The Travel InsuranceIndustry in Latin America:

Context and Trends

Feburary 2017

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Legal notice

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About AMI

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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.

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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 cardsDistribution and purchasing cards

POS systems NFC EMV cards Mobile payments E-commerce

Payment gateways Digital wallet Retail cards Financial inclusion Remittances

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Travel Insurance in Context

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Int’l Travel Is on the Rise, Despite Economic Woes at HomeAn increasingly strong dollar has not deterred Latin Americans from traveling abroad

Sources: ProColombia, El Tiempo, MINCIT, DataSur, INDEC, Federal Reserve, OECD

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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*

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Installments Enable Continued Expenditure on TravelLatin 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

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Credit and Debit Card Penetration, 2017Credit 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

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E-commerce Is the Region’s Fastest-Growing Retail ChannelEspecially 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, FrecuenciaLatinoamerica, AMI analysis

E-commerce

M-commerce

Visits to retailer websites by device type, % of visits

Use of mobile, CAGR 2015-2019

Desktop46% Mobile

54%

Successful purchases made by device type, % of purchases

Desktop90% Mobile

10%

55%40%41%

37%25%

18%15% 30% 15%20%

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Travel Insurance in Latin America

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Small Market Today But Tremendous Room to GrowAt 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

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Growth of the Online Channel Is Transforming the Travel Insurance Market

Sources: Allianz, AMI analysis

$86

$2 $8

Airline/travelagency

Banks Direct to consumer(online)

LatAm Travel insurance market size by channel, 2017 2017-2020 CAGR

Airlines/travelagencies/banks

7%

Online channel 60%

Overall market 13%

$212

$5

$63

Airline/travelagency

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

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Channels Require Differing StrategiesAs the market trends heavily towards online, insurers must develop solid value propositions for consumers

Segment Key channel nuances

Airlines/travelagencies

• 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

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Case Study: Allianz in MexicoWanting 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

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Online Presents Unique ChallengesSucceeding 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

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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 ofmedicalexpenses

• 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 andpersonal 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

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In Most Markets, Travel Insurance Is UnregulatedThis is expected to change in the medium-term, creating opportunity but also adding cost

Market Regulatory framework for travel insurance2016 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

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Competitive LandscapeToday, 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.

2Financial 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.

5Local fintech companies close to Latin American customers could potentially expand into offering insurance.

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About AMI

AMI is Latin America’s leading independent market intelligence consultancy

Our founding partners helped pioneerthe field of market intelligence in Latin America

Our consultants have advised over ½ of the region’s100 largest strategic investors over a span of two decades

AMI consultants have conducted close to 2,000 clientengagements in Latin America since 1993

Our consultants have worked in everymarket 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) 873-4311llehr@americasmi.com