In Business Trends & Strategy
This article was originally published in the International Travel and Health Insurance Journal # 256, May 2022. Read it here.

Alejandro Alvarez and Alfredo Fernandez Vega review four notable frontier markets in Latin America, identifying challenges and opportunities for insurers and medical assistance suppliers.

A frontier market is usually defined as less established than an emerging market. In this article, we provide insights into four countries in Latin America that can be labelled as ‘frontier markets’ for travel insurance and assistance providers.

Costa Rica

Costa Rica benefits from a long-standing tradition of economic openness and business-friendly policies, along with high GDP per capita compared to its Central American neighbours. A relatively affluent consumer base and low levels of poverty have underpinned discretionary spending in recent years, including on travel, although high unemployment and a rise in inequality over the past decade have dampened consumption.

A little over one million people travelled abroad in 2018 and 2019, which corresponds to a fifth of the country’s 5.2 million inhabitants and is higher than the average outbound traveller-to-population ratio in neighbouring Central American countries (see the first table, below). Since 2018, Costa Rica has been the primary Central American country of origin for arrivals to the US (see the second table).

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Inbound tourism represented around eight per cent of the country’s GDP before the Covid-19 pandemic, and Costa Rica has built a strong tourism-focused hospitality sector around its biodiverse natural environment. The country is estimated to contain five per cent of the world’s flora and fauna, and for several decades successive governments have worked to create a well-established system of national parks and protected areas that comprise a quarter of all its land. A record 3.14 million foreign tourists visited Costa Rica in 2019, up from 3.02 million the year before, with many looking to explore its diverse geography.

Travellers interested in riding ziplines through dense jungles, surfing the waves on the Pacific Coast, or going on volcanic treks through cloud forests, tend to purchase robust travel insurance that includes medical evacuation services. This is particularly important to international visitors, and may present an opportunity for fixed-wing air ambulance industry players.

The need for insurance coverage increased in August 2021 when Costa Rica began requiring inbound unvaccinated tourists to provide proof of travel insurance with at least $50,000 in coverage for medical expenses, including Covid-19-related expenses. In addition, tourists must have at least $2,000 in coverage for quarantine lodging expenses while in Costa Rica, to cover the cost of lodging following a positive test or exposure to Covid-19 that prevents them from returning home as scheduled; Costa Rica is the only country in the region with this requirement.

Ecuador’s travel hub status

Like neighbouring Colombia, Ecuador is a travel hub that sits between North, Central and South America, and this has enabled it to organically increase its traveller inflow. However, the market remains relatively small for travel insurance and assistance providers. Two million people visited Ecuador in 2019, a 19-per-cent reduction on the previous year’s total of 2.4 million travellers.

Ecuador has significant mineral reserves and has made efforts to improve the investment environment and attract oil and mining investors. However, opportunities outside these sectors continue to be restricted by low purchasing power, measured in terms of GDP per capita; this lack of opportunity includes hospitality and tourism. Persistent poverty and income inequality have hindered growth in household consumption, even though Ecuador uses the US dollar as its legal tender.

In an effort to stabilise inflation and end exchange rate volatility, Ecuador made the US dollar its legal currency on 13 March 2000. However, economic development has been slower to arrive, and the dearth of fiscal support measures for consumers and businesses has permanently damaged household income. The country recorded 1.5 million outbound travellers in 2018 and 2019, the lowest traveller-to-population ratio among all 14 Latin American countries.

Decreto No. 1355 sets out that only Ecuadorian companies duly registered with the national health system can provide medical assistance inside the country.

In 2018, the Ecuadorian government required tourists to show proof of travel insurance when entering the country. The requirement was enacted countrywide in May, but it was later limited to visitors to the Galapagos islands. Aided by this government requirement, travel insurance and assistance providers might find an opportunity in controlling their service networks to better manage their investment and to make use of the country’s existing infrastructure. Although historically poor, overall standards of healthcare service had been gradually improving prior to the coronavirus pandemic. The number of doctors per 1,000 people rose from 1.6 in 2007 to an estimated 2.2 in 2020.

Providers must be aware of a 2017 regulation that limits the offerings of medical assistance within Ecuador. Decreto No. 1355 sets out that only Ecuadorian companies duly registered with the national health system can provide medical assistance inside the country, which increases compliance costs to new and prospective providers. The restriction does not apply to Ecuadorian nationals or travellers travelling abroad.

