Mercado Libre: Disrupting the Insurance Industry

Innovation in the insurance industry is very unlikely to come from an internal disruption that changes the rules or generates a significant change in a product or process within the insurance value chain. The change and innovation will come from external stakeholders who require more flexible products to match new shopping experiences and consumer expectations.

Today, digital innovations and cloud technologies have opened new possibilities and business models in many industries. These changes create opportunities to innovate an outdated industry like insurance. An industry disconnected from the digital world and the reality of its customers, where most of the technology, products, and processes were designed for an “unplug” world. And, it is important for insurers who want to stay relevant and participate in the new opportunities to layout a strategy that allows them to integrate into digital ecosystems and third-party platforms with contextualized and personalized offers.

That is why we invited José Luiz de Oliveira,  Head of Insurance at Mercado Libre Brasil to chat with us about their insurance strategy. We talked about his experience innovating in insurance, what are the main barriers to innovate, and to understand what is the strategy of this platform to interact with the insurance industry.

The insurtech vertical in Mercado Libre officially begins in August 2020. Before that, several initiatives had previously been developed and opportunities were managed from the business development units. For example, in 2019, They developed a partnership with Assurant to offer extended warranty insurance in the region. The test pilot was conducted in Mexico, Brazil, and Argentina. The results were a complete success, which showed the potential of insurance products in the region. From there, it was decided to centralize and boost all initiatives with insurance products. Today, there is a corporate team with regional presence in Brazil, Mexico, and Argentina. Operations in Chile and Colombia will begin soon. The insurance team by the end of this year will have more than 200 people.

In 2020, Mercado Libre launched a product to insure cell phones in Brazil. The insurance is a modular insurance coverage that allows the user to select to insure the screen of the cell phone or to buy a complete theft and robbery coverage. “That is the vision of Mercado Libre, to offer wide, clear, flexible and customizable products that are far from the typical market coverage” affirms Jose Luiz.

Mercado Libre’s strategy to offer and design these products is to work with traditional insurers and insurtechs that want to launch innovative products with coverage that adjust to the needs of their clients. However, many barriers have been encountered on this path. According to Jose Luiz, The main challenge is in the vision, insurance must be adjusted to the purchase and administration experience of Mercado Libre and Mercado Pago. The idea is to be able to embed these insurances within their customer journey but the vast majority of insurers in the market are not prepared and do not have the capacity or the speed to meet the expectations of a digital company, which generates a gap and it has not allowed them to continue innovating with products as fast as they would like.

Currently, most insurers do not have APIs to facilitate a quick and easy integration of their products with digital companies or other actors, which makes it very difficult for them to create platform and ecosystem strategies like startups do today to generate exponential growth. Furthermore, the adoption of Open Insurance standards is still at a very early stage in the region, making innovation very slow and expensive. We see few Insurtechs in this space helping insurers to build this kind of infrastructure like SEKURE. Hence, many insurers are still not clear on how to work with this type of Insurtechs.

Another problem that Mercado Libre identified is how inefficient it is to generate multiple integrations with different companies to access several products; since integrations with insurers are slow and complicated. This discourages the opportunity to test products. Mercado Libre wants to offer a wide variety of products to offer solutions to its different customer niches. But the cost of having to go through this process does not make much sense to them, especially considering that they do these integrations internally today. An ideal solution would be to have a hub of insurance APIs that makes their relationship with insurers more efficient. An API interface that facilitates that relationship between insurers and the digital world would reduce the costs of testing different products and encourage the process of digital platforms to develop insurance verticals. The ideal situation is to replicate what was done in the financial industry with the Open Banking initiative.

In the words of Jose Luiz, the main challenge that Mercado Libre has today to partner with insurers are the following:

• Integrations, there are no standardized APIs that facilitate integration into the Mercado Libre experience.
• Lack of digital products. Many insurers want to continue pushing old products by digital means. That is not the way.
• Insurers don’t understand our users, they don’t know how to talk to our public.
• The price, digital channels allow efficiencies in distribution costs and that has to be reflected in prices.
• Lack of confidence in insurance. It is why we want to take advantage of the trust that our clients have in the Mercado Libre and Mercado Pago brands and supply insurance to them.

Mercado Libre wants to create a different experience where the people who buy insurance on its platform can find insurance that is different from what exists in the market. Price is important to reach new customers who have never bought insurance. At this moment, the focus is on developing embedded insurance offers for the users of the platform. Although, its roadmap also includes the vision of having stand-alone insurance and insurance for its merchants and vendors.

In conclusion, the opportunity that exists for the insurance industry is clear since digital platforms can become a very effective distribution channel. It is a win-win relationship where insurers can reach a new customer audience that would otherwise be very difficult and expensive to reach. Digital platforms can complement their product portfolio with relevant offers for their customers by increasing the LTV of users and generating greater loyalty. And finally, the consumer finds personalized products that fit their needs. However, it is important to note that for this to work well, insurers have to prepare and modernize their processes. It is essential to define a digital strategy and how they will relate to the insurtechs that can facilitate the digital transformation process.

Thanks to Jose Luiz for sharing his views and the vision and strategy of Mercado Libre to innovate the insurance industry.