Industry Attractiveness
Insurance penetration as a percentage of GDP was low in 2012, hovering between 3% and 4%. In the presence of the above-mentioned growth drivers, the Brazilian insurance industry is expected to become one of the top 10 in the world by 2020. The industry is dominated by private banks who own and control the leading insurance companies. Itau Unibanco, Banco Bradesco and Banco doBrasil are the three leading banks in the country that also carry out insurance business. These three banks accounted for around 65% of the insurance industry in terms of assets. In the life insurance segment, six out of the top 10 insurers are part of banks, while for the non-life segment, the four leading bank-related insurers accounted for around 45% of the market share.
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In terms of market size, the Brazilian insurance industry was the 17th largest in the world in 2011. Government spending on major infrastructure projects in response to the 2014 FIFA World Cup and 2016 Summer Olympics is expected to drive the country’s property insurance, which will drive the non-life segment. The Brazilian insurance industry’s total premium income valued BRL156.93 billion (US$80.78 billion) in 2012, with the life insurance segment leading the industry with a market share of 56.2%, followed by non-life with 30.4% and personal accident and health with 13.4%. Industry growth was driven by pension products, which accounted for 43.3% of total industry premiums. The premium income from these products recorded a growth rate of 124% between 2008 and 2012.
The Brazilian insurance industry is in a development phase. Insurers in the country do not cover all risks, offering opportunities for existing and potential new entrants to explore. Brazil’s position as a less risky market with a lower volume of claims made led to lower premiums being charged in the motor, property and personal accident categories. Non-life insurers’ focus has shifted from motor and property cover towards more specialised lines of business such as agriculture, professional liability and credit.
The liberalisation of the industry had a significant impact on its structure and competitive landscape, leading to strategic alliances and acquisitions of independent Brazilian insurers by foreign and local private banks. For example, in September 2011, Scor Global P&C formed a joint venture with Mutuelle des Architectes Français Assurances; while in August 2008, Banco do Brasil acquired a 30% equity stake in Aliança do Brasil for BRL$670 million (US$673.3 million).
Transactions such as these indicate increasing competition in the industry, driven by the entry and expansion of foreign insurance companies.
Improved economic growth is expected to support growth in the Brazilian insurance industry over the coming years. Additionally, the key drivers for increases in average disposable income, such as appreciating currency, government efforts to provide access to banking to low-income groups, a growing middle-class population, and increased exports of natural resources, are also expected to support growth in the industry.
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By GlobalDataThe low insurance penetration in the country is expected to provide insurers with opportunities for expansion. Construction activity and new employment opportunities will also create opportunities such as growth in written premium business, in the Brazilian insurance industry.
Segment Outlook
The Brazilian life segment grew at a CAGR of 20.6% between 2008 and 2012, driven by economic improvements and increases in the middle class population, disposable income and demand for deferred annuity products. The life segment has contributed around 60% of the total Latin American life insurance premium between 2008 and 2012. However, a major share of this premium was generated by the affluent population; with around 90% of the total population remaining uninsured. The presence of such a large uninsured population creates opportunities for insurers to expand.
Pension and annuity products dominated the life segment in 2012. Annuity products such as VGBL (vida gerador de beneficio livre) and PGBL (plano gerador de beneficio livre) performed well due to the relatively low associated risks. The life insurance segment accounted for the highest market share of the country’s industry in 2012 with 56.2%, and VGBL and PGBL products accounted for around two-thirds of the segment in terms of gross written premium.
Life insurance companies primarily sold traditional individual life insurance products between 2008 and 2012 and growth in the segment was driven by sales of pension products, which generated BRL67.9 billion (US$34.9 billion) in premium income and held a 77.0% share of the overall segment in 2012. The changing priority among Brazilians from protecting goods such as automobiles to life protection or financial planning is expected to increase the penetration of life insurance in the country. Considering these changing priorities, life insurers should concentrate on creating low-cost products.
Significant growth opportunities exist in the industry as more than 60% of the employed insurable population remains untapped. With 30% of the population below the poverty line, life insurers will target low-income groups by offering low-premium micro insurance products. Government legislation to promote micro insurance by providing subsidies to low-income groups will lead to growth in the segment. However, the major challenge will be for long-term life insurance products which are characterized by high payments and volatility.
The life segment will be driven by regulatory changes that will further liberalize the market and lead to the increased presence of foreign participants. The presence of more foreign companies is expected to create a price war as companies promote their products in order to remain competitive. The expansion and opening of new branches of private companies in urban areas is expected to increase the penetration level. Growth in the segment will also be driven by the popularity of the bancassurance channel, the increasing number of credit card and public utility companies providing products and services, the expected popularity of VGBL and PGBL products and new product development.
The life segment is highly regulated. In October 2011, the insurance regulator, SUSEP, fined National Western Life, a life insurance company, US$6.2 billion for selling life insurance and annuities without a license. This step increased consumer confidence in the industry.
