The motor protection gap in Latin America
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Uninsured vehicles represent a significant economic burden for society in Latin America. According to the latest Expertise Publication from Swiss Re Institute, only 58% of the existing vehicle fleet in the region's five largest markets (Argentina, Brazil, Chile, Colombia and Mexico) have some kind of insurance cover. For those same markets, we estimate a combined motor insurance protection gap of USD 76 billion.
The key takeaways from the paper include:
- The combined gap is around 2.8 times total motor premiums in the five markets. At USD 51 billion, the gap is largest in Brazil, where the vehicle fleet is largest.
- On average, sums insured under mandatory insurance schemes in Latin America cover less than 10% of income replacement needs in case of an accidental fatality.
- This highlights the vulnerability of households to financial distress resulting from third-party liability payments, loss of income in the case of disability or death, and out-of-pocket expenses to cover medical costs and property damage.
- We expect current economic recovery in the region to boost demand for motor insurance, with car ownership and insurance penetration still well below the point of saturation.
- Our baseline scenario is that motor premiums will grow by around 3% to 5% (CAGR) in real terms across the region in 2019-2023, with the strongest growth in Colombia and Mexico.
- However, under- and uninsured drivers will remain a reality. To increase motor cover uptake, insurers can make more use of micro insurance and new distribution channels, foster product innovation and adopt new underwriting technologies.
- The public sector can also play a role by creating an up-to-date legal and regulatory framework for a well-functioning market, and by enforcing adequate mandatory insurance schemes.