The insurance as a development parameter
Insurance is an important factor of development in the economy. In this note we analyze the penetration of activity in the economy of different countries and its importance beyond their participation in the Gross Product of a nation.
Our activity, the insurer, is fundamental for the economic development of a society. Since time immemorial, man has sought safety, worried about warning the dangers and lessening its consequences. In Babylon, in Egypt, in Greece and Rome, there were examples of associations that could be considered as antecedents of what we now know as insurance. Depending on the type of society, in some cases they assumed losses due to the theft of livestock, reparations for deaths (as was the case with the temple and pyramid builders in ancient Egypt) or even covered navigation.Without going any further, the word “policy”, which is nothing else than the insurance contract, has its origin in Latin and means “promise or commitment.”
It is this commitment to ensure a good or the life of a person that has remained over time and has made the insurance activity one of the fundamental components to give economic predictability to a society.
The insurance not only has weight in an economy for its participation in the Gross Domestic Product (GDP) of a country, for the number of people that directly or indirectly employs, or for the investments it makes. The importance of this activity goes further, since the payment of losses generates multiplier effects and contributes to the activity levels of the different sectors.
Therefore, in this note we will review the reality of the insurance industry worldwide and Latin American, to finally focus on what is happening in our country.
The developed economies
It is logical that, given its growing economic development, the United States and the countries of Western Europe have the strongest insurance market globally. In these regions, in addition to the strong incidence of patrimonial coverage that covers the different economic sectors, there is also a high influence of people insurance.
This explains, in part, the fact that in developed countries, the participation of the insurance activity reaches 10% of its Gross Domestic Product (GDP). Which means that in those regions insurance has the highest penetration rate in the economy worldwide.
These countries represent more than 80% of the world production in terms of insurance, underpinned by the growing incidence of the life insurance business, which grew above the average in the last decade prior to the international financial crisis of 2008 – 2009 .
The strong influence of the life insurance business speaks clearly of societies with a strong insurance conscience, which in addition to protecting their assets, think long-term and take precautions to guarantee the economic passage of the family nucleus.
There it is explained that the insurance industry has, in these nations, the most important participation and with a significant demand for coverage with high added value, that is, not only those traditionally or commonly called “commodities”. However, it is also necessary to recognize that the overall growth of insurance in these countries has been weak or nil in recent years, contrasting with the expansion of activity in emerging markets.
The growing importance of emerging markets
In the last decade, it has begun to speak more and more strongly of four actors who have had an outstanding economic and political participation. We are referring to the block that make up China, India, Brazil and Russia. These countries have led the growth of emerging economies and are beginning to play an increasingly dominant role in the concert of nations. Its importance is given by the growing industrial structure, its natural and energy resources, and the internal economic growth that allows vast sectors of its population to join the consumer market, which has made them the destination of a significant portion of the materials food sector premiums.
For these reasons, it should not be surprising that only in the five-year period that goes from 2002 and 2007, the insurance activity of these four countries has contributed the most to the growth of insurance premiums in all emerging countries. During this period, China saw its premiums grow by US $ 38 billion, India by US $ 24 billion, Brazil by US $ 6 billion and Russia by US $ 5 billion.
It can be seen that, at the end of that period, among emerging market countries, 90% of life premiums are represented by China, India, South Africa, Brazil, Poland, Mexico, Malaysia, Indonesia, Thailand and Chile. Meanwhile, within that same group of nations, in the non-life sector, 68% of the premiums correspond to China, Russia, Brazil, Mexico, South Africa, Poland, India, Turkey, Venezuela and Argentina.
The Latin American reality
As in the rest of the emerging economies, insurance markets in Latin America have been growing steadily since 2002, with an increase in production in South America over Central America.
The reality of the Latin American insurance market is very dissimilar, due to the economic asymmetries existing between the different nations, since there are countries with a high degree of underdevelopment with others that are on the way to becoming important actors at the world level.
In this context, Brazil and Mexico are the two leading countries in the production of insurance, concentrating 60% of the premiums in the region, a fact that is motivated in their highly industrialized economies and their high population density (Mexico has a population of 103 million people and Brazil has 186 million inhabitants). In any case, the participation of insurance in the GDP of these countries is in the order of 3%, far from the reality of the developed economies.
With the exception of Puerto Rico, Central America is today one of the regions with the lowest incidence of this activity (1.8% average with respect to the Gross Product), as a consequence of a poor insurance culture and low per capita income.
