The strong economic growth experienced in Latin America over the past decade has bolstered employment, income and savings, as well as the penetration of ife insurance in the region. However, the lives of many Latin Americans are still uninsured or underinsured by alarming dimensions, according to a report released by Swiss Re.
The mortality protection gap in Latin America is the first study of its kind covering selected Latin American countries.
When the main breadwinner in a family dies, this can leave a large gap in the family's income and lead to a significant drop in their standard of living. Many families will have financial protection in place, but the protection gap for families without insurance is a major concern. Swiss Re's study reveals that across eight major Latin America markets in 2012, this protection gap amounted to $7.2tr, or 138% of. This translates to a mortality protection gap of $60,628 for the average working person with dependents. The report also shows that this protection gap has increased by 10% on average per year since 2003.
"Adequate mortality protection is lacking in an alarming number of Latin American families and across all markets examined in this study," says Alejandro Padilla, Swiss Re's head of Reinsurance Latin America North.
"Even after a decade of strong economic growth, the financial vulnerabilities that this gap creates for Latin American families are considerable. This is a worrisome trend for individuals and society alike."
Swiss Re examined the mortality protection gap of a number of developed markets in a 2004 sigma publication "4/2004: Mortality protection: the core of life" and has applied the same methodology to other regions and countries including the US, UK & Continental Europe and Asia. The report launched this week is the first mortality protection gap study for Latin America.
Although the mortality protection gap exists in all of the markets covered by the study, the size of the gap varies from country to country. While Brazil, Argentina and Mexico show the largest protection gap in absolute terms, Chile and Puerto Rico show remarkably smaller gaps. The protection gap can also be measured as the ratio of protection in place to protection needed. From this perspective, looking at each end of the spectrum, the ratio between savings and life insurance currently in place as compared with the amount of protection needed ranged from 10% in Venezuela to 53% in Chile.
"This means that for every $100 of mortality protection needed in 2012, Venezuelan and Chilean families on average held $10 and $53 respectively in financial assets and life insurance," says Oliver Futterknecht, Swiss Re's Senior Economist for Latin America and one of the authors of the study.
The wide spread of the mortality protection gap between the countries examined can be partly attributed to the differences in population size from market to market. Life premiums in Latin America grew on average at double-digit rates over the past 10 years. Even though penetration and density have improved in this time span, insurance demand is still lagging compared to other regions. On average, the region’s per capita spending on life insurance was $120 in 2012, three times lower than the worldwide average of $373.
Helping to cover the gap not only provides protection relief for families in Latin America, but is also a significant business opportunity for life insurers. The findings of this study provide insurers with intelligence on where and how mortality protection products could be developed to meet the unique needs of each region.
"Life insurers have a unique opportunity to help society close this gap and will play an important role in helping to educate people on the benefits and affordability of life insurance," says Margo Black, Swiss Re's Head of Reinsurance Latin America South. "The onus is on our industry to be proactive in helping families across Latin America understand how to fit life insurance into their lives and budgets effectively."
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