Article Central. War and Peace
Insurance
open war and peace.
INSURANCE INDUSTRY threatens to turn, AFTER THE END OF THE PRICE WAR starring the two biggest companies. HOWEVER, SEEMS TO BE WELL AND NO ONE KNOWS WHY
By: Davelouis and Serra
The insurance sector in Peru is one of the least developed region in terms of penetration. If Chile-our permanent reference in any subject (why is that?) - Penetration measured as the amount of premium on their GDP around 5%, the end of 2008 in Peru was of 0.92% which is not reached even 1% of GDP.
But it is more complicated. In fact, in our country the rate is 1.03% of GDP in 2005, went to 0.98% in 2006, fell to 0.9% in 2007 and came to the said percentage at the end of last year . What does that mean? That the sector is growing at rates much lower than those to which the economy grows when in fact there should be a much more direct correlation. And
penetration remains low, despite economic growth, the income of some world class players to the sector over the past two years and the aggressive campaigns to increase market share made the two largest insurance companies: Rimac and Pacific.
This precedence of the two largest companies have a reason: they belong to the two economic groups in the country, owners of the two largest banks in the financial system (which cross-selling power) but also, as claimed by the smaller insurers, and some industry specialists consulted and insurance brokers who did not want to be named, could not compete with the prices of the two giants that together account for almost 75% of market share.
The idea was not, however, to keep out the small and medium enterprises, but compete for the big market, ultra-concentrated in the socioeconomic levels A and B.
smaller
That could not compete there, it was a side benefit. It was a price war, as acknowledged recently Trade chief Superintendent Banking and Insurance (SBS), Philip Tam, but also members of the Peruvian Association of Insurance Companies (Apeseg).
"The price war forced all other insurance companies to seek business from large specialized niche and to continue working," he said at a luncheon Apeseg president, Daniel Calda.
MORE WAR OVER
This situation continued for about a decade, as recognized by the risk manager in the same lunch Rimac in Apeseg, until last year, the world fell and the financial results of Pacific the end of 2008 did not help to offset technical losses (The price of premiums did not cover the cost of insurance) that she and coming recording Rimac.
Credicorp The company (whose main shareholder is the Romero group) lost more than S/.18 million, while Rimac achieved an operating profit of S/.66 million.
it led Pacific to stop competing for market share and refocus on the profitability of the business I decided to do. Thus, withdrew from some of the businesses were not profitable (vehicle insurance is sold through Tambourine system, for example), reduced internal costs and renegotiated the terms of other insurance at maturity. It was exactly the same strategy as deputy general manager of Rimac, Alfonso Brazzini, had announced to his company: "we will focus on businesses that we know and profitable." "Déjà vu? In Pacific
deny that there existed such a price war, although Tam and everyone else openly acknowledged and explain that everything should not be more than a "tactic of penetration was creaming stage, it plans Pacific are comprehensive and are designed based on five and ten ", says his business manager, Gino Di Bello. NEW ERA
But with the end of the war, began A sincere (and, therefore, to raise) the prices of premiums by about 20% on average. The argument of the small and medium enterprises in the local market to explain (logically and rightly) its low market share was over because I was involved at your fingertips. And now?
risk to the manager of La Positiva, Gustavo Sardinia, things would not substantially change for them, since "we have never had problems with technical results and will continue to look to our customers primarily in underserved segments of the industry." They are ready to welcome customers to let go of Pacific and Rimac, but not go after them.
Something similar happens with most companies we spoke with, none of which wanted to declare to us (the majority) made significant changes as a result of this new reality. Even companies with very small market share but with the names of giant global players in the insurance industry, and Mapfre (Spain), ACE (UK) and even Cardiff (France).
In the words of assistant general manager of ACE, Juan Carlos Puyó, "ACE came to Peru to be a relevant played in the area (...) but we do not compete for market share." Then who are we?
Indeed, it seems now that the war was over market share, and finally, everyone can compete on equal terms, all such participation disdain toward a perfect technical result focusing on "maximizing the return on equity and get a good market share in terms of profits, but not in terms of premiums, "as explained by the business manager of Interseguro, Ernesto Melgar.
And at least in this case, this logic seems to make sense: Interseguro, with a market share of 2.7% in terms of premiums, has a stake of 13.9% in terms of total industry profits. OUTPUT
This, however, could have an unfavorable side for the growth of the insurance industry, if nobody cares to risk, how penetration will grow the business?
sectors now give ac-insurance is the same as they always have and not, also are the same as those efforts are directed even very small (but by no means unimportant) as La Positiva and Protecta.
Both, but particularly the latter aim the advancement of microinsurance. The rest, as explained general manager Protecta, Alfredo Salazar, has sought to hang on to any organization or business that has a respectable number of means of payment (the hardest thing and expensive in the business) "but have saturated so that now being dismantled."
So, how does the insurance business really grow as you would like the superintendent Tam? Unfortunately, no one risks a response. ACTORS
The war from within Pacific
losses last year were due primarily to financial results: the value of their investments (and those of all who remained in the bag) collapsed, seriously affecting their balance sheets (the life insurance company itself reported, however described, gains of almost S/.50 million).
contrast, Rimac covered the risk of falling markets by significantly reducing all its investments in equities and maintaining a good percentage of that cash in fixed term accounts.
This difference gave rise to the end of the price war that led to the sincerity of the premiums.
