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INSURANCE| 2021.05.27

Ratification of the EU-Mercosur agreement would open up opportunities for insurance

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This agreement—which was reached in 2019 after 20 years of negotiations, but is still pending ratification—is considered of geostrategic importance when it comes to creating links between Latin America and the EU-28. It would result in greater trade, an improvement in the economies of both regions, and as MAPFRE Economics points out, would benefit the insurance industry.

The trade deal between the EU and Mercosur (a bloc formed by Argentina, Brazil, Paraguay and Uruguay and which is considered the fifth largest world economy), was signed in 2019 and, pending ratification, covers a population of 780 million people. This would undoubtedly open up new opportunities if its implementation were to be given the green light.

Alongside trade pacts, it would also promote projects linked to sustainability, infrastructure, education and digitalization to revitalize employment and growth.
In this context, its ratification and entry into force are essential. According to data from the Central Bank of Spain, trade flows in the first economic area would rise by 15 percent and GDP would rise by 0.4 percent. Mercosur celebrated its 30th anniversary in March, and could be about to embark on a new forward, provided that persisting doubts are allayed over the commitment of some of the countries involved to environmental issues.

The agreement with the EU essentially focuses on reducing tariffs and customs duties, as well as removing non-tariff barriers. As part of the agreement, Mercosur countries are expected to reduce their tariffs on goods imported from the EU by 91 percent (especially relevant for vehicles and machinery), while the EU will liberalize around 95 percent of its tariffs the goods it imports from Mercosur (such as meat, sugar and other raw materials). Therefore, the key outcome of the agreement will center on a significant increase in trade flows.

 

Benefits for the insurance industry

“Greater trade exchange and a boost to economic growth leads us to forecast various benefits for the insurance industry, on both sides of the Atlantic,” says Manuel Aguilera, General Manager of MAPFRE Economics.

These benefits include higher levels of activity and employment, driven by the export industries. “It’s widely known that the non-life insurance segment is strongly linked to the pace of economic activity, while the development of the life segment—especially as a medium- and long-term savings channel—will be supported by higher levels of personal disposable income engendered by higher employment and salaries,” he added.

The net effect will perhaps be more relevant for insurance activity in the Mercosur countries, where the insurance gap—characterized by lower levels of insurance penetration—is greater.

He added that given the relative development of credit insurance in Europe—which is closely linked to export activity—the possibility that this specific segment of the insurance market will find renewed stimulus in both regions also cannot be dismissed.

“The overall framework of the agreement will also allow us to lay the groundwork for accelerating investment within the insurance industry, expanding the presence of European companies in these markets in the Latin American region,” he revealed. That said, European insurance groups that have been present there for years will have a relative advantage in this new context of economic integration. “MAPFRE has a greater comparative advantage due to its relevant presence in these markets and its cultural and linguistic affinity with the region,” he emphasized.