While subtle changes will be necessary will offering the product in another country, I am confident that with our proven equines models across all lines of business and ability to staff and train, now is the time to further expand internationally. The Market Peru, one of the most rapidly growing and emerging markets in the world. Peer’s continuous economic growth, make it a very attractive market when considering expansion for Property and Casualty insurance.
Peru offers substantial growth opportunities for insurers if they understand the various cultures and business dynamics in the country. Tapping the emerging middle classes here is also crucial. The Peruvian economy has been growing by an average of 6. % per year since 2002 with a stable/slightly appreciating exchange rate and low inflation, which in 2013 is expected to be below the upper limit of the Central Bank target range of 1 to 3%.
In terms of Property and Casualty Insurance currently being written in Peru, over 2 billion dollars in Non-Life insurance premium was written in 201 3 with P insurance being the most prevalent line of insurance premium being written. When doing business in Peru, Lode’s country comparison reports ranks Peru 35th out of 189 rank country in regards to ease of doing business. The Regulatory Quality ranked 68th out 189 and with our services, import & export regulations and tariffs should not greatly impact out business within the country.
Competitive Advantage Our competitive advantage comes from leveraging our current business model that has made us successful in United States and in other foreign markets including Brazil. Vendor & Contractor Relations have been major contributing factors to our success. A strength of our model in the SIS is we know who to partner with; we need to know those same partnerships in the local area.
We’ll need to find new contractor/vendors that have the same level f service our customers have come to know: Ability to leverage our vast data to make quicker and better decisions at the individual account level Superior service from claim professionals with specialized expertise and experience Culture emphasizes the importance of talent development: training, mentoring, recognition, succession Forensic Engineers and Lab Knowledgeable and experienced staff with expertise in risk management/loss prevention services Domestically, top 5 company with 70% of agents ? simple and efficient for agents/brokers with which to do business.
We can leveraging U. S. Striation management capabilities to International operations Extensive product offering fits a wide range of P needs, delivered with specialized local market knowledge Nurse Resources Products Liability Group Technical Skills Litigation Management Staff Counsel High-growth in Peer’s market will require smart and sophisticated operations. Leaders in the region are investing in technology to achieve efficiencies, improve underwriting/claims analytics and target profitable market segments.
Analytics is particularly important. Deep data analysis can produce results, but only if insurers make sufficient investments in technology and Allen. Our primary competitive advantage will be that most of Peer’s current insurers are not technically prepared for high levels of risk and capital management. Culture engages – Spanish & Quiches Currency – Novo Sol Literacy Rate ? 93. 4% internet Adoption – 42% Agriculturally Base society High importance of family, religion, and relationships Power Distance – Hefted Score: 67 Tolerant towards unequal distribution in power Preference toward certainty and structure Large number of Hierarchal organizations Individualism ? Hefted score: 16 Collective Cue True Strong family and relationship structure A “We” attitude Vs.. “l” common in American Culture Very team orientated uncertainty Avoidance – Hefted Score: 87 Strong Desire for Certainty Conservative country Stricter rules, regulations and consequences Unknown and unexpected, not generally accepted Masculinity Vs..
Femininity – Hefted Score: 42 Emphasis on relationships and less on individuality Even distribution of roles Relatively average score Economy When examining the economic environment in Peru, the thing that stand outs is strong and constant growth since the year 2000. As shown below, in 201 3 Peer’s Real GAP growth was 5. 8%, strongest of the top 6 competitive environments (not including ones where we already do business) in Latin America and has continuously soared above other countries in that regard.
When issuing or bond insurance, there is no physical good being traded for the premium being taken in. We are selling a promise to pay, a contract, as appose to selling physical goods. With our business- imports, exports and the concerns associated with importing and exporting of goods do not greatly impact us. The goods we hand to our customers are contracts (Insurance policies) and souvenirs, all of which can be manufactured with goods already existing in Peru. If we utilize an acquisition entrance strategy, we may further reduce costs and risk associated with Imports, exports and tariffs.
Having had a similar experience with another country in the same continent, looking at Peer’s economy holistically, appears to be an advantage and primary reason for choosing Peru for expansion. Competitors Peer’s competitive environment has not been heavily penetrated by P&C companies outside of Latin America. Those multinational P&C companies that actually have penetrated the market have not captured enormous market share and have not proven to primary competition to Travelers in their home ease, the US.
