By Julio Pernía Aznar, CEO of Bdeo, a technology company that provides visual intelligence for motor vehicle and home insurers.
The past two years have been incredibly challenging for the insurance industry. The COVID-19 pandemic, escalating climate change risks and shifting industry regulations have all forced insurers to leverage technology in new ways.
The growing demand for digital solutions extends globally, and Latin America, in particular, has become one of the most compelling markets for disruptive insurance products and services.
A report released by Digital Insurance LatAm in July 2021 revealed more than 350 active insurtech startups in Latin America. And while the region still only represents approximately 7% of the global insurtech ecosystem, it is rapidly growing by nearly 25% per year.
This surge and increasing number of insurtech startups are also catching investors’ attention. Between 2019 and 2020, investment in the Latin American insurtech sector grew by 77%. Insurtech startups are also shattering fundraising records. In June 2021, Chile-based wellness benefits platform Betterfly announced that it raised $60 million in Series B, representing Latin America’s largest insurtech fundraising round ever. The round came just six months after Betterfly raised its $18 million Series A round. Another notable example is Brazil-based 180° Seguros, which secured $31.4 million in one of the largest Series A rounds ever in the insurtech space.
Armed with advanced data, machine learning and visual intelligence technologies, the latest generation of insurtech startups is well-positioned to make insurance much more accessible and efficient for a larger percentage of the Latin American population. Additionally, by automating many of the manual steps involved in the claims underwriting process, startups are helping both insurers and policyholders save time and money.
While the adoption of insurtech is undoubtedly on the rise, modernizing the business of insurance in Latin America will take time.
Here’s a deeper look at what’s driving insurtech in Latin America and the opportunities that still exist to help insurers digitize their operations.
Latin America’s fintechs have set the stage for insurtech to shine
Latin America is already a lively hub for fintech innovation, which has uncovered new opportunities for innovation in parallel industries such as insurance. A big factor of both fintech and insurtech’s rapid adoption amongst consumers is due to the region's high access to mobile devices. More than 90% of Latin America’s population has access to the internet through their phones, and usage exceeds the averages of many other regions globally.
Mobile commerce, especially through social platforms like Facebook and Instagram, is extremely common. Latin Americans are particularly accustomed to banking and purchasing products and services via their mobile devices. A recent EBANX study estimated that nearly 60% of all online shopping in Latin America would be paid for on mobile devices in 2021, representing a crucial channel for insurance companies to engage with customers.
Following the footsteps of Open Banking, Open Insurance initiatives are also poised to revolutionize the relationship between insurance companies and their customers in Latin America. Brazil is one of the first countries in the world to introduce an Open Insurance implementation plan, divided into three phrases over the next few years.
Similar to Open Banking, Open Insurance will allow customers to share their data related to products contracted between different insurance companies, and insurers to use customer information to offer more personalized products and services. If successful, it will be a major step forward in the digital transformation of Latin America’s insurance market, and more countries in the region are likely to follow in Brazil’s footsteps.
Opportunities across the entire insurance value chain
Auto and property insurance aggregator platforms, or marketplaces, have popped up throughout Latin America, making it easy for consumers to compare and shop for policies. Although insurance providers have figured out better ways to acquire customers, they still face numerous technological challenges post-customer acquisition and throughout the lifetime of policyholders.
Digitizing services to policyholders, from subscription to claims and policy renewals, is a key opportunity for insurtech startups. By leveraging technology, insurers can be more competitive by reducing operational and selling costs and offering more attractive and flexible products to their customers, focusing on experience differentiators.
Pedro Muro, director of Claims at Zurich Mexico, a global insurance company, explains how it works in practice: "Everything we do is focused on the benefits for the end-customer. When you incorporate a new technology and it reduces your operational costs, it allows you to offer a better price to the end-customer. If that technology also saves the client time and keeps them from changing to another insurance provider, then the differentiator that the client perceives is ‘my insurer was able to respond to me very quickly.’ So that’s why we evaluate the technology and try to understand at what points to introduce it in order to provide added value to the client.”
Most insurers in the region currently use simple subscription models, based primarily on a vehicle’s characteristics and not a driver’s profile or usage. Instead, these insurers could be offering more customized, flexible policies and charging variable pricing based on vehicle usage. For many insurers, the underwriting process must also pass through a layer of brokers, which increases the final costs to the customer.
Insurers in Latin America still face big challenges around fraud and a lack of operational efficiency derived from cultural expectations from policyholders compared to other markets. Traditionally, insurers that attempt to reduce fraud incur higher operating costs. Meanwhile, insurers aiming to be more efficient by automating their processes run the risk of higher exposure to fraud, trading customer service and satisfaction for efficiency.
Embracing insurtech collaboration
One positive outcome of the COVID-19 pandemic in Latin America was the accelerated adoption of self-service, or remote assistance. Some insurers were prepared for it, some weren’t, but COVID-19 forced them to take the next step in their digital transformation as policyholders and mobility restrictions meant that traditional in-person services had to be eliminated or put on hold.
Insurers who traditionally invested in technology development projects in-house now recognize that their non-specialized teams cannot evolve as fast as insurtech startups do. Many large corporations in Latin America have also begun to realize that there are limits to how much they can keep investing in technology, an issue that insurtech startups don't have to deal with as the technology is paid for by several clients (insurers) and not just one.
As a result, insurtechs have become an important ally to the incumbent insurance institutions, helping them stay competitive and accelerate innovation. At Bdeo, we are optimistic about Latin America’s potential and excited by the opportunities for more insurtech collaborations over the coming years. As startups continue to build solutions designed for this large, digital-savvy population, there’s no doubt it will result in significant operational cost reductions for insurers, higher customer satisfaction and increased fraud control across the region’s burgeoning insurtech ecosystem.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.