Rimac Seguros has signed a contract with IBM to use their Watson system, which uses analytical algorithms and cognitive computing, in its fight against fraud and for its health clinics. Currently, there are only two clinics in the world using this technology: one in Peru and the other in Thailand. Rafael Venegas, CEO of Rimac Seguros, provides a detailed insight into the Peruvian insurance markets and where technology – especially in healthcare – is taking the industry.
Over the past few decades, Peru developed a virtuous circle that resulted in a higher purchasing power for its population. A middle class was born and it started to buy insurance. How has this contributed to the insurance sector?
As you said, the purchasing power has improved a lot, because more people have joined the middle class.
Before, Peru didn’t have a significant middle class, it was almost as equally small as the higher class, and there were many people in the lower classes.
Nowadays we have a good middle class, with a much greater purchasing power than what they had 10 years ago. This allowed them to start investing in things that they wouldn’t have done previously, such as insurance, housing, health, etc.
This has affected the insurance companies positively. In recent years we have been growing at a rate between 12% and 16%, but in the last two years this growth has begun to decline, because now the country is slowing down due to the global crisis.
Peru is heavily dependent on the mining sector, so the price of commodities has affected us.
Another aspect has to do with an excess of regulations, because this is the Third World but we wanted to move into the First World right away.
So the regulators, instead of doing things one step at a time, they want the same regulations that Switzerland has, which generates a series of problems for the companies.
‘Solvency II’ was something that the former deputy superintendent wanted to pass very quickly, almost without looking at examples nearby.
Happily, that changed in recent months because that official left the agency, so they began to look at examples in places such as Mexico or Chile. At Rimac we were already preparing for this three or four years ago.
We have a consultancy with management solutions, who have been working here for three years now, and just completed the system a couple of months ago.
We’ve already compared our figures to those of 2013 and we’re solvent, equivalent to BBB+ in solvency.
This has happened because Rimac and the group in general are very conservative, especially regarding insurance companies, where you must have important reserves (which we have).
For example, the mortality rate table used by the Peruvian Superintendency of Insurances is very old, the longevity is very short there, it should be around 75 or 80 years instead of only 70.
We’ve been using the mortality table from Chile for years now, as it was modified. In terms of insurance penetration, this country is one of the worst in Latin America.
One of the main challenges ahead for Peru is related to its huge informal employment rate. This directly affects the banking system, private pension funds, and insurance. How important is to think beyond the big cities and penetrate in the rural areas?
An important aspect is people’s lack of culture. As they moved from lower class to middle class, they’ve never been prepared, they don’t know what insurance is, they think it’s just an expense and not a preventive measure.
In the educational work we have almost no support from the government and the supervisory agencies, which should be helping us in this regard. There’s only one mandatory insurance, the insurance of vehicles against third parties.
There’s no insurance for houses –Peru being a seismic country it should have mandatory minimum house insurance.
So far this year we’ve grown 10%, but I don’t think we’ll be able to continue at that rate. I think we’ll stay below that figure, because the slowdown is making big companies not to hire and even laying off employees.
Prices are low. Dismissing people means cutting the work risk and health insurances of those who are no longer employees.
That affects us, and in those areas we are virtually in zero growth, or maybe 1% or 2%, which means we’ve grown a bit but also that we’ve lost.
Projects are on standby right now, because most of them were in the mining sector and given the prices of minerals, many have put their projects on hold.
This also affects us because we were insuring two out of three projects. We know that this is happening, and that the consumer is now the one who usually decides.
Brokers and companies used to influence consumers, but since there are so many alternatives now, there’s a change in the area of personal insurances.
On the other hand, technology and competition are arriving to Peru after many years. It hasn’t made it big in the market yet, the only big one is Sura, but there are others asking for licenses, which means we’re talking about bigger players now.
In this new scenario, your company is developing a form of vertical integration through medical centers. Tell me a bit more about this strategy.
We’re working on different projects in the health sector. We have invested a lot of money, and we have three very large projects in the pipeline.
One of them actually starts in a few months, it’s a big medical center just like the one we’ve just opened, and also two clinics, a very large one with 350 beds, and the other is an extension of the clinic we already have in Lima.
Our model is to have two hubs of large hospital clinics and several medical centers, which are the ones that send the patients to the clinics.
We’ve built the big San Borja center for outpatients, and another four in a partnership with a Chilean company, which is the same that built the centers that Cruz Blanca had until very recently.
They came to Peru so we made a partnership with them.
In the health sector we have achieved everything we set out to do, so now we want to take a huge leap forward, towards the way the health sector will be in the future.
Hospitals with beds will not be as useful, because the surgeries will be performed on the same day and the patients will be able to go back to their houses and have home care.
They’ll set up the equipment and send you a nurse and a doctor once or twice a day, but you’ll be at home, you’ll be happier and it’s also better for the clinics because the hospitality aspect of the clinics are not really profitable.
We will connect our tablets through sensors over the body. It is proven that 65% of people in the world don’t go to the doctor, and would prefer the doctor to be far away, for example, to scan themselves using a tablet and sending it to the doctor who is somewhere else.
That change is not that far away, we want to make sure that our investments will be according to this, we don’t want to make an investment that lasts only for a couple of years.
The same thing is happening with medical equipment. In the old days you would buy an MRI unit that cost a lot of money but lasted for at least 10 to 15 years.