Locally, RIM owns 40% of market share and would be our primary competitor. Pacific follow second with 24% of market share. Given the fact there appears the fact that two companies essentially control the market, a joint venture or acquisition may be our best option, which will be discussed later. The competitors are as followed: Multinational ACE One of the world’s largest multi-line P Insurers operating in 54 Countries with over 20,000 employees across four continents ACE Grouse, headquartered in Chile, operates in 8 Latin American countries ACE Latin
America comprised 9% of Gross Written for the ACE Group in 2013 ACE Latin America Commercial Property and & Casualty grew over 20% in 201 3, leading the way for any line of business in the ACE Group CHUBB One of the world’s largest P&C insurers operating in 27 countries and 120 offices around the world. Present in 6 Latin American countries including Argentina, Brazil, Bermuda, Chile, Colombia and Mexico MANFRED Insurance Global group operating in 47 countries across five continents Leads the Spanish insurance market, and is the number one multinational insurer in Latin America and leaders in the non-life insurance sector.
One of the 10 largest European groups in premium volume and are among the top 20 automobile insurance companies in the United States 2013 total revenue in excess of 25. 88 billion euros and posted net income of more than 790 million euros Local RI MAC Peer’s largest P insurer with 40% market share Offers wide range of both personal and commercial insurance products. 013 Written $MM USED Pacific Peer’s second largest P&C insurer with 24% market share Written $MM USED Magellan Serves over 500,000 clients, leveraging a network of 21 branches nationwide ND an extended network of brokers Given our strengths as company and our already established presence in another Latin American country and by partnering with a top local provider, we feel that we will face no issues being completive in Peru. Staffing When conducting business in Peru, as stated earlier, our people are what drive the success of our product.
As it will not be possible to simply move our current workforce to Peru to conduct business, we will need to staff our labor force with residents of Peru. Not only to staff our needs; more importantly we need a local presence to understand the culture. We want to employ local people that understand the area, culture and know the customers. In terms of Sales & service, we’ll need people who speak the language and can help service our product. While recruiting talent in a foreign country is something that may initially appear to be a hurdle to overcome, it is something that actually can and will set us apart from our completion.
One may ask themselves: Do the locals have the knowledge and expertise to work for an insurance company, such as Travelers? What will be the barriers to a streamlined workforce? How do we manage a culturally different employee base? All, valid questions and something that one must consider in great depth, but should not be categorized as a risk or potential barrier to entry, but rather a unique advantage that we bring to the table. The Peruvian workforce is yearning to have an employer that will do their due diligence on how to interact and understand a culturally diverse staff.
We will put in the time to train and provide ample support to a growing (in size and education) population. Yes, language barriers at first could pose as a difficulty, but we have successfully learned to maneuver in these waters in the past (doing equines in Brazil and other nations) and will continue to do so in the future. Peer’s Work force demographics Population – mm Adult Literacy – 93. 84% Total Labor force mm Unemployment 6. 5% Brazil Work force demographics Population – mm Adult Literacy – 90. % Total Labor force mm unemployment 5. 4% When comparing Peer’s workforce dynamics to Brazier’s (a country where we are already successful) we find that the workforce is much smaller corresponding with it being a smaller country. We also find that Peer’s literacy rate is higher than Brazil which leads us to believe that training a staff and ending capable workers will not be an issue. Distribution Channels On the surface, P insurance is sold in a similar way in Peru, as it is sold in the US.
The following are the distribution Channels that will be used to offer our products: Evanescence: Insurance companies typically partner with a bank using it as a channel to sell insurance Primarily used for Life Insurance products in Latin America premium is deducted from customer’s bank account directly Bank receives commissions based on the sale of insurance products Agents and brokers Most personal Insurance products are distributed via Agents and brokers. Currently in the US, most personal lines insurance products are sold through Agents and brokers. We can leverage our current model.
Direct to Consumer (ETC): Many Insurers are beginning to utilize Social networks and Mobile Capabilities to distribute insurance Peruvians prefer social experience of shopping, expanding need for social media and direct to consumer channels across Latin America Insurers are beginning to utilize Social networks and Mobile Capabilities to distribute insurance Exploiting multiple distribution channels, leveraging social networks and mobile technology to distribute products and roved education and services to customers when and where it is most efficient for them to engage in these interactions.
Multi-distribution channels present the potential to improve competitive advantage and market reach, as well as increase insurance sales to middle class consumers” A one-size-fits-all distribution strategy, on the other hand, has not been effective in Peru. Personal lines general insurance is distributed predominantly through traditional intermediaries, which can constrain penetration of new and expanding markets. Peer’s internet and social media adoption are 42% & 44% respectively.