Puerto Rico is the case of greater development, with an 8% share of insurance within its GDP, but with the clarification that in that country insurance for health protection is included for the low-income population, whose premiums they are managed by private insurance and absorbed by the Government. This explains why 60% of the production is based on the branch of Health.
South America also presents different realities. As we mentioned before, Brazil is one of the most important development poles. This market has a distribution of premiums that is led by the automotive industry, followed by “Vida Gerador de Benefício Livre” (VGBL), a life insurance with a high financial component. In addition, this market has shown a good evolution in non-traditional branches such as engineering insurance, various risks and those related to the expansion of domestic and domestic credit.
Meanwhile, Chile is a clear example of a gradual and progressive development of the insurance industry, in the heat of economic growth and also of the consolidation of the country as one of the highest institutional quality in the region. The nation of Trans-Andean had only 317 million dollars of premiums in 1985 and reached 6500 million in 2009, from an insurance participation in the economy of 1.86% in the mid-1980s to almost 4% today.
In the rest of the countries, the insurance industry has mixed luck. In Argentina, the activity has a long history, with consolidated companies, but we will address it to our country in the following section. There are other cases, such as Uruguay, where although insurance does not have the same importance in the economy as in its bordering countries, from deregulation (until not many years ago, the State Insurance Bank had a monopoly on activity) the growth of an orderly market with potentialities is observed.
The truth is that in Latin America, the insurance sector is standing and looking with good expectations to the future, aware of its weaknesses but also assuming very well its potential and challenges. In this context, the constant professionalization of Agricultural Insurance is a point to be highlighted, with insurers placing themselves at the height of the increasingly important role that the region has as a provider of food raw materials to the rest of the world.
The Argentine market
The Argentine insurance market has a long history and its companies are consolidated, generating in this way the confidence so necessary for the development of this activity.
According to the Superintendency of Insurance of the Nation (SSN), premium production in the Argentine market as of June 2009 was 27 billion pesos.
At present, the market has 178 entities and 24,242 Insurance Advisors Producers, of which 23,800 are Physical Persons and 442 Producer Societies. If we add to the intermediaries the 25 thousand people who work in a relationship of dependence in insurance companies, we can point out that at least 100 thousand people live directly from insurance. To this, we should add the employees of the offices of Insurance Producers Advisors and all those people who provide services to any of the links in this chain.
At the end of the 90s, the participation of the insurance activity in the Argentine GDP was 3%, then fell significantly during the 2001 crisis and had a recovery to reach 2.5% in 2009. Progressively, it has been I have been recovering until reaching a percentage close to that of the pre-crisis stage, although there is still much to work in that direction.
Today, the participation of insurance in the Argentine GDP is lower than that of Chile, similar to that of Mexico and Brazil, and higher than that of Uruguay and Paraguay.
In this context, an auspicious fact is that the Argentine insurance companies have been obtaining positive results during the closing of the last four financial years, mainly thanks to the financial result. The assets of the companies as of June 2009 represented 52 billion pesos and had a net equity of close to 10 billion pesos.
This speaks clearly of a solid and solvent market to respond to claims, which is the most important value and what an insured expects from us.
Argentina has a lot to grow, especially in the life insurance segment, whose market has not yet reached maturity and has enormous development potential.
The importance of insurance
To understand the importance of the insurance industry, we must start from the basis that it is an activity that is based on the principle of solidarity. The role of an insurance company is to manage the funds that will compensate those injured by an accident (for example, cars affected by a hail storm). We are talking about a solidarity-based system because the premiums paid by all the insured who did not suffer a loss contribute to compensate the damage to those affected.
But in addition to that sense of solidarity that insurance carries in its genesis, our activity also makes other contributions to the economy. One of the most notorious is participation in the capital market, where a significant part of the premiums is invested and, indirectly, it contributes to the financing of different sectors of the so-called “real economy”.
For these and more reasons, we can agree that insurance has a very important role to contribute to the quality of life of people and the constant growth of the economy. The greater the participation of insurance as a basic input of the economy, the greater the evolution of a country.
The challenge for insurers is to continue strengthening the importance of the activity before society.We must redouble our efforts in order to provide the insured with clear information and design products accessible to all. In this way, we will contribute to the generation of trust, the fundamental pillar on which our activity is based.