Alberto Carrasquilla, Minister of Finance and Public Credit

Colombia is convinced that supporting the insurance industry and enhancing access to insurance services is a valuable instrument to fight poverty and improve social and economic development.

BIO

Alberto Carrasquilla is an economist from Universidad de los Andes, with an MSc and PhD from the department of economics the University of Illinois. Between 2007 and 2017, he was the manager and partner of Konfigura Capital and professor of economics at the Universidad de los Andes. Carrasquilla served previously as minister of finance and public credit between 2003 and 2007. He has also served as president of the ministerial committee for development between 2005 and 2007 and chairman of the board for Colombia's central bank between 2003 and 2007. He has been a member of the Latin American Committee for Financial Affairs (CLAAF) since 2001.

What policies exist to support the insurance industry and increase coverage for Colombians?

There are several policies designed and implemented to increase coverage for Colombians. I want to start with policies aimed at improving risk management in rural areas. The National Development Plan (NDP) introduced the Incentive for Agricultural Insurance which subsidizes a percentage of the insurance premium. Thus, farmers are now more willing to hedge against the occurrence of natural and biological events that may negatively affect their production and income. In fact, due to this incentive more than 150,000ha are insured per year. Another recently enacted policy is the agricultural index-based insurance. In 2018, NDP introduced the possibility of offering agricultural insurance under the index-based insurance model. Additionally, the government has developed a program to subsidize a percentage of the insurance premium. As a result, many farmers, especially those in the coffee sector, have benefited from this hedging risk product. Second, Colombia has a strong institutional framework to promote the use of insurance and protection schemes. A good example is “Banca de las oportunidades,” a program created by the government to promote financial inclusion. The program designs strategies to facilitate the access of financial services, and co-finance and provide technical assistance to projects that seek insurance. Furthermore, the program is used to gather data about financial inclusion determinants and calculate indicators to feed the public policy design process. Another example is the Intersectoral Commission for economic and financial education. This commission proposes the policy, guidelines, tools, and methodologies for the adoption of the national economic and financial education strategy. In addition, the government, through the Financial Regulation Agency (URF) and the Colombian Superintendence of Finance (SFC), works to identify and eliminate regulatory or supervisory barriers that may be impeding the development of the insurance market. Finally, it is important to talk about the joint work between the government and the insurance industry in order to improve the industry’s framework. In the coming weeks, the government will publish the Insurance Regulatory Roadmap 2021-2025, describing its vision of the insurance industry for the next five years. The creation of the document has opened up space for dialogue with the industry to identify the principal challenges and design strategies to dynamize the insurance market.

How is the government accompanying the industry in its transition to digital processes?

The government has been accompanying the financial and insurance industry in its digital transformation process through different strategies. One of the most important regulatory advances in this regard in recent years is the financial regulatory sandbox, which has helped develop a well-tested regulatory framework for digital transformation. This sandbox was created in 2020 for both the financial and insurance industry. The sandbox is a tool to both boost innovation in the financial system and help the government increase in its capabilities to adjust the regulatory framework to the new dynamics of the market and promote financial innovation safely. A second effort is the promotion of an insurance culture in order to increase insurance distribution. The government issued decrees 035/2015, 2123/2018, and 222 de 2020, which: allow some insurance contracts to be distributed via massive channels such as credit institutions networks and agents; broaden the types of insurance contracts that may be distributed using the before-mentioned distribution channels; and enable digital distribution channels. In this sense, in 2020, Colombia had more than 220,000 agents distributed across 100% of its municipalities. Another example of government support is Innova SFC, which consists of an innovation hub whose main purpose is to promote, investigate, and facilitate the innovation in the financial industry. Innova SFC has a hub in which more than 100 fintech companies, including insurtech companies, have been oriented in the conceptualization of their innovation plans.

How can expanded access to insurance strengthen the Colombian financial system?

The insurance industry is essential within the financial system. In this order, if access to insurance is expanded, we expect less vulnerability to shocks and greater depth of the financial market. First, the government is convinced that a greater identification, mitigation, and management of risk reduces the vulnerability of the economy to catastrophic events. In this sense, expanding the access to insurance allows households and firms to face risks and avoiding eventual income shocks that may affect the stability of financial system. Second, the massification of insurance services will increase the amount of premiums under administration by insurance companies. As a result, a larger amount of reserves would need to be held by the insurance companies, which in turn would be invested in capital markets. Thus, greater levels of insurance market depth will require insurance companies to invest more resources in the capital market, which would have a positive impact on the entire financial system.

How do you envision the future of the Colombian insurance industry?

The government will publish the Insurance Regulatory Roadmap 2021-2025, which describes its vision of the insurance industry for the coming years, based on three pillars: resilience and alignment with international standards; transparent and safe for consumers; and inclusive and capable of adopting technological innovations. The government expects such strategies to improve the market depth indicator (premiums/GDP). The progress of this indicator will reflect better risk management by Colombians as an effective tool to reduce levels of poverty and vulnerability. In 2019, the ratio of direct gross premiums to GDP was 2.8%. For 2025, this ratio is expected to rise to 3.5%.