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Latin America's Insurtech Revolution

Insurance CIO Outlook | Wednesday, March 08, 2023

Latin America, in particular, has become one of the most compelling markets for disruptive insurance products and services due to the growing demand for digital solutions.

FREMONT, CA: The previous two years have been extremely difficult for the insurance sector. The COVID-19 pandemic, intensifying climate change risks, and altering industry laws have all compelled insurers to employ technology in novel ways.

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Latin America, in particular, has become one of the most enticing markets for revolutionary insurance products and services as the worldwide need for digital solutions grows.

In July 2021, Digital Insurance LatAm produced research revealing over 350 active insurtech startups in Latin America. Even though the region only accounts for around 7 percent of the global insurtech ecosystem, it is expanding at about 25 percent annually.

This surge and the growing number of insurtech businesses are also attracting the attention of investors. Investment in the Latin American insurtech sector increased by 77 percent between 2019 and 2020. Insurtech startups are also breaking records for fundraising.

The most recent generation of insurtech firms is equipped with powerful data, machine learning, and visual intelligence technologies to make insurance significantly more accessible and efficient for a greater proportion of the Latin American population. In addition, by automating a number of the manual stages involved in the claims underwriting process, startups assist insurers, and policyholders save both time and money.

While the adoption of insurtech is unquestionably on the rise, reforming the insurance industry in Latin America will require some time.

Fintechs in South America have paved the way for insurtech to emerge

Latin America is already a hotbed for financial innovation, which has shown new prospects for innovation in parallel industries like insurance. The region's extensive access to mobile devices is a significant factor in customers' quick adoption of fintech and insurtech. More than 90 percent of the population of Latin America has access to the internet through their mobile phones, a rate that exceeds that of many other regions worldwide.

Mobile commerce is highly prevalent, mainly through social networks like Facebook and Instagram. Latin Americans are primarily accustomed to using their mobile devices for banking and purchasing goods and services. A recent EBANX study predicted that by 2021, approximately 60 percent of all online purchases in Latin America would be paid for via mobile devices, making this a significant channel for insurance companies to communicate with their clients.

Open Insurance efforts are likewise ready to transform the interaction between insurance businesses and customers in Latin America, following in the footsteps of Open Banking. Brazil is one of the first nations in the world to adopt a three-phase Open Insurance implementation plan over the next few years.

Like Open Banking, Open Insurance would allow clients to exchange information about goods contracted with different insurance firms. Insurers can use customer information to provide more personalized products and services. If successful, it will represent a significant step forward in the digital transformation of the Latin American insurance sector. Other nations in the area are likely to follow Brazil's lead.

Accepting insurtech partnership

A positive consequence of the COVID-19 pandemic in Latin America was the increased adoption of self-service and remote help. Some insurers were prepared, while others were not, but COVID-19 compelled them to take the next step in their digital transition as policyholders. Mobility constraints necessitated the elimination or postponement of traditional in-person services.

Insurers who have historically invested in internal technology development initiatives suddenly realize that their non-specialized teams cannot adapt as quickly as insurtech companies. Many huge firms in South America have also realized that they can only invest so much in technology, a challenge that insurtech startups do not face because the technology is paid for by multiple clients (insurers) rather than just one.

As a result, insurtechs have become a crucial ally to incumbent insurance companies, assisting them in remaining competitive and accelerating innovation.

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