The Peruvian economy has grown 6.47 percent in May, and year-on-year. The country might be less prolific than its South American neighbours in success, but when it comes to healthy growth, it should not be overlooked. The economy has been expanding at a robust rate over the past two years, only briefly falling under the five percent mark in the first quarter of 2012, before smashing industry targets by over one percent in the three months to June.

The growth spurt is being attributed to a boost in the construction sector and an increase in domestic demands. According to official data, construction rose 15.84 percent and commerce was up by 6.47 percent in May this year alone. Even manufacturing, which had been down in the two previous months, gained 2.69 percent. The healthy numbers have boosted the government’s estimate that annual growth should close in at six percent, 0.92 percent shy of last year’s results, but still one of the fastest expansions in the region. The insurance market alone is predicted to grow around 12 percent in 2012. For the last 10 years Peruvians have seen a significant income growth, and now a larger percentage of the population has access to goods and services that used to be unaffordable when their household income was lower.

The growth of the insurance sector, among other sectors, reflects the greater maturity of the Peruvian consumer, who now demands the same products that can be found in other developed countries. However, the penetration of insurance use is still very low compared to the rest of the region. Peru’s insurance penetration is only 1.5 percent of GDP when the regional average is closer to three percent. “There is a very high growth potential for the industry,” says Rafael Venegas, CEO of Rimac Seguros, the market leader in the country. “The reasons for this under-penetration are three fold: first, a lack of ‘insurance culture’; low income levels of a large group of people still do not allow them to spend money on insurance, which might not be considered a priority; and lastly, Peru lacks a sufficiently developed set of rules that could let us offer and distribute massive insurance products, not burdened with the extreme formalities applied to traditional products,” he explains.

Covering all areas of insurance
A process of change is on-going, spearheaded by large insurance companies like Rimac, who broadened the market by offering for the first time very affordable and simple car theft, property and health insurance for low-income sectors through non-traditional channels. Rimac is the only company active in the Peruvian market operating in all branches of general risk and life insurance, with a share of around 34 percent. It has over 115 years experience in the insurance industry and is part of the BRECA Group, the most important business group in Peru. Its achievements have been recognised by two rating agencies, Moody’s Investor Services in 2010 and Fitch Ratings, who increased its rating in Insurer Financial Strength from BBB- to BBB in 2011. Two additional rating agencies, which operateexclusively in Peru: Equilibrium and wApoyo & Associates, have given Rimac an A+ rating.

“The leadership and financial strength of Rimac Seguros is recognised not only in the local market but is also confirmed by international experts,” says Venegas, “This favourable development is the result of responsible and efficient business management. Keeping such positive ratings allows us to ensure adequate support for our clients and to meet their demands where they are needed.”

Peru’s solid economic growth ensured that when the 2008 crisis hit, the country was minimally affected. “The government knew how to take advantage of the situation,” explains Venegas. “That was due to many elements: the country’s pace of growth over recent years and its projections; the international price of minerals; the general situation; but most of all, the fact that we were prepared.” Peru has found itself in a number of economic crises in the past few decades and according to Venegas, they have learned from this; “you cannot plan just for the year ahead, you have to save for the rainy days. Peru’s economy was more solid and healthier than ever before and the measures taken by both the public and private sectors proved to be correct.”

Steady investment
The growth rate in 2008 was in fact slower than in previous years, but positively robust compared to some other regions. “National companies continued to invest at the same rhythm. Growth in those years went down from none in 2007 to 5.5 percent for one year, and then went back up,” explains Venegas. Insurance in Peru is regulated through the Code of Commerce, the General Law on Financial and Insurance Systems and the Provisions dictated by the Superintendence of Banking and Insurance (SBS). Peruvian law is now much more flexible and gradually measured than in other countries in the region.

“Thanks to recent provisions of the Superintendence, we may offer various insurance products through non-traditional channels, including virtual channels,” says Venegas.

It is these regulatory changes that are contributing to raise insurance penetration in the different segments of the population. The new rules require insurance companies to use contracts containing terms and conditions for policyholders that are easily understood. In addition, Peru’s current regulations also provide special protection to consumers about products and services that they buy. This means that Rimac Seguros must provide them with sufficient and timely information about the insurance products they offer.

Rimac has also been on the forefront of developing integrated health services for its customers with the aim of improving the quality of service through personal attention, both through prevention measures and treatments. “Today, Clínica Internacional, the health division of Rimac Seguros, includes two hospitals and five health centres,” says Venegas. “It is one of the healthcare leaders in Peru. Operating under a different business model to other traditional clinics in the country, it is very focused on providing a quality experience for patients with the support of prestigious medical staff,” he says.

Rimac Seguros is currently implementing a growth plan in the health front, which includes an investment of  $180m over the next three years. Investments will be made on new facilities, as well as the latest generation in medical equipment. “This plan also includes the implementation of a patient quality service following the Planetree Methodology, and the completion of its international certification under the Joint Commission Standard.”

Planning for the future
In order to ensure its successful and enduring growth, Rimac Seguros has a strategic plan for the 2011 to 2014 period with investments reaching $50m on the operational and technological front, as well as $180m on the health front. “Our main objective is to maintain our leadership in the Peruvian market, both in the insurance and health industries, providing our customers a service level above industry average, and our stockholders a return above the industry average,” explains Venegas. “Our strategic plan is based on four pillars: technology and continuous improvement; above average quality of service; teamwork culture; and creativity and innovation.

“In the Strategic Plan we defined that the most important challenge is to make Rimac Seguros a world-class company, a local leader in insurance and health and therefore, continue to be a business leader,” says Venegas. But the Peruvian insurance industry is likely to continue facing hurdles in its growth. “The first challenge is that the insured market is growing fast and we need to develop more modern health centres and hospitals to properly service that increasing demand,” explains Venegas. “But, more than a threat, we see it as an opportunity.” Rimac Insurance is integrating its former stand-alone clinics into the company and investing large sums of money in infrastructure, technical equipment, technology and human resources, both in Lima and the major cities of Peru, as well as currently developing new hospitals and clinics.

“Another challenge we have to face is the lack of insurance and prevention culture in the country,” he continues. “It’s necessary to educate people about the importance of insuring.” As market leaders, Rimac feels it is its responsibility to educate the population, especially in health services, and as such it is currently working on educational campaigns across the country. The Peruvian insurance market is full of potential, but to expand the market penetration different sectors of the population must be reached. “That is why we need to use all the channels available like brokers, retail, financial institutions and direct sales,” explains Venegas. “This demands efficiency in the control of costs used at the distribution chain so we can reach more people accompanied by an offer of innovative products adapted to the needs of each segment.” According to the CEO, today, the potential to grow is bigger in the “C” and “D” segments of the population. “We have to satisfy the requirements of primary protection first, with products that have a basic coverage but that will allow us to gain people’s trust.”