Colombia
About the country
The Colombian insurance industry has experienced a steady growth in recent years. The combination of a number of regulatory measures, along with the economic development of the country, has facilitated the growth of the insurance market. An additional factor of growth has been the offer of social security benefits by the private sector. Today, these products represent about 25% of total industry output. The insurance products with the highest growth are life, vehicles and personal accident.
Despite the growth of the insurance industry, the penetration rate and insurance density remains low compared to the average for the region. The number of actors operating in the Colombian market is high: a total of 19 life insurance companies and 24 general insurance.
The percentage of premiums written in microinsurance is greater than the average for Latin America and the Caribbean. In 2012 the volume of microinsurance premiums reached 4.1% of total premiums of the insurance industry in Colombia. Between 2008 and 2013 microinsurance premiums grew by 51%. Although the microinsurance market in Colombia appears to have a significant degree of development, the products offered have a low level of diversification. The majority of the risks covered fall into the category of personal insurance. Personal accident and group life insurance represent 83% of total insured products. In particular, there is insufficient supply of health microinsurance products.
Our engagement
In Colombia, there are diverse efforts working towards the development of the microinsurance market. The development of a diagnostic study by the Access to Insurance Initiative with support from Banca de las Oportunidades and the IDB-MIF in September 2014 was a first step to determine the current state of the insurance sector in Colombia.
Later, in December 2014, the ILO, the Superintendencia Financiera de Colombia and Fasecolda organized a market development stakeholder-engagement workshop to agree on a locally owned road map and coordinate the implementation process. The discussion revolved around capacity development, strategies and pilots that would meet the needs of low-income people in Colombia and how to encourage insurers to participate in the creation of a more inclusive insurance market.
The next step in Colombia is to finalize the strategy and set up the structure for implementation.
Market development results
Lessons
The design of products without research, as is the case in most of the products in Colombia, generates massive products that do not respond adequately to the needs of the target population. It is not possible to take into account the preferences of the population without a qualitative market research. In some cases there is a lack of research to design insurance products, as few entities conduct studies to determine the characteristics of the policyholders, like breakdown by salary range or geographical area to which they belong.
Renewal rates are very low, even when there is a state subsidy to support the insurance product. The renewal rates are between 15% and 70%, which is not only a challenge for insurance companies but also means that policyholders do not perceive the value of the products either because costs are too high or the process to renew policies is not so simple. The low renewal rates are a challenge to the viability of programs.
Finding channels that facilitate access to the target population remains a challenge for insurance companies. Over the past 10 years, insurance intermediaries—brokers, agencies and agents—have developed much more slowly comparatively to what has happened with alternative channels like banks, financial institutions, and public utilities. Although these alternative channels provide access to the low-income market, some of them are too expensive.
The commissions for intermediaries and distribution channels are high. Insurance companies mentioned that commission rates are between 25% (lowest) to 70% in extreme cases, such commissions are very high compared to other countries. This reduces the viability of the programs, the affordability of products and the value of microinsurance products for low-income households.
