Developing markets are often thought of as the bastions for life insurance growth but for one country the outlook isn’t so rosy, according to the former head of global market intelligence for MetLife International.
Shankar Chaudhuri says Brazil’s life insurance industry is in need of bold and creative solutions, despite the country’s life insurance market experiencing double-digit growth for much of the past decade. At the end of 2013, it stood at US$49bn, according to Swiss Re's annual world insurance report.
“But much of this growth has come via the route of pension savings, instead of pure life insurance,” writes Chaudhuri. “Under Brazilian insurance laws, pension products such as independent retirement accounts (VGBLs), a savings-cum-pension product very similar to a 401K plan in the US and elsewhere, are grouped under life insurance due to some supposedly insurance features.”
VGBL’s accounted for almost 70 per cent of the total life market (US$30.4bn), relegating the traditional life segment to only about 30 per cent. Even with VGBL, Brazil remains one of the most unprotected markets globally.
Part of the explanation lies in the fact that even with tax incentives, average VGBL balance stood at only US$13,180 reserve per individual in 2012, according to the Susep, a branch of the Brazilian finance ministry.
Chaudhuri argues a collective multipronged approach is required to take Brazil out of this life insurance deadlock. To start, delinking insurance and pension products and a form of tax incentives afforded for VGBL might be extended to life insurance products, such as universal life with investment and savings features.
He argues the insurance industry should take a proactive role with the Brazilian government to promote financial literacy. Finally, the concentration of insurance distribution in a one dimensional channel is because banks have dominated the life insurance space in Brazil. By diversifying the distribution channel more life products would be allowed to flourish.
With the aid of government policies stakeholders should make it easier for consumers to buy life insurance through channels of their choice with the right products and value.