PERU: An Introduction to Insurance
Overview of the Insurance Market in Peru
The Current Overview of the Insurance Market
The insurance market overview in Peru is dynamic and constantly growing, influenced by a number of factors, such as regulatory changes, the expansion of the insurance market, increased risk aversion among the population which generates a greater demand for life insurance, health insurance, and property insurance, and the focus on so-called "microinsurance". The Superintendencia de Banca y Seguros y AFP (SBS) (Superintendency of Banking and Insurance and Pension Fund Administrators (SBS)) in its latest report for the first quarter of 2024 detailed that the Peruvian insurance system is made up of seventeen companies. Of these companies, eight are engaged in general and life insurance, six only in general insurance, and three only in life insurance. However, the insurance penetration rate is still low compared to other countries in the region, suggesting great potential for expansion in the coming years.
Key Entities for Consumer Protection on the Insurance Market
In Peru, there are several institutions that regulate and supervise the insurance sector to guarantee transparency and fair competition among private companies, thus generating consumer confidence. Among these institutions is the Superintendencia de Banca, Seguros y AFP (SBS) (Superintendency of Banks, Insurance and Pension Fund Administrators (SBS)), which is a strong entity that plays a crucial role on the Peruvian insurance market. The SBS has developed a regulatory framework that seeks transparency in operations, solvency, and sustainability for fulfilling the obligations of insurance institutions. Additionally, both the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (INDECOPI) [National Institute for Defending Competition and Protecting Intellectual Property (INDECOPI)) and the Superintendencia Nacional de Salud (SUSALUD) (National Superintendence of Health Care (SUSALUD)) protect the rights of insurance consumers in Peru, within the framework of their competences, and assist in solving complaints regarding the interpretation of insurance contracts, the fulfilment of obligations by insurers, and the quality of service.
These institutions of the Peruvian legal system work together for the common purpose of protecting insurance consumers. For example, in 2023, INDECOPI and the SBS created an application called Plataforma Virtual SBS – INDECOPI (PLAVIR) with the intention of exchanging and referring information to shorten the time required to handle claims.
In addition, the Asociación Peruana de Empresas de Seguros (APESEG) (Peruvian Association of Insurance Companies (APESEG)), made up of insurance and reinsurance companies operating in Peru, created the Defensoría del Asegurado (DEFASEG) (Insurers Ombudsman (DEFASEG)), which is a self-regulatory mechanism for protecting policyholders' rights by solving disputes between private insurance users and insurers under certain scenarios. Undoubtedly, DEFASEG achieves the goal of providing an effective and quick solution to insurance consumer claims.
On the other hand, the Judiciary also plays an important role in solving disputes related to insurance matters, be it the courts specialised in civil matters or, where appropriate, the courts with sub-specialisation in commercial matters, and even the courts in contentious-administrative matters that control the legality of the resolutions issued by INDECOPI or SUSALUD. However, Arbitration – depending on whether it is legal or contractual arbitration – is also a dispute resolution mechanism between the insurance contracting party and the insurance companies, which is often more efficient compared to the response time of the Judiciary and has greater advantages such as greater flexibility in procedural rules, specialisation, among others.
Insurance Market Regulation
Regulation in the insurance sector is subject to constant change, forcing insurance companies to adapt to level quickly. These regulatory changes may include new capital requirements, product changes (mandatory insurance or new products as required by the law of supply and demand on the insurance market) and adjustments to supervisory processes.
Law Number 29946, the Ley del Contrato de Seguro (Insurance Contract Law) enacted in 2023 – the fundamental insurance law in Peru – has enabled significant progress in protecting insurance consumers and, at the same time, has made insurance companies and policyholders aware of their legal obligations and the legal consequences of non-compliance. Moreover, the SBS, through several resolutions, approves regulations for specific insurance, insurance brokers, auxiliaries, and others that allow insurance regulation to become increasingly solid. However, there are still challenges in interpreting and applying insurance regulations, resulting in disputes between insurers and policyholders. In this sense, it is imperative that legal practitioners continue to work together in order to seek greater predictability in their regulatory solutions.
Challenges on the Insurance Market
It is important for the national system to have clear and specific regulations that are not only aimed at insurance consumers, but also at the contracting party who is not in a weak position, so that the authorities' responses to any legal dispute between insurance companies and insured parties are in accordance with the contractual agreement. We consider this to be one of the greatest challenges in the short term in Peru.
On the other hand, despite sustained growth on the Peruvian insurance market, there is still a large portion of the population that does not have access to certain insurance products, so expanding coverage and promoting population inclusion remains a major challenge.
Similarly, given the new technology developments, insurance companies are challenged to use big data and predictive analytics to offer personalised insurance that is tailored to customers’ specific needs and behaviours, but always taking care not to breach personal data, as this can lead to very serious penalties and above all generate consumer distrust, which has a major impact.
Final Thoughts
Peru's insurance environment is expanding, driven by digitalisation and technological innovation. Thus, although facing a number of challenges, the market shows promising growth. Regulation ensures protecting policyholders' rights and promotes transparency and fair competition. Insurers must adapt to new risks and demands to remain competitive. Overall, the insurance sector is establishing itself as a crucial part of Peru's financial system.