Colombia is not a country with a broad insurance vocation. In fact, insurance penetration is estimated at 3 percent of the gross domestic product (GDP), one of the lowest in the world. And although the country has made progress on this front, the difficult situation in 2023 will undoubtedly have a strong impact on the performance of this industry, which will be forced, among other things, to adjust the costs of policies due to high inflation.
(Also read: G. Bicentenario will fight against gout and promote inclusion)
Only compulsory traffic accident insurance (Soat) this year had an increase of 11.7 percent for the categories that were not covered by the benefit of the 50 percent discount (Decree 2497 of 2022).
A recent report from the risk rating agency Fitch Ratings warns that the outlook for insurance in Colombia, El Salvador, Peru and Chile for this year is ‘Deteriorating’.
(You may also be interested in: Entrepreneurs raise their intentions to postpone or cancel investments in Colombia)
Among the reasons given by the firm are “lower economic growth, currency depreciations and persistently high levels of inflation”, which could continue to reduce the costs of claims in non-life lines (general insurance), which may not be fully compensated for price adjustments.
Added to the above is the fact that 2022 was a very positive year for the Colombian insurance industry and with the expected slowdown in the economy in 2023, this lower dynamics will be very marked.
Profits, only up to November, totaled about 2.53 trillion pesos, 149 percent more than in the same month of 2021, amid circumstances of high accident rates, according to preliminary figures from the Federation of Colombian Insurers (Fasecolda).
According to the insurance union, while the placement of premiums decreased a real annual growth of 6.6 percent, close to 38 trillion pesos until November, the claims paid, in general insurance, rebounded close to 54 percent real annual, with engineering branches (includes weak current, mines and oil; assembly and breakage of machinery and all-risk contractor), aviation, Soat, personal accidents, automobiles and theft (theft), in that order, with the highest increases in the accident rate at the end of November of last year.
They will be the branches that will suffer the most this year in Colombia, according to Fitch, if inflation and currency depreciation are not contained and exceed the sector’s price adjustments.
“Life annuities may be affected by a very high increase in the minimum wage, requiring an increase in their reserves. The deterioration would also be due to a climate of low growth, geopolitical and macroeconomic pressures, ”says the Fitchs analysis.
It will not be the only branch affected this year. The rating agency’s analysis shows that the profitability of the branches of damage and cars It had a similar affectation to that of last year, a period in which the cost of claims skyrocketed due to high inflation, depreciation, shortage of spare parts and an insufficient rate.
“By 2023, the combined is expected to be similar to or higher than 2022 due to pressures on the profitability of Soat, the macroeconomic environment and possible effects of the floods caused by La Niña,” the report states.
challenging year
Colombian insurers are very clear that 2023 is a very challenging year for this industry due to the situation not only of prices, but also of a slower economic pace.
“It is evident that inflation, among other macroeconomic phenomena, such as lower GDP growth and the reduction in the purchasing power of households, will have a considerable effect on all sectors of the economy, including insurance,” he points out. David Colmenares, president of Allianz Colombia, Who remembers that, precisely in moments of high volatility like the current one, it is essential to remember that it is better to have insurance and not need it than to need it and not have it.
Colmenares, who also chairs the board of directors of Faseolda, comments that, like all industries in the country, the insurer is no stranger to the current situation and is also affected by associated costs, such as the value of construction materials, spare parts or medical supplies, which could cause an increase in the cost of insurance, in line with what happens with all lines of the national and global economy.
He is also convinced that this year factors such as the winter wave, which is expected to last until next March, will have a negative impact on the accident rate, especially in the home insurance branch. “We are carefully analyzing how behavior unfolds in the life and health branches, taking into account situations such as the state of the roads or safety in cities and highways,” he specified.
Despite this difficult outlook, Fitch says that Colombian insurers have good leverage ratios and several have capitalized, leaving them in a comfortable position to respond to the expected situation.
However, he warns that the volatility of the markets, which has hit the valuation of investment portfolios, together with a higher loss ratio, will undoubtedly put more pressure on the leverage of the industry.
most sinister bouquets
Last year, the accident rate dealt a heavy blow to general insurance. The companies had to disburse close to 7.5 trillion pesos to cover the claims of the policies affected by different causes, this is 53.5 percent more than what was paid in 2021, according to a report from phasecolda.
This amount corresponded to 38.2 percent of the total assumed for this concept by the entire industry, which reached 19.5 billion pesos, including the more than 2.2 billion that the Soat claims cost, which increased the last year about 15.2 percent real per year.
The engineering branches, with more than 2.9 trillion pesos in claims, and a rise of 340 percent real per year, largely due to the hidroituango incident; automobiles, with 2.6 trillion, a real growth of 13 percent, and Soat, with more than 2.2 trillion, would be responsible for 40 percent of the claims paid by the entire industry in 2022.
The personal and social security segments performed better in terms of claims, according to industry figures up to the end of November.
Last year, personal insurance paid close to a trillion pesos less than in 2021. Claims paid in social security, for their part, only grew 2.1 percent.
.jpg "How to set up an offshore company in Panama in five business days")
.jpg "Understanding the Panama pensionado visa process for retirees from the US and Canada")