As a country develops its economy and prosperity spreads throughout the population, the need for a competitive insurance market becomes greater. Allowing individuals and businesses to get the necessary cover in the event of any major disaster is a key part of maintaining a stable and confident economy.
While the insurance market in Latin America has developed in recent years, a push to modernise the industry has been made by many governments. Chile, the second largest insurance market in the region after Brazil, is one country that understands the importance of a modern and developed insurance market. After the devastating earthquake that struck the country in 2010 and caused catastrophic losses of around $30bn, the insurance industry paid out just $8.2bn. According to Ernst and Young, more mature insurance markets usually have over 50 percent of an economic loss covered.
Chile is touted as one of the bright lights of the Latin American growth story, defying slow GDP growth rate prior to record a rise of 5.6 percent in 2012. Rich in natural resources, it is also supported by a stable and forward-looking government.
Chile’s insurance market has grown steadily since 1985, when it had combined premiums worth less than $500m, to reach a premiums total of more than $3bn in 2012. The market also saw capacity grow 10 percent in 2012, and the country’s central bank expects this year will see it grow a further 6.5 percent. With Chile aiming for five percent GDP growth in 2013, there are plenty of opportunities for insurance firms aiming to cater for the growing number of businesses.
World Finance recently caught up with Mario Gazitua, CEO of BCI Seguros – one of the country’s leading insurance providers and part of the BCI group of financial services companies – to discuss the state of the Chilean insurance industry, the new regulatory environment, and how his company is helping to shape such a competitive industry.
State of the market
As one of the leading insurance markets in Latin America, Chile has been actively trying to modernise the industry in recent years. Although the economic and political environments are relatively stable compared to neighbouring countries, the cost of doing business in Chile is also somewhat high.
In its country profile on Chile this year Lloyd’s of London wrote that it was “widely considered to have the most stable market and political environment in Latin America.”
However, it added: “These advantages… are significantly counterbalanced by the relatively high costs of doing business in the nation and the advanced development of the country’s insurance market.”
Profits for the whole market soared by nearly 45 percent earlier this year, due to an increase in premiums and lower administration costs. Gazitua says that the industry is hugely competitive, with over 50 firms battling it out for a piece for the market: “Chile has the characteristics to be extremely competitive in all industries. In the case of our insurance market, more than 50 different insurance companies are competing. This challenges every day our strategy to continue leading the market.”
Chile’s insurance industry was self-regulated for many years. However, in light of international economic crises, the country has sought to align itself with the regulatory frameworks seen in other developed markets. In January, Chile’s insurance regulator introduced new guidelines that were designed to reflect Europe’s similar Solvency II standards, as well as the Basel II rules promoted in the US.
The country’s securities and insurance regulator, the Superintendencia Valores y Seguros (SVS), wants the new framework to shape Chile’s burgeoning insurance industry and spur it into a new era of transparency and accountability. Gazitua believes this presents a challenge to the industry: “This year in particular, we face significant change in the regulatory framework. This requires a big effort; first to understand these changes and then to implement them internally.”
Taking a leaf out of other regulators’ books, the SVS is requiring Chilean insurance companies to meet strict capital requirements, as well as employing new asset allocation strategies. The rules are currently passing through the Chilean parliament.
Gazitua goes on to say the regulatory environment in Chile should be designed to support the growth of the insurance market, as well as protecting against any potential troubles: “From my point of view, the regulatory framework in Chile allows the continued development of the insurance market in our country, overcoming significant economic crises and natural disasters. This gives our country an important pillar of development.”
Some in the industry think that the burdens placed on insurance companies might be too much. Natalia Heredia, a consultant at Ernst and Young in Santiago, told Risk.net in February, “Some insurers do not believe this new framework is necessary. They believe that the Chilean insurance industry has successfully been self-regulated for the past few decades and a testament to that was how well the insurance industry performed during the earthquake of 2010.”
However, Gazitua stresses that the changes need to be introduced gradually, and with full input from the industry. “On the other hand, changes in our regulatory framework that are made without prudent technical discussions and the required time frames necessary for implementation, clearly are not favourable to financial organisations.”
Products and services
Even though new regulations are being implemented in the country, BCI is well placed to maintain its leading role in the market. With a full range of insurance products on offer, it is able to attract customers from across Chilean society, including small businesses, large corporations, and individuals.
The company is the leading provider of motor insurance in Chile, offering a wide range of services to all manner of vehicles, both privately owned and company fleets. It has continued to develop new services to its growing customer base. “As a leader in personal lines, and particularly in motor lines, we launch to the market an innovation service to repair car damages in the houses of our clients, avoiding dead time in the garage and cost of time for the clients. With this service we achieved the best satisfaction rates for our customer,” says Gazitua.
For the vehicle insurance market, the company offers businesses with large fleets of vehicles, typical insurance services, like accidental and malicious damage, theft, and unauthorised use. For firms importing and exporting large amounts of stock, BCI offers a full range of cover.
BCI’s product line also includes home, life, and health insurance, and it is actively developing its offering to small- and medium-sized enterprises. They are now leading players in both the personal insurance and small business spaces. The strategy BCI has taken has been to focus on the customer and delivering a high level of service. “Basically, our strategy has been the same since we started our insurance business: focus on personal lines, based on quality and efficient service,” says Gazitua.
While the firm’s vision has been consistent, it is wary of being complacent. “Obviously, yearly we reconfigure the firm to implement our strategy,” says Gazitua, “using all the tools that offer technical advances and innovation, but always bearing in mind that past success doesn’t ensure future success.”
Gazitua is keen to stress the importance of the company’s employees, refusing to take the credit for the success of the business. “It is not one-man work – it is teamwork. All the success that we can achieve depends on the individual effort of each one of our employees.” It is these employees, and their dedication, that sets them apart from BCI’s competitors. “Basically, the difference from our competitors is each of our employees. They, with their contribution and teamwork, make all the strategy possible.”
In order to maintain a high level of service to BCI’s customers, Gazitua believes it is his job to ensure that employees all feel content in their jobs: “A happy employee gives extraordinary service to our clients. You can offer the most innovative and client-oriented products but, at the end of the day, attitude of service and how we deal with clients makes the difference.”
As the market continues to grow and adjust to changing conditions, companies like BCI Seguros will need to adapt to the challenges presented to them. It will continue to strengthen its dominance in motor insurance, as well as maintaining its leading position in the personal insurance space. Small- and medium-sized enterprises are the area in which the company wants to grow, developing an offering that will protect the companies that it is hoped will help grow Chile’s economy even further.
Gazitua says that while it is vital to look toward the long-term in formulating a strategy, BCI must not neglect the customers it already serves, offering a full breadth of services. “For us, as a local and family group, the future is not just the long term. For us, the long term is forever. This challenges our company to develop and give our clients the best products and service in every moment of their life.”