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2017 Market Report for the Travel Insurance Industry in Latin America

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Market research and intelligence for Latin America's travel insurance sector including growth trends, increases in LAtin American travelers, credit card and debit card penetration in Latin America, e-commerce projections for Latin America, mobile commerce in Latin America, potential addressable market size for travel insurance in Latin America, sales channels for travel insurance in Latin America including online, and case studies

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2017 Market Report for the Travel Insurance Industry in Latin America

  1. 1. The Travel Insurance Industry in Latin America: Context and Trends Feburary 2017
  2. 2. 2 Legal notice Wherever possible, AMI has verified the accuracy of information provided by third parties, but does not under any circumstances accept responsibility for such inaccuracies should they remain unverified. It is expected that the Client will use the information provided in this report in conjunction with other information and with sound management practices. AMI therefore will not assume responsibility for commercial loss due to business decisions made based on the use or non-use of the information provided.
  3. 3. 3 ca About AMI
  4. 4. 4 AMI is Latin America's leading market intelligence and advisory group. AMI is the leading independent market intelligence provider in Latin America AMI’s founding partners are pioneers in the field of market intelligence in Latin America, with over 20 years experience in the region. AMI has experience in every market in Latin America and the Caribbean. AMI is a member of SCIP – Strategic and Competitive Intelligence Professionals.
  5. 5. 5 Experts in the Latin American Financial Services Industry Insurance Personal credit cards Affluent cards Corporate cards SMB cards Credit lines/mortgages Loyalty Prepaid cards Fleet cards Distribution and purchasing cards POS systems NFC EMV cards Mobile payments E-commerce Payment gateways Digital wallet Retail cards Financial inclusion Remittances
  6. 6. 6 Travel Insurance in Context
  7. 7. 7 Int’l Travel Is on the Rise, Despite Economic Woes at Home An increasingly strong dollar has not deterred Latin Americans from traveling abroad Sources: ProColombia, El Tiempo, MINCIT, DataSur, INDEC, Federal Reserve, OECD 2 3 4 5 6 7 8 2014 2015 2016 Brazil Mexico Argentina Colombia $14 $18 $22 Jan 2015 Jan 2016 Dec 2016 Exchange rate, Mexican peso to USD $0 $2 $4 Jan 2015 Jan 2016 Dec 2016 Exchange rate, Brazilian real to USD $0 $2,000 $4,000 Jan 2015 Jan 2016 Dec-16 Exchange rate, Colombian peso to USD Number of outbound travelers, millions*
  8. 8. 8 Installments Enable Continued Expenditure on Travel Latin Americans are used to small tickets, even on large purchases How do they work? • Banks make the option available to merchants for varying fees • Merchants make the option available to customers at the point of sale • Customers can choose to finance their purchase from three up to 12 installments, usually “interest free” • 12 month interest-free installment plans are available on goods priced as low as 40 USD, for every kind of product Parcelamento, or “interest free” installment plans, are a cornerstone of the Latin American shopping experience, especially in travel
  9. 9. 9 Credit and Debit Card Penetration, 2017 Credit card holders is a proxy for middle- to upper-middle class, the most frequent buyers of travel insurance Sources: World Bank, eMarketer, AMI analysis 69% 71% 70% 32% 52% 37% 51% 55% 30% 20% 26% 25% Argentina Chile Brazil Peru Colombia Mexico Credit Debit 66% 62% 60% 53% 43% 48% 36% Smartphone penetration Others
  10. 10. 10 E-commerce Is the Region’s Fastest-Growing Retail Channel Especially within travel services, e-commerce is well entrenched. Mobile is starting to take off Growth, CAGR 2015-2019 Sources: eMarketer, Gestion, El Financiero, La Nación, interviews, Frecuencia Latinoamerica, AMI analysis E-commerce M-commerce Visits to retailer websites by device type, % of visits Use of mobile, CAGR 2015-2019 Desktop 46% Mobile 54% Successful purchases made by device type, % of purchases Desktop 90% Mobile 10% 55% 40%41% 37% 25% 18%15% 30% 15%20%
  11. 11. 11 Travel Insurance in Latin America
  12. 12. 12 Small Market Today But Tremendous Room to Grow At only average 10% penetration levels, travel insurance has nowhere to go but up Sources: Allianz, AMI analysis Penetration of travel insurance among Latin American international travelers Millions of outbound international trips, 2016 7.3 4.9 5. 6 3.4 10% 90% Insured Uninsured Average price one-week policy for international coverage in Mexico = $96 Current addressable market size = $192 mn Potential addressable market size = $2 bn 21 million international travelers per year
  13. 13. 13 Growth of the Online Channel Is Transforming the Travel Insurance Market Sources: Allianz, AMI analysis $86 $2 $8 Airline/travel agency Banks Direct to consumer (online) LatAm Travel insurance market size by channel, 2017 2017-2020 CAGR Airlines/travel agencies/banks 7% Online channel 60% Overall market 13% $212 $5 $63 Airline/travel agency Banks Direct to consumer (online) LatAm Travel insurance market size by channel, 2020 In 2020: • Total market will reach $279 million • The online channel will represent 23% of total sales, up from 8% today
