LATAM disruption
Lindsay Lehr identifies the opportunities and challenges of entering into, and operating in, the Latin American travel insurance marketplace.
Lindsay Lehr identifies the opportunities and challenges of entering into, and operating in, the Latin American travel insurance marketplace
The rise of e-commerce has transformed most B2C industries in Latin America, predominantly air travel. Airlines were some of the first companies to sell their products online; today the online channel accounts for 20 per cent of airline ticket sales in the region, compared to three per cent in retail sales. One of the biggest impacts of e-commerce is that it offers airlines and others an efficient way to sell direct to consumers, cutting out middlemen like travel agencies. This trend is occurring in almost every product vertical, disrupting the traditional sales flow of vendor-agent-consumer. In Latin America, the travel insurance industry is just starting to feel this disruption.Travel industry alive and well
Despite decelerated GDP growth and currency declines in Latin America since 2014, the travel industry has continued to grow. From 2014 to 2016, the number of international trips by Brazilians, Mexicans, Argentineans and Colombians all increased. The most startling increase was Colombia, up 20 per cent since 2014, in direct response to its currency stabilising in late 2015. [Fig.1] Domestic travel has increased also, in large response to economic pressures. While the most affluent still venture abroad, in the face of a weakened peso, many Latin Americans travel domestically. This jet-setter attitude is made possible in part by interest-free installments made available to consumers by the airlines. In many cases, customers can pay for a flight in up to 12 interest-free installments. The financial cost is built into the final price, of course, so everyone ends up paying interest whether or not they opt to parcel out the payment. A hugely common phenomenon, interest-free installments account for up to 70 per cent of total sales in some cases, especially in the travel industry. Simultaneous to the growth of the travel industry, Latin America is experiencing booming growth in e-commerce, at an average of 30 per cent annually. These two ingredients create a ripe environment for disruption in travel-related services.E-commerce causing digital disruption
The travel insurance market in Latin America today is tiny. No official market size figures are available, but insurance providers estimate total penetration of international travellers to be only 10 per cent. With an average policy price of $96 for a one-week trip, the total current market size comes to an estimated $192 million. Considering a probable 20 per cent margin of error, maximum market size might reach $230 million. But with only 10 per cent penetration, this industry has exponential room to grow, with a total addressable market size of up to $2 billion, even more if we include the domestic travel market. [Fig.2]Travel insurance penetration among international travellers | 10 per cent |
Average price for one-week insurance plan | $96 |
Current marketsize | $192 - $230 million |
Potential addressable market size | $2 billion |
Understanding Latin American online behaviors
Of course, selling online requires climbing a steep learning curve. For a traditional industry like insurance, e-commerce may seem antithetical. When attempting to develop a direct-to-consumer online sales channel in Latin America, insurers must learn a few key lessons:- For many, the Internet is still a place to browse and learn about products, but to not to transact.
- Many consumers are fearful of putting their credit card information online for fear of fraud.
- Credit card penetration is only 30 per cent region-wide and even some affluent Latin Americans do not have credit cards. Even when they do, limits tend to be low (average of $500).
Perception of value
Across all channels, customers are looking for reliable, transparent insurance vendors. In a region where banks are generally despised, insurance companies are considered with skepticism at best and disgust at worst. Generally, international companies are better regarded than local players; thus the reason that leading players in Latin America, including Allianz, MAPFRE, April and AXA, come from outside the region. Argentine Assist Card, however, has been able to obtain decent regional penetration, positioning their product not as travel insurance but rather travel assistance. This change of semantics shows how some home-grown companies with local knowledge can outwit their international competitors. When customers choose a travel insurance policy, insurers report that one single factor is the key decision influencer: direct payment to providers, especially in the case of medical emergencies. In an overly bureaucratic and uncompetitive industry, Americans have come to accept terrible service from insurers, in which they receive reimbursements for out-of-pocket expenses only after filing copious amounts of paperwork. In Latin America, where consumers mistrust financial institutions, there is no patience for such nonsense by insurance providers. Additionally, Latin Americans mostly travel to the US, where medical expenses are exorbitant and direct payment by the patient to providers is literally impossible. Thus, easy payment directly to medical providers should be a key part of messaging to consumers in any channel.Taking baby steps
The travel insurance industry in Latin America is ‘in diapers’, as they say in the region – immature, growing, and with massive potential. Insurers who want to stay competitive must come to terms with the reality that the direct-to-consumer channel is becoming more relevant everyday, creating a more educated, savvy consumer base. This is good for everyone, except for shoddy insurance providers. Service will improve, prices will go down, and the market will grow. It will not be an easy transition, since selling online requires an entirely different strategy, both conceptually and technically. The transformation is coming nonetheless, however; shrewd industry players best get prepared. ■Author
Lindsay Lehr is a specialist in market and competitive intelligence in Latin America and an emerging thought leader in the payments industry. As senior director at Miami-based market intelligence firm Americas Market Intelligence, Lindsay has spearheaded over 75 consulting engagements in 20+ LATAM markets since 2012. Her industry specialisation is cards and payments, with experience in e-commerce, mobile money, digital wallet, mobile payments, POS technology, payment networks and aggregators, financial inclusion, prepaid cards, and corporate and personal credit cards.