Mutuals: A fast-growing sector in Latin America

Tuesday, 02 August 2016

The Latin American insurance market may be relatively young, but it is growing fast, and the cooperative/mutual insurance sector in many national markets is a significant contributor to that regional growth.

According to Sigma (Swiss Re), the total insurance industry in Latin America grew by 11.3% compound annual growth rate (CAGR) during the seven-year period 2007 to 2014, making it the fastest-growing region. At the other end of the spectrum, during the same period, the European market shrank by 0.3% CAGR and the North American market grew by just 0.7% CAGR.

The International Cooperative and Mutual Insurance Federation (ICMIF) annually measures and reports on the size of the cooperative/mutual sector and for the same 2007-2014 period, found the cooperative/mutual sector grew by an astounding 14.4% CAGR. That makes Latin America home to some of the world’s fastest growing cooperative/mutual insurers. Altogether, the Latin American cooperative/mutual insurance sector (hereafter referred to simply as “cooperative”, as there is a striking predominance of the cooperative business model across the region) represented 12.1% of the total regional market in 2014. What’s more, there are strong indications based on consistent performance and trend data for the previous seven years that we can expect this market share to continue growing.

There are some very good reasons for the Latin American cooperative growth figures, although that’s not to say it’s been plain sailing across all Latin American markets and certainly, each market comes with its own stories of success or challenge. 

The Latin American markets are mostly well adapted for the expansion of the cooperative concept within the insurance context. The cooperative business model is widely used in agriculture and industry, while cooperative education is commonplace in many Latin American schools. This contrasts with other regions in which the term “cooperative” is less common and/or less comprehended.

In terms of premiums for the insurance industry, Argentina is the third largest market within Latin America (after Mexico and Venezuela), and it also has a cooperative sector that has grown significantly in recent years. Four of the world’s 30 fastest-growing cooperative insurers are from here (thus Argentina features more than any other country in the rankings): Seguros Rivadavia grew by 58.3% in 2014 from the previous year, San Cristobal Seguros by 39.8%, Sancor by 34.8% and La Segunda by 33.3% -- figures that would be the stuff of dreams for even the largest, oldest or most profitable European or North American insurance companies.

The development of companies like La Segunda Seguros, founded in 1933 and the oldest of Argentina’s cooperatives, was established to offer accidents-at-work insurance to members of the agricultural cooperatives and over time has extended its customer base and its product range to become today’s multi-line insurer.

Its historical development is mirrored by many others in the region, with the provision of accidents-at-work insurance for members of labour cooperatives playing a large part of the cooperative sector’s growth. Clearly, this has far-reaching socio-economic benefits for emerging economies where risk transfer and risk prevention in relation to accidents at work can provide a strong support to the economic growth ambitions of national governments.  

The growth of the sector across the region suggests that many regulators and policymakers have given fair treatment to the cooperative sector, although there are pockets where the restrictions on the establishment or the supervision of cooperatives could be viewed as restrictive, either compared to stock companies or to other markets. Raising capital continues to be a struggle for cooperatives within the region: two years ago, the Ecuadorian supervisor increased capital requirements to the extent that one cooperative was unable to continue its operations. But such challenges are faced by cooperatives elsewhere around the world; the task at hand for cooperatives is to continue educating their supervisors about the ownership, governance and financial goals of the cooperative business model to ensure equitable treatment and ensure the protection of cooperative policyholders.

Meanwhile, ICMIF last week (5 July) published figures which highlight that 45% of countries across the world do not have a law that allows the formation of cooperative or mutual insurance companies. That equates to nearly 20% of the global population who do not have access to cooperative/mutual insurance. That 45% of countries includes a small number Latin American markets, of which the upper-middle income market of Brazil offers the greatest opportunities for cooperative insurance. And although there is no enabling law for now, the signs are that there is good progress in negotiations with regulators. ICMIF is hopeful that Brazil may take its cue from China which last year passed a mutual insurance law for the very first time; the Chinese regulator has been particularly motivated by the potential to strengthen the Chinese agricultural sector through mutual microinsurance, and this month granted the first three mutual insurance licences.

It isn’t hard to imagine the possible impact of a similar enabling law in Brazil, and the growth and success of Argentina’s cooperatives replicated in Brazil. The entire region’s socio-economic strength could be vastly enhanced, with Brazil streaking ahead in security, productivity and performance, all backed up by insurance provided, in particular, by a high-performing, fast-growing, sustainable, cooperative insurance industry.

This blog was originally written for and published by Insurance Day in a special feature on the Latin American insurance sector (published 11 July 2016). This version is Faye's full, unedited article.

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.