  14. 14. 14 Channels Require Differing Strategies As the market trends heavily towards online, insurers must develop solid value propositions for consumers Segment Key channel nuances Airlines/travel agencies • Largest channel • In most cases (save Brazil), travel insurance is bundled in automatically. Airlines require customers to ‘Opt-out’ • Will come under pressure from regulators to change to ‘Opt-in model’ • Low customer brand awareness Banks • American Express is the strongest client in this channel • Only the most elite products carry it, unlike the US • Low customer awareness of product • Zero customer brand awareness Direct to Consumer (online) • Rapidly growing • Opportunity to promote brand directly to customer • Provides the most flexibility: ability to modify offering/pricing/promotions etc., most profitable • Requires opt-in and customer engagement; helps recruit loyal customers
  15. 15. 15 Case Study: Allianz in Mexico Wanting to seize an emerging opportunity, the company made heavy investments the in online channel in 2012 • Began offering travel insurance in Mexico in 2008 • Launched direct online sales in 2012 • Online channel growing 70% annually What’s driving this change? • Consumers are becoming more sophisticated and want control over their travel insurance • Growth of international travel, especially student exchanges, in which parents want control over travel medical insurance benefits • Banks and airlines do a poor job of communicating travel insurance benefits customers may already have • Increasing comfort with e-commerce in general 50% 30% 20% Trips to the USA, all kinds Students Mexico and ROW Segmentation of policies sold by type/destination, % Average policy length: 7 days
  16. 16. 16 Online Presents Unique Challenges Succeeding online requires understanding of the Latin American e-commerce consumer 50% of sales made direct to the consumer are finalized via Allianz’s call center • Customers compare policies online • Find the policy and price they like • Call the call center to finalize the purchase Latin American e-shoppers Successful online sales requires 1) an effective call center team 2) enabling local payment methods (non- credit cards) • Even some middle class Latin Americans do not have a credit card • Many still do not feel comfortable making purchases online for fear of fraud. Phone sales give them more security • Credit card credit limits are very low (average $500) • The Internet now is a widely used resource to research purchases
  17. 17. 17 How Do Consumers Perceive Value In Travel Insurance Plans? As Latin Americans become more aware of travel insurance, they will demand greater value Benefit types What is required? Cultural considerations Coverage of medical expenses • Coverage for accidents as well as illness • Direct payment to providers • Medical expenses abroad are much more expensive than in Latin America • Most credit cards carry low limits and cannot cover medical bills • Greater mistrust of banks and financial institutions; concern they will not be reimbursed. Coverage in case of trip cancellation • Transparent criteria • Ease of reimbursement • General mistrust. Insurers must work to gain customer trust by being as transparent as possible Coverage of baggage and personal items • Worldwide coverage of personal effects, especially electronics • Ease of reimbursement • Latin Americans are highly aware of the risk of theft • Electronics are much more expensive in Latin America than in the US “The key decision driver for customers considering a travel insurance plan is by far coverage of medical expenses. They want to know they won’t have out of pocket expenses if they need medical attention while traveling.” –Luis Bosch, Allianz Mexico
  18. 18. 18 In Most Markets, Travel Insurance Is Unregulated This is expected to change in the medium-term, creating opportunity but also adding cost Market Regulatory framework for travel insurance 2016 World Bank ease of doing business index Brazil • Insurance industry highly regulated • Strong consumer protections • Travel insurance industry suffering as a result 123 Argentina • Industry standards exist but no concrete regulation 116 Mexico • Travel insurance is unregulated 47 Colombia • Travel insurance is unregulated 53 Peru • Travel insurance is unregulated 54 Market experts expect travel insurance regulations to come into effect within three years, especially in MX and CO Opportunity • Shady companies offering poor and non-transparent policies will be weeded out of the market • Companies with solid value propositions will win Risk • Operating in these markets will become more costly
  19. 19. 19 Competitive Landscape Today, travel insurance is dominated by global players. This may shift over time. Market leaders in Mexico 1 Regional trends in fintech demonstrate that local competition may be a growing threat. 2 Financial services are becoming decentralized, away from large financial institutions to small tech startups. 3 Companies are leveraging big data and social media to better underwrite risk. 4 Local companies are able to operate at lower cost than global players. 5 Local fintech companies close to Latin American customers could potentially expand into offering insurance.
  20. 20. 20 About AMI AMI is Latin America’s leading independent market intelligence consultancy Our founding partners helped pioneer the field of market intelligence in Latin America Our consultants have advised over ½ of the region’s 100 largest strategic investors over a span of two decades AMI consultants have conducted close to 2,000 client engagements in Latin America since 1993 Our consultants have worked in every market in Latin America Our holistic approach to market intelligence is unique. We combine market research, competitive intelligence, political analysis and economic forecasting in our studies. Few others do the same in Latin America Lindsay Lehr, Senior Director +1 (305) 873-4311 llehr@americasmi.com

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