But now, in two or three years it’s gone out of fashion, and you have to buy a new one. So our way to invest in health has changed, from continue to build clinics with beds, to try and see what we can do about the future.
We have signed a contract with IBM to use one of their systems, called Watson, which uses analytical algorithms.
We are one of the two clinics in the world using this technology, in Peru and Thailand, even before the United States does.
This machine stores information from the best oncology clinics in the world, 10 years of medical records of all forms of cancer, how they were treated, their outcome, and will use it to tell us which is the best treatment depending on the patient.
Of course you can compare what the machine says and what the doctor says, but I don’t think there’s any doctor in the world who has all the information this machine has.
We have been working with IBM for a year and a half in the issue of introducing cognitive technology into the insurance industry.
According to the theory, there are three stages in cybernetics: first there’s tabulation, second there’s programming, and third we have the cognitive stage, where you feed so much data into the machine that it can actually make decisions.
It’s not artificial intelligence yet, but it’s on its way there. It’s called big data and analytic tools, IBM showed it to us and we worked for almost six months to get a contract with them.
We have the global head of big data and analytic tools of IBM coming to Peru for a week every month.
These are the tools for the first four fronts we have chosen. The insurance industry is one of the industries with greater amounts of fraud, because the potential for fraud is on many fronts, for example there are doctors who do things or procedures that should not be done, so that must be all audited.
We receive more than 300,000 monthly receipts; we should review each one of them against each policy. That was impossible so we did it randomly.
But now, with this IBM system, those receipts are digitalized and then they go through a system to which we have fed several parameters.
Everything that doesn’t fit these parameters is separated and that’s what we review, which is roughly 10%.
But we’re actually reviewing almost 100%, which we didn’t do before, and we’re starting to see the results.
Who is your model of reference?
When I first joined the company I went to New York to make an insurance-related visit, and I went to IBM because they had invited me to do a presentation about their work on insurance.
There I met the global strategist for IBM, who luckily had worked in insurance so she really knew the subject. I asked her two things: what should I worry about, and what should I focus on.
She told me, first of all focus on front management and secondly, expense control. She didn’t talk about risk control, nor any basic things about insurance, but she told me that’s where the losses were coming from.
Since then I started looking for alternatives on how to tackle this issue and found that IBM had this tool, which had already been used in Brazil, so we hired it.
Probably after addressing these four fronts, we will start using these tools. This is a real help for the future of the insurance industry, which is changing as far as the health sector, because of the technology, and because the customers now want to buy their own.
On the issue of technology, this wasn’t my plan but when I came here McKenzie had just finished a master plan to be implemented in Peru.
I didn’t want to do it with them, because otherwise I would lose everything I earned paying their fee. So we did it ourselves, we hired a very good local team with support from IBM for outsourcing, and with Tata, in India.
Both of them continue to work with us, and the master plan, in which we invested over $45 million in four years, is already in the final six months stage.
The IBM thing is a huge investment but we will recover it quickly, our partnership with them is a win-win situation; we have a budget, and then we share the profits that exceed that budget.
Something that’s new for us is mass insurance, or personal insurance, which we’re sure that will eventually be sold on-line or through bancassurance.
Our bancassurance sales are already 18% or 19% there, and even though the Internet is still small, we were the first company to sell through the web.
Now we’re selling four or five products, we are on social networks, we are the only ones who sell via Facebook.
We’ve always had the intention of being the first ones working with technology; we want to be identified with that.
There are also new licenses to sell insurance to countries on expansion, right?
We have reinsurance licenses in three countries: Ecuador, Chile, and Colombia. We’ve done some operations, but mainly for Peruvian companies that came from those countries, to provide full insurance. It also allows us to get to know those markets.
We have no intention of going international for now, but it’s an alternative we’re considering for 2018, if in the medium-term we manage to get a solid technological platform.
You obviously have good relations with the United States, through IBM, and with American mining companies.
We have several clients. We have 13 leading companies that we represent in Peru, of which there are several American and some European.
When I say ‘represent’ it means that when they bring a client we do the fronting for them, and we make an administrative report.
This is great because we get several businesses, for which we sell all the insurance since we’re doing all the fronting.
My last question it’s about the G20 Forum. One of the main topics will be how to capitalize on the sub-dividend of technology investment in Latin America for a greater penetration and financial inclusion. What do you think will be the future of this technology trend, not only in Peru, but also in Latin America?
On the health insurance issue, I think the trend will be the same as I’ve already told you about. There are several companies much more advanced than us in the health aspect, but are not using those tools yet.
I think the trend will be to optimize the tools of cognitive technology, big data, sensors and that sort of thing, in the health sector.
If we compare the clinics in Colombia or Chile they’re much better than us, but if we start using this technology first we’ll go straight to the top.
In Latin America they consider us the number nine economy; we don’t think we’re at that level, but we do believe that we will be among the first to work with all these new technologies which will soon be available for us.
We will be a model clinic at a regional level, and that’s what we aim for.
Regarding insurance, I think Rimac has earned a place in the region. We are the second company to buy reinsurance in the region; the first one is a Mexican company.
We have a good risk classification, and 120 years experience, which in insurance is very important because it means that we have done well – in insurance you must have credibility.
We are backed by Peru’s main group, in which I feel very comfortable working, because it’s a group that works in a very responsible and conservative manner, with a low profile.