly with established insurers but collaborate with them to improve distribution and services,” highlights the report.
In 2022, insurers in Latin America made after-tax profits totaling USD$10,000 million, helping them recover from the impacts of the pandemic. McKinsey & Company points out that Latin Americans have fewer policies compared to their counterparts in the United States.
The Global Insurance Report 2023 also underscores that operational efficiency is a significant challenge for insurers in Latin America, as average expenses, including commissions and administrative costs, are considerably higher than in Europe.
A relevant aspect is that local insurance companies currently dominate the insurance markets in LATAM, especially in the life insurance sector.
Furthermore, reference is made to the emergence of new companies (startups) in the insurance sector backed by investors, adding competition and dynamism to the industry. This could drive innovation and improve operational efficiency.
“This expansion offers consumers a broader range of insurance options, each with its own unique value proposition,” states the document.