Pop-up Shops 8 Billion industry with an average annual growth of 16% Successfully bridges gap between e-commerce and brick-and-mortar stores Compliments Latin America’s very popular retail distribution channel model Multiple co-branding opportunities with traditional retailers Opportunity to engage younger demographic with this type of approach Sales & Marketing In order to be competitive in the P&C industry in Peru, we will need to first understand the market, then how to market our product to produce sales. Market Background Information in Peru: Population: 30. 9 Million GAP: $344. Billion 5. 8% growth 5. 5% compound annual growth ere capita $k Inflation: 2. 9% engage: Spanish Market Segmentation: Most (roughly 80%) of buying power found in rural areas Large House Holds where it is becoming common for women to be the decision makers Overall income is steadily rising Buying patterns are largely influenced by North America Very large youthful demographic Very family orientated consumer “copy-cat’ consumer environment – people tend to follow trends The 4 Up’s of Marketing (Product) The P&C product offerings in Peru will very similar to those offered in the U. S.
When entering the Peruvian market, the following products will be offered ND marketed Personal Auto Insurance personal Home Insurance Commercial Business Insurance Specially and Bond Insurance The 4 Up’s of Marketing (Position) Agents and Brokers Evanescence Direct Department Stores Pop-Up Shops The 4 of Marketing (Pricing) Factors that affect consumer sensitivity to price Lower Income Level Lack of governmental enforcement to require insurance Factors that a business must consider when pricing Risk level Pricing will be based upon offering a completive price (in line with our competitor) while also factoring in risk and being able to earn a profit The 4 Up’s of Marketing (Promotion) Paid Ads ( Web, mobile, etc. Specifically buying real estate on search engine pages Organic Search – (Search engines) the consumer is actively looking for P&C insurance Display Advertising – Web, print, magazine Coma Raters – Making sure that our technology is in sync with competitive raters used by agents Social Media Risk areas to be considered Politics: Leant Human is President Term ending in 2016 Democratic Republic Multi-Party system President’s approval rate had steadily decreased over the past 3 years. Constantly changing and controversial cabinet Fragile instructions Weak judiciary system Continued corruption Government Trade issues Peer’s most current Free Trade Agreement (PTA) with US began in 2009 FAT agreement with the US has been poorly received with many citizens claiming broken promises as well and labor and environmental problems as a result The current PTA provides foreign investor rights to access forestry, mining and other natural resource concessions.
Several protested this resulting in the Peruvian military being called upon for crowd control The current FAT also allows for Peruvian employers to use subcontracting and outsourcing legal loopholes that greatly limit workers’ ability to unionize; child labor and arced labor continue unabated. Many unions and civil societies have formally called for major reforms to the current PTA Regulations Similar to Tariff, because we are not importing or exporting goods to sale, I do not believe the regulations will be a major concern. Overall the P regulations are looser than what we experience in the US but our product offering will be in line with them An international team with member appointed to different regions, will be responsible for tailoring our product to meet each area’s laws and regulations.
The same team concept exists today regarding differing states. Societal Peer’s Constitution guarantees employees collective bargaining rights and the right to strike Unions and strikes are somewhat common Common practice to hire temp employees so that they may noting a union Law forbids Companies from hiring temp employees for any core functions and companies are legally liable for any contractor actions Increasing crime within Peru continues a pose a risk within Peru The CHIN now estimates Peru to be world’s largest export of Cocaine Peruvian government shows a commitment to addressing Peer’s criminal activity but is undermanned and struggles Technology Internet Adoption – 12. Lion users; 42% penetration Very “Youthful” Information tech oenology environment Underdeveloped Infrastructure Transportation Utilities Course of Communication Lack Of substantial hardware development Not accustomed to use of IT in everyday work Religion Religion in Peru is important to most and the government is closely aligned with the Catholic Church The predominant religion is Roman Catholic, but there is a scattering of other Christian faiths The Catholic Church receives preferential treatment in regards to education, taxes, immigration and several other area as per and official agreement Law mandates that religion e incorporated into the curriculum for all schools Entrance Strategy When expanding internationally, creating and successfully implementing a tactful entrance strategy is Of enormous importance.
When entering Peru, we must evaluate the pros and cons each potential entrance method considered (Independent entry, Joint Venture, Acquisition) Pros independent entry: Control over business decisions and intellectual property Capture all upside from success Joint Venture: Partner brings existing customers and market knowledge Less capital required Acquisition: Existing customer base Opportunity for value adds such as skills, products, and capital Cons Effort required to build market position Lack of local market knowledge Lack of brand recognition Potential for diverging interests Agreement required before decisions are made Less control over business decisions Agreeing on valuation can be difficult Must pay a premium to acquire majority interest Legacy liability risk Conclusion In closing, we believe that expansion into Peru will yield success in following this plan. Peer’s growing economy and appetite for P&C business key reasons why we will be successful.