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WHY INSURERS ARE SPLASHING ACROSS THE RIO GRANDE
How much does the average American spend on insurance? $1,930. What about the average Mexican? $31.
That graphic disparity is quickening the blood of a lot of insurance executives in the U.S. and Europe. Despite Mexico's dramatic economic growth over the past decade, it remains one of the most underinsured major countries in the world.
More than a dozen major foreign insurers and insurance brokers have set up operations, mostly joint ventures, in Mexico--and the list is likely to lengthen rapidly. U.S. insurers, facing a mature market and intense price competition at home, are especially eager. "The insurance and financial-services industries are about to take off. Mexico will offer phenomenal growth," says Raph Appadoo, chief financial officer for Aetna International Inc., a division of Hartford-based Aetna Life & Casualty Co., which recently shelled out $100 million for a 30% share of Mexico's second-largest insurance company, Seguros Monterrey. Adds Gordon Cloney, president of the International Insurance Council in Washington: "This has to be one of the most interesting business opportunities in the world today. Mexico's insurance business could easily expand tenfold over the next decade."
WINGING IT. The infancy of the Mexican market is the major lure. Last year, insurance premiums grew 20.5%, nearly eight times the country's overall economic growth. Yet of 80 million Mexicans, only 1.5 million have personal life insurance. There's no compulsory liability insurance, so just 24% of the country's cars are insured. Most doctors and lawyers don't insure their practices. And only 2% of homes are insured. The 42 insurance companies that operate in Mexico collected $5 billion in premiums last year, equivalent to 1.55% of the gross national product. By contrast, the U.S.'s 6,000 insurance companies collected $508 billion in premiums last year, or 8.5% of GNP.
One big reason for the disparity: years of high, savings-devouring inflation, which have made Mexicans more concerned with making it day-to-day than planning for the future. When an earthquake destroyed much of downtown Mexico City in 1985, only 15% of the buildings were insured. "There was no insurance culture at all. After taking care of food, clothes, and shelter, people had no money left over," says Antonio Pozzi Pardo, assistant general manager of Seguros America, Mexico's third-largest insurer. Foreign insurers are betting that as inflation drops--it now stands at 10% a year-- and as the economy grows, Mexicans can be pursuaded to develop a taste for insurance, especially as the country's middle class develops.
The business-insurance market is already booming, mainly because of the horde of multinational companies that has established operations in Mexico. Jack R. Perez, chief executive of insurance broker Alexander & Alexander Services Inc.'s Latin America/Caribbean division, sees excellent growth potential in coverage of the "large construction risks" that Mexico faces as it builds up the country's highways, bridges, and electricity-generating facilities. On July 13, the insurer agreed to acquire an 80% interest in Asesores Kennedy Agente de Seguros, a Mexican broker that has specialized in maquiladora industries along the U.S. border.
STAMPEDE? The North American Free Trade Agreement, which would link the U.S., Canadian, and Mexican economies, could stimulate growth even more. Under the pact, which will take effect on Jan. 1 if Congress approves it, Mexico would allow American and Canadian companies to raise their stake in Mexican insurers to 100% by 1996. Cloney estimates that over the next decade, American insurers could grab a 10% share of the Mexican insurance market, which is projected to total $50 billion within 10 to 15 years.
Metropolitan Life Insurance Co. has a good start. After acquiring a 49% stake in Seguros Genesis with Spain's Banco Santander last year, the company began aggressively marketing life and benefits policies. It not only undercuts competitors' prices but has shaken up the market by offering such novelties as a toll-free customer-service number and a refund of the deductible if claims are not paid within five days. "So far, our strategy of distinguishing ourselves by our quality of service is working," says marketing director Thaddeus O. Burr. Founded in 1991, Seguros Genesis has quickly become Mexico's ninth-largest life-policy issuer.
U.S. insurers also should benefit from Mexico's partial privatization of its social security system, which is allowing insurance companies for the first time to offer pension plans to supplement state coverage. "As the pension market develops, we certainly would hope to have a share of it," says William G. Poortvliet, head of MetLife's international and retirement-savings operations.
Some analysts wonder if foreign insurers' euphoria is overblown. Few Mexicans can afford to invest in insurance once they've bought a house or car. Pardo says Mexico has yet "to develop a culture in which insurance is considered indispensable." Plowing big money into the Mexican market certainly has its risks. But most insurers don't want to take an even bigger risk: being left behind in competing for what could become one of the world's most lucrative insurance plays.Geri Smith in Mexico City, with Suzanne Woolley in New York and Chris Roush in Hartford