NU Online News Service, June 8, 1:40 p.m. EDT

NEW YORK—The established insurance markets in Western European countries and the developing markets in Latin American countries present separate sets of challenges for insurers looking to grow in these regions, but unique opportunities exist for those who understand and take advantage of the different business environments, regional experts say.

For Western European countries, slow domestic growth means that there are opportunities for foreign companies to link into a presence in European insurance markets, said Karin Clemens, managing director and lead analytical manager of European Insurance Ratings for Standard & Poor’s Ratings Services at the company’s annual insurance conference held earlier this week.

Opportunities are greatest in the private sector, as governments enact cuts in state pension and welfare.

Clemens also believes that regulatory concerns over Solvency II as well as doubts about the strength of the Eurozone will not have lasting negative effects for the industry in the region, although she notes the dangers in trying to predict the future.

Regarding Solvency II, S&P’s notice of pending changes to its country-wide risk assessment is not reported to be causing waves among regional business leaders. “The new country-wide index is expected to improve transparency and compatibility of insurance requirements between ratings and regions, but not to cause a ratings change,” said Clemens.

Speaking to doubts about the strength of the Eurozone, Clemens says, “We do not expect a breakup or major restructuring of the Eurozone. But the future is difficult to predict.”

However, startup companies in Western Europe may find trouble establishing themselves in the region’s mature insurance industry. “Building a business from scratch is impossible because of the time and capital required,” said Clemens.

Clemens said the largest Western European markets are the UK, with 12 percent penetration of the gross domestic product, France with 10 percent GDP penetration, Italy with 8 percent penetration, and Germany with 7 percent saturation.

By contrast, market penetration is significantly lower in Latin America, presenting opportunities for companies expanding there.

Chile, with 4 percent GDP penetration, is the best-insured country in Latin America, according to Santiago Carniado, managing director and lead analytical manager of Latin American Financial Service Ratings for S&P. But the region has shown a growth in premiums from 2011 of more than 40 percent with balanced distribution between P&C and life lines.

“We have seen wealth growth and a rise in per capita income, although this is not a rich region,” said Carniado. He also pointed out that Latin America has shown stability through the financial crisis.

Challenges to insurers come from the actual sales process, Carniado said. Unlike in Asia and Europe, which are highly protected for flood and windstorm, Latin Americans are not used to buying insurance.

Another challenge, he noted, is that while market penetration is low, the market that does exist is already very concentrated. Five dominant companies, including foreign-owned institutions such as AXA and AIG, block out competition within the region. In Chile, these companies account for 45 percent of industry activity, and dominate 20 percent of the Venezuelan market, Carniado reported.

He said the best strategy for insurers looking to enter Latin American markets is to form partnerships.

Meanwhile, Asian regions, such as Japan, China, Singapore, and Australia are between the Western European and Latin American insurance worlds.

Urban East Asian countries are mature, with demand for insurance driven by personal and family needs, said Connie Wong, managing director and analytical manager of S&P’s Asia Pacific Insurance Ratings.

It is an environment where earthquake, tsunami and flood coverage is essential, but most growth opportunities are within personal life and health lines. “These are ‘saving societies,’” Wong said.

Attendees at the conference feel that the unique traits and challenges of different regions will endure. In response to a poll question of when the world could envision a common, global insurance industry framework, 82 percent of audience members answered “never”, with 16 percent saying they could imagine this reality occurring in 10 years or more.

Special Reports /

The Challenges & Opportunities in European, Latin American Business Environments

Related Stories

Recommended For You