Distribution Channel
Bancassurance was the leading distribution channel for life insurance and pension products in 2012, with the country’s largest banks dominating the segment. The channel’s growth was driven by the banks’ strong competitive advantage, with their network of agencies and client relationships allowing them to offer products across all markets. Bradesco was the leader in terms of product sales through this channel. Bancassurance is expected to drive growth in the industry as more people gain access to formal banking channels, improvements in the country’s economy are made and bank branches expand. The channel is expected to increase its market share from 55.5% in 2012 to 56.2% in 2017.
Insurance brokers emerged as the second-largest distribution channel for life insurance products. Brokers cover a wide proportion of the population through its branches and offer brand trust, a ready-made sales force, easy premium collection via their sales networks, and efficient administration through integrated management information systems. The market share of brokers is expected to decline marginally over the next four years from 14.8% in 2012 to 14.2% in 2017, as bancassurance is expected to increase its share.
The third-largest distribution channel is insurance agencies, followed by direct marketing. The large network of agencies encouraged insurers to sell their products through such channels. Meanwhile, the minimal expenditure on commission and administrative expenses in direct marketing drove growth in this channel.
In order to be successful and compete effectively in the industry, Brazilian life insurers should keep their marketing and distribution costs low, offer niche products and distribute products through innovative channels. For instance, Sinaf Seguros deals in door-to-door sales of funeral policies while QBE Brasil Seguros S.A. specializes in affinity distribution.
Alternative channels of distribution such as retailers are also growing in popularity. Partnering with retailers provides life insurance companies with access to established distribution networks. Retailers accounted for 4.02% of the overall life insurance new business written premium in 2012 and this is expected to reach 4.84% in 2017.
Key Industry Trends and Drivers
Strong economic growth
Brazil is one of the world’s fastest-growing emerging economies and has large manufacturing, service and agricultural industries. According to the International Monetary Fund (IMF), the Brazilian economy is expected to experience strong GDP growth rates at 2.5% in 2013 and 6.8% in 2014. During 2014-2017, the economy is expected to grow at an average rate of 6%. Life insurance premiums increased at twice the rate of Brazil’s nominal GDP growth between 2008 and 2012 and this trend is expected to continue.
Growth of middle class population
An increase in the middle class population is expected to drive growth in the life insurance segment. During 2003-2009, the middle class population in the Latin American region rose by 50%. Brazil accounted for 40% of this increase, driven by government initiatives to reduce poverty, generate new employment opportunities and better educate the workforce. Growth in the middle class population indicates a significant increase in per capita disposable income (PCADI), encouraging more people to take out life insurance products. PCADI in Brazil grew from BRL15,654.4 (US$8,722.6) in 2008 to BRL22,438.2 (US$11,551.2) in 2012. It is estimated to reach US$29,447.6 (US$15,159.6) in 2017.
Rapid expansion of the bancassurance channel
The life segment is dominated by private banks and their insurance subsidiaries. Bancassurance is expected to drive growth in the industry as more people gain access to formal banking channels. New business generated through bancassurance increased from BRL10.7 billion (US$5.97 billion) in 2008 to BRL19.6 billion (US$10.1 billion) in 2012, at a CAGR of 16.3%. This is expected to increase to BRL32.2 billion (US$16.6 billion) in 2017, at a CAGR of 10.4%.
Macroeconomic stability leading to an increase in household spending power
Low inflation and steady interest rates led to an increase in wealth creation and household financial savings, especially for the middle-class population, leading to growth in life insurance products. The inflation rate, which was recorded at 5.4% in 2012, is expected to grow at an average of 4.5% until 2017.
Rising penetration for insurance products
Insurance penetration in Brazil increased from 2.9% in 2008 to 3.5% in 2012. Insurance products have traditionally been targeted at the wealthiest 10% of the Brazilian population, but the fall in inflation and an increase in the middle class population led to an improvement in income distribution, allowing insurance companies to market to a further 30% of the population.
The penetration level for life insurance is expected to increase further as private life insurers expand their operations. Other factors that will contribute to this increase are the increased awareness of the benefits of life insurance among the insurable population, and an increase in the number of insurance plans catering to different target groups. In the presence of such factors, the life insurance penetration in Brazil is expected to increase from 2.0% in 2012 to 2.4% in 2017.
Tax incentives for life insurance products
The Brazilian government facilitated the expansion of the life insurance segment by amending pension regulations and promoting life annuity products. Investing in such products made individuals eligible for tax exemptions. The increasing popularity of individual VGBL, a deferred annuity product, drove growth in the segment. This was because of the tax incentives offered during the investment stage, allowing life insurance providers to offer interest-free payments.
Increase in life expectancy
According to the Brazilian Institute of Geography and Statistics (IBGE), the average life expectancy in Brazil increased from 73.17 years in 2009 to 74.08 years in 2011. Life expectancy is used to calculate the premium paid by the policyholder when purchasing a life insurance policy. As life expectancy increases, so does the premium charged.
Demographic dividend
Brazil had a population of 199.3 million in 2012, making it the fifth most populous country in the world. Around 25% of the country’s population is in the 0-14 age group, 68% are aged 15-64 years and only 7% is 65 years or older. The majority of the country’s population is in its productive phase, indicating a huge number of potential buyers for life insurance products. The propensity for taking out insurance cover is expected to increase with increasing awareness of the need for insurance and constant improvements in product distribution over the coming years.