Guatemala’s tourism goes hand in hand with El Salvador

Guatemala’s tourism sector hit rock bottom in the second and third quarters of 2020 and has found it hard to recover, in spite of opening its borders to foreign tourists with a negative Covid-19 test result. Guatemala is lagging behind neighbouring countries that have enjoyed a slight recovery in tourist arrivals this year.

El Salvador and Guatemala are each other’s largest tourist markets. This was disrupted by the pandemic and is unlikely to recover in 2022 as both countries are still struggling with slow vaccine rollout and household income levels that are under pressure due to the slow economic recovery.

The Guatemalan economy receives significant inflows of remittances from abroad, especially from the US. Travel between both countries is strong and stable due to the large number of Guatemalan expats visiting from abroad, especially during holiday seasons.

Travellers from Central America to the US

Guatemala’s relationship with the US is both a strength and a vulnerability. Guatemalan-born workers with the right to remain in the US benefit from labour market improvements there and send money back to the local economy. Recoveries in domestic demand and oil prices will boost imports, and external demand for Guatemalan exports will be firm (reflecting the US recovery). However, tourists remain wary of the country’s poor security environment, weak healthcare infrastructure and slow Covid-19 vaccine rollout, which means the risk of new waves of infection is high.

The US State Department currently has a level 4 ‘do not travel’ advisory alert for Guatemala, and tourist inflows are not expected to go back to pre-pandemic levels until 2026, according to The Economist Intelligence Unit. Travellers are likely to be more risk-averse than before the pandemic, which will affect arrivals to Guatemala.

Panama Canal key to tourism

Tourism is a driver for growth in the Panamanian economy, alongside construction, transportation, and the Panama Canal. From 2015 to 2019, tourism expenditure as a share of GDP was between 10.6 per cent and 11 per cent.

In 2019, before the Covid-19 pandemic, the government introduced various initiatives to increase the number of inbound tourists, which had remained static at 1.8 million for the previous two years. A Tourism Cabinet was formed to coordinate efforts, and the Spanish tourism group Globalía was hired to promote Panama in Europe and attract an additional 20,000 visitors per year. The Panamanian tourism authority also promoted tourism from China by advertising on Chinese social media.

Canadian multinational Scotiabank is a notable provider of travel insurance to its credit card customers.

Copa Airlines – Panama’s flag carrier – uses Panama City’s Tocumen Airport as a regional hub, and plans to attract 125,000 extra visitors per year through its Panama Stopover programme that incentivises spending up to a week in the country. The government also eliminated a 5.5 per cent gambling tax in an attempt to attract visitors to local casinos and hotels.

Canadian multinational Scotiabank is a notable provider of travel insurance to its credit card customers, a trend that other financial services companies are likely to follow. In terms of international insurers, Assist Card, Universal Assistance, MAPFRE, and the Brazilian assistance provider Intermac Assistance, are active in the country. Intermac is a notable example of a local travel insurance and assistance provider actively expanding its reach across the region.

Infrastructure, tourism and output from the Cobre Panamá copper mine will drive growth in Panama for some years to come. Although private consumption and investment will contribute to the economic recovery, the scale and nature of the Covid-derived recession will hamper growth prospects. Household income was hit hard by the standstill in economic activity, which looks likely to remain depressed due to sectoral trends (the recovery in tourism will be weak and gradual) and permanent damage to companies’ balance sheets. Private consumption will not fully recover until 2023, according to The Economist Intelligence Unit.

Overland tourism is limited, especially between Panama and Colombia, which are not connected by road. The impenetrable jungle region between the two countries is known as the Darien Gap, and is one of the world’s most biodiverse regions. However, its dense vegetation has become a backdrop for drug trafficking and migrants heading to the US.

Leverage existing medical assistance networks

Universal Assistance and Assist Card are present across the region, especially in the most challenging markets, such as those in Central America. Other notable players in three of the four frontier markets (Costa Rica, Guatemala, and Panama) include the Spanish multinational insurance company MAPFRE and regional banking conglomerate Promerica, which leverage their pre-existing in-country networks. Also notably, Panama and Ecuador use the US Dollar, which in principle could help drive tourism, although this has not been the case in Covid times. Both countries have unique economic environments that affect travel insurance and assistance providers in distinct ways.

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