Latin America was the world’s second-fastest-growing insurance market in 2019, according to McKinsey. The local market grew by over $73B, split almost evenly between life and non-life policies. Latin America has traditionally been underinsured, as insurance policies have often been considered too costly or unnecessary in emerging markets.
However, technology is making insurance in Latin America more accessible and as the middle-class swells, insurtech is evolving to provide insurance products that can reach the whole population. These solutions use the Internet of Things (IoT) and alternative data to improve risk analysis for the large swaths of the population that have never had access to conventional financial services, including insurance.
Insurtech is a nascent but burgeoning market in Latin America that has the same potential as fintech to both improve lives and be very profitable for investors. Here are five trends we saw in the market in 2019, with a look forward at 2020.
- Insurtechs are crossing borders.
Insurtech startups in Latin America often face the same issue as fintechs: fragmentation. Although Latin America is a 650M-person market, this population is unevenly divided across over two dozen countries, each with its own regulations regarding insurance and finance.
The next frontier for insurtech startups is to gain traction beyond their home market before US insurers reach Latin America. Several companies did so in 2019, including Chile’s ComparaOnline, the Dominican Republic’s Contigo, and even us at Jooycar. As the Latin American insurtech market has become more competitive, a regional strategy will become essential to long-term growth.
2. Connected devices are creating the data insurtechs need.
Latin Americans currently only have an average of two connected devices per person, compared to 11.5 per person in the US. However, that number is rapidly rising and the value of Latin America’s IoT market was expected to reach over $40B this year, representing 4X growth since 2013.
These connected devices are collecting vast amounts of data on their users, all of which can be used to help tech-driven insurers provide more accurate policies. These connections are particularly helpful for Property & Casualty insurance – the fastest-growing category in Latin America – as the connected devices can provide real-time data on risk factors, particularly for auto and property insurance.
We’ve also seen a rise in the adoption of UBI programs. Jooycar’s Pay Per mile Solution is being used by two large insurance companies in Chile and UBI products are also becoming popular in Peru and Brazil. This trend is driving traditional insurers to move into UBI programs to avoid increasing the risk in their portfolio due to the lack of data their competitors are acquiring.
3. Latin America is the second-fastest-growing insurance market after Asia.
The value of Latin America’s insurance market grew 35.8% from 2017 to 2018 and despite some economic instability in the region in Q4 2019, this upward trend is expected to continue through the end of the year. There is still tremendous room for growth in Latin American insurance, and tech companies may have an advantage heading into 2020 as they can reach clients through more streamlined digital channels.
In fact, based on demographics, Latin America’s potential insurance market in 2018 should have reached $404.9B, while in reality, it was worth $150.6B. This gap has allowed insurtechs to surge in 2019, placing Latin America in second place worldwide for insurance market growth.
4. Smartphones help insurers gather evidence.
More than 70% of the population in Latin America now has access to a smartphone that connects them to the Internet and allows them to gather accurate, real-time data on incidents that can help insurers make claims faster. For example, Mexico’s Base Operations provides heat maps and smartphone check-ins to keep employees safe while working abroad.
This kind of rapid, precise data helps insurtechs analyze risk and make better claims based on video and photos, as well as real-time testimonials that can help affected parties take legal action faster. Through 2019, more insurtechs are adopting systems that allow them to communicate with clients electronically to help process claims quickly and accurately.
5. Demand for cybersecurity insurance is on the rise.
While Latin American insurers traditionally protect against physical risks, cyber risk is growing rapidly in the region. In 2018, up to 92% of banks in Latin America were subject to at least one cyberattack; the average loss from each of these events is around $1.9M. Some traditional policies for financial institutions do cover cybercrime, but there is a growing need for insurance that explicitly protects people and institutions from online fraud and theft.
Despite low awareness of cybercrime in Latin American corporations, incidents like the massive data leak in Ecuador in 2019 have driven demand for insurance products that can protect companies from losses stemming from these attacks. For example, Ecuador’s Kriptos analyzes companies’ internal documents to protect confidential information from these costly leaks. The cyber insurance market in Latin America will likely grow through 2020 as corporations become more aware of the cost of losing their valuable data.
2019 has shown the tremendous potential for Latin American insurtechs to bring digital solutions to the region to provide policies for millions of people who are currently uninsured or underinsured. As this market matures, Latin America’s insurtech startups will likely consolidate over the next 5-10 years, providing regional solutions that compete with incumbent insurers who struggle to insure unbanked clients who lack traditional measures of risk. These insurance products will stabilize the local economy over the coming years by making low- and middle-income families less vulnerable to shocks and providing them with additional financial products that help them grow their capital.
Rodrigo Labbé is the CEO of Jooycar, a connected car and insurtech platform for Latin America. He has built an extensive career working in multinational companies like Procter & Gamble, and prior to Jooycar he acted as Head of Marketing for DIRECTV Chile.