European and US insurers have found to their cost that mistakes in highly competitive Latin America can prove expensive, but there is cross-sector desire to improve the situation, writes Owain Thomas
The unique aspects of the Latin America international health insurance market are making for a volatile situation in both the intermediary and insurer channels.
Such is the situation with intense competition between insurers and unchecked recruitment of agents that leaders are calling for consolidation among insurers and for tighter controls on brokers.
The Health & Protection Latin America international private medical insurance (IPMI) roundtable in Miami in association with Flywire, also heard how failing to understand local markets could lead to very expensive mistakes for insurers while pan-industry collaboration could help remove some of the uglier market trends.
Download the roundtable supplement by following this link.
Consolidation and qualifications needed
“It’s very challenging now for the insurers, to be honest there should be a lot of consolidation,” said Suprabrokers president and CEO Robert Parra.
“Sometimes we on the distribution side wonder whether some insurers are building up a portfolio to be able to sell it to maybe a multinational provider.
“For the companies, it’s a big challenge to enter into a pie that is not growing – there are too many players,” he warned.
But Parra was also critical of the forces within the distribution side of the market.
“For us on the distribution side, some of us are diversified into different platforms or carriers or companies,” he continued.
“We would like to steer our business to the best options, to the best protection because your health and protection is important, but it seems that health insurance is sold more on the marketing merits than on the protection merits.
“In distribution now there are no barriers so anyone can sell health insurance, but for life insurance you usually need to be licensed.
“So there is too much distribution, insurers are appointing many agents and there are no barriers, which creates a bit of chaos on the distribution side and it would be nice to make it more qualified,” he added.
It was agreed this dynamic had grown from the necessity to adapt to the many frequent fluctuations, where every year there is an opportunity and a challenge, where one country may be struggling while another is growing, with the reality being that insurers have become almost chameleon-like in adapting to customer needs and looking for growth.
No cookie-cutter culture
As a result, Best Doctors Insurance chief revenue officer Luciano Garrido noted how difficult it was for external insurers to come into the specialised Latin America market.
“European or even US insurers could try to tap into the market and think they’re going to come in and grab all these policies and portfolios,” he said.
“However, it’s not easy because they’re not used to dealing like we are with all these dynamics and adapting.”
World of America CEO and chairman Lourdes Peters agreed it was a difficult market to enter unless providers embraced the Latin America approach and allowed people that really understood the market to lead organisations.
“You can’t just come in and believe it is easy, it’s not easy,” she said, citing global insurers which had tried to implement their traditional ways in the region, failed and then withdrawn.
“You have to feel it, you have to really understand the culture very well and it’s different cultures everywhere,” she continued.
“It’s not just one, it’s not like a cookie cutter where one size fits all, so unless you understand that when you come in, then you are set to fail.”
Very expensive learning curve
Underwriting is one of those critical skills to understand and learn in the market.
As David Capote, LATAM president of Trawick International highlighted, failing to do so could cause significant problems.
“You see examples of European insurers that have come into Latin America in the past and they’ll apply European underwriting guidelines to group businesses,” he said.
“For example, they’ll do business on a five-person group that you can’t, it’s just not sustainable, so there’s things like that they learn by trial and error over time.
“But then, by the time they’ve learned it’s become expensive, they’re in the hole and it becomes a race to the bottom for them.”
Peters echoed the point, adding that if insurers did not have people who know the market, have been in it for a long time and that understand its dynamics, they are “going to fail and the learning curve is very, very, very expensive”.
Cost of acquisition
Another important factor to keep in consideration was that of customer acquisition costs and broker commission in particular.
Redbridge chief medical and risk management officer Dr Boris Garcia-Zakzuk highlighted this as potentially the biggest reason for new entrant insurers not creating sustainable businesses.
“Why are North American and European insurers not jumping into Latin America? Because it’s very difficult for them,” he said.
“The true reason is the cost of the acquisition in Latin America is horrendous, everybody knows that insurance companies pay an incredible amount of money in commissions.
“If we don’t do something about that, we will continue to struggle forever. If we take action general agents will not be impacted, but the distribution force is the one that will get a little less. It is crazy that out of a dollar, we spend $0.35 in acquisition cost and that doesn’t include our expenses.
“When you put that together you end up with $0.40 to $0.35 to pay claims; that is bad business, but that is a long argument,” he added.
Given these costs, the panel heard that insurers need to know what business is coming in, who is representing them to customers and ensure the quality of the people that they are working with.
They recognised that technology could have a significant role to play in addressing some of these issues running through the market, and in doing so could speed up processing and reduce costs.
One idea was to potentially develop or integrate a shared data resource for critical compliance data.
“This is interesting because imagine we have a place where agencies originate the hiring,” said Trulydata Technology president Jesus M. Delgado.
“And imagine that platform can check on everything related to compliance before sending the case right to the insurer, that will save time for companies to do that work
“They need to do it for compliance regulations, they need to be able to show they did the compliance checks and once you have that ready, they can know for sure what they are receiving is a clean application.
“I think that would help each company performance tremendously.”
Tackling bad behaviour
Furthermore, it was suggested, this could bring parties together across the sector to help in addressing poor behaviour from brokers and customers.
“It goes beyond that. If somebody has committed some violation in another firm and that has to be red flagged,” explained World of America’s Peters.
“At present I don’t want them going to another company and getting a contract because I know they did this to me. So we’ll call around and say this happened, but that might not trickle down to the right person that’s looking at the contract.”
Delgado agreed and continued: “And that’s where this common ground comes to play. If somebody’s reporting to this common place and someone else is trying to hire that agent immediately, they can know already.
“They can see this person has a red flag so that agency is not sending that person into another company, because they know for sure they are going to be stopped at some point.”
With fraud or other detrimental customer activities a further critical concern, such a platform could also be applied to alerting about risky clients.
For example it could address customers insured with multiple companies who are then claiming from several covers each time.
Attendees noted they had come across clients in this situation and recognised this was not a suitable situation and it needed to be tackled.
By collaborating across the industry and identifying those people suspected of fraud or similar behaviours, the propensity for only legal and eligible claims to be paid out should improve, which would reduce claims costs, administrative burdens and ultimately make a more sustainable market, they hoped.
As Peters concluded: “We don’t want bad business on our books, we want good business, we want clean business at the end of the day.”
Download the Latin America IPMI roundtable supplement by following this link.
