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April 22, 2013updated 28 Jul 2022 6:18am

Life Insurance in Venezuela – Balancing growth opportunities with regulatory uncertainty

The life insurance segment accounts only for a 3.5% share of the Venezuelan insurance industry offering huge potential for market players that can endure the tight local regulatory environment, according to the report Life Insurance in Venezuela, Key Trends and Opportunities to 2016, available on the Insurance Intelligence Center.

By Verdict Staff

Insurance industry attractiveness

The Venezuelan insurance industry has one of the highest levels of premium penetration in Latin America. In 2011, this stood at 4.4%, compared to 1.6% in Peru, 2.5% in Argentina, 4% in Chile and 2.4% in Colombia. The industry was led by the non-life segment during the 2007-2011 period, with this sector accounting for a 48.7% share of gross written premium in 2011. The personal accident and health segment accounted for 47.8% while life insurance represented only 3.5% of the market.

Despite the country’s volatile political and economic conditions, the insurance industry grew from VEF15.5 billion (US$7.2 billion) in 2007 to VEF46.6 billion (US$10.9 billion) in 2011 at a CAGR of 31.8%. Personal accident and health was the fastest growing line of business, expanding at a CAGR of 33.9%. Over the same period, non-life insurance -the largest segment in the market-, increased at a CAGR of 29.8%.

Overall, the expansion of the industry was driven by rising vehicle prices (which promoted the expansion of the motor insurance segment) and high demand for private health insurance (as a result of the weak public health system). These two categories together accounted for more than 80% of the overall industry in 2011.

The insurance industry in Venezuela is highly concentrated, with the top 10 insurers having a combined market share of 70%. There are 50 companies serving the three primary insurance segments. Five of these companies operate exclusively in the non-life insurance segment while two operate solely in the life segment. The remaining 43 are composite in nature.

The Venezuelan insurance industry is regulated by the Superintendencia de la Actividad Aseguradora (Sudeseg, the Superintendency of Insurance). Since the implementation of the Insurance Activity Act in 2010, the Government has taken more control over premium costs and commissions and is further scrutinizing the commercial practices of insurance companies and brokers. The act has given more authority to governing bodies, enabling them to intervene directly in the industry and as a result, foreign investment in the sector remains limited.

Overall, the Venezuelan insurance industry is projected to grow in the coming years. High oil prices are expected to contribute to economic growth while increased public health care spending along with the expansion of the automobile market will sustain the development of the insurance sector. Increased cover for serious illness as a result of the new insurance law is also expected to support industry’s growth. Finally, the country’s high inflation levels will reflect in higher nominal growth rates of premiums.

Segment Outlook

The Venezuelan life insurance segment is mainly supported by savings products. Insurance companies typically provide life insurance as an additional benefit with other financial products. This stems from the general Venezuelan culture and low purchasing power that do not encourage consumers to invest in life insurance. Other barriers for the development of the sector include the lack of private pension funds and constant inflationary and devaluation threats to the amounts insured.

As a result, life insurance is the most underdeveloped segment of all the insurance market, with a 3.5% share of the total industry’s premium. The negligible life insurance penetration, standing at 0.13% of GDP in 2011, suggests that very few households seek coverage for life risk in Venezuela.

Despite its low weight on total insurance, the segment’s gross written premiums have increased rapidly from VEF537.1 million (US$250.7 million) in 2007 to VEF1.62 billion (US$376.7 million) in 2011 at a CAGR of 31.7%, partly driven by high inflation.

In terms of the competitive landscape, life insurance displays a high concentration (in line with the overall market) with the 10 leading life insurers accounting for 81.9% of the overall segment in 2011, in terms of gross written premium. Seguros Horizonte CA led the life segment with a market share of 13.3% followed by Zurich SA Seguros with 13.2% and Seguros la Fe CA with 12.6%.

Despite the cultural and economic factors discouraging the growth of the life insurance industry, the signs of recovery in disposable income and Venezuela’s real GDP, with predictions to grow at 4.5% in 2013, will support the expansion of the life segment in the coming years. The young and rapidly growing population of Venezuela is expected to play a vital role in the growth of life insurance in the medium and long term.

Life expectancy is expected to increase from 74 years in 2011 to 75 years in 2016, which will also have a marginal influence on the overall growth of life insurance in the country. With a large number of low-income families, and a significant proportion of population above 65 years of age (5.4% in 2011), mandatory insurance such as funeral insurance will continue to drive growth in the individual life sub-segment.

? Distribution channels

The Venezuelan insurance industry’s distribution network predominantly comprises insurance brokers, agencies, direct marketing, bancassurance and other distribution channels. Insurance brokers dominate insurance distribution, followed by agencies and direct marketing. The clear primacy of insurance brokers in the non-life and personal accident and health segments makes it the leading distribution channel. Insurance brokers accounted for 61.4% of the overall distribution of Venezuelan insurance in 2011, followed by agencies with 23.0% and direct marketing with 8.4%, in terms of new business written premium.

In the life segment, agencies accounted for 46.9% in 2011 in terms of new business written premium, followed by brokers with 32.6%. In the non-life segment, insurance brokers led with 69.1%, followed by agencies with 16.6%, whereas the personal accident and health insurance segment was led by insurance brokers with 54.5%, followed by agencies with 28.7%. During the 2007-2011 period, direct marketing and insurance brokers registered declines in their shares, whereas other channels registered growth in terms of new business written premium.

The Venezuelan life segment’s distribution network is predominantly made up of agencies, insurance brokers, direct marketing and bancassurance. Agencies are the leading distribution channel in the segment, followed by insurance brokers and bancassurance. Both channels increased their shares during the 2007-2011 period, with agencies increasing from 46.2% in 2007 to 46.9% in 2011 in terms of new business written premium, whereas direct marketing registered a decline. Agencies’ large networks and efficient sales forces provide support to customers when purchasing insurance.

Insurance brokers were the second-largest distribution channel in Venezuela in terms of distributing new life insurance policies in the country, largely due to their long-standing and strong social credibility. During the 2007 – 2011 period, the market share of insurance brokers in terms of new business written premium increased from 32.3% in 2007 to 32.6% in 2011. However, the growth of bancassurance and the entry of multinational insurance companies are expected to reduce insurance brokers’ share over the 2012-2016 period to 31.6% in 2016.

Bancassurance accounted for the fourth-largest share of the Venezuelan life insurance segment. The development of alternative distribution channels to reduce the cost of commission expenses has driven the growth of bancassurance in the country.

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