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Insurance market opens in Costa Rica

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Opening of insurance market to competition plods along
By Dennis Rogers
For The CAFTA Report
posted May 10, 2010

Approval of new insurance companies and the brokers to sell their products is progressing slowly, according to industry participants. The Superintendencia General de Seguros not only must approve new companies to operate in the country, but also each individual policy type.

The monopoly enjoyed by the government-owned Instituto Nacional de Seguros lapsed in 2008, but the newly founded industry regulator has moved slowly in approving new companies in the market. The regulator’s head, Javier Cascante, said at a news conference April 15 there will be about 10 companies approved by the end of the year. At present, in addition to the Instituto Nacional de Seguros there is one small Costa Rican company authorized and several multinationals.

Some companies at various stages of the approval process include Mapfre, approved as Seguradora Mundial before that company’s purchase by the Spanish giant; Caser Seguros, another Spanish company making its first venture into Latin America; Alisa, formally part of American Insurance Group before it was bailed out by the U.S. government; and Assa Compañía de Seguros from Panamá.

One of the causes of delays has been the revision of all existing Instituto Nacional de Seguros product lines, with many of those rejected as well.

Independent brokers who will sell insurance from different companies to the public are under the regulatory oversight of the agency. These are representative of the customer rather than a supplier as with a regular agent. Several brokers have been approved including Banco Nacional and Banco de Costa Rica. Others involving established national insurance industry firms are at various stages of the approval process.

The government banks are in a position to sell policies through branches around the country in areas where it might be unprofitable to have a dedicated brokerage office. Given
the quality of attention their everyday banking clients receive and long lines for customer service, without substantial infrastructure investment it would appear difficult for them to compete directly.

The Instituto Nacional de Seguros sent a letter to all its traditional agents saying that there would be “consequences” if they sold any other company’s products, said long-time industry participant David Garrett. “I’ve moved my desk out of the office, sold my shares, resigned from the board” he said
of his former firm, Garrett and Associates, so there is no conflict while his brokerage approval process is underway. He said once brokerages are approved, there is no reason to retain a dedicated Instituto Nacional de Seguros agency since a broker can sell that insurance too.

The assistant director of marketing for the Instituto Nacional de Seguros, Róger Arias, said in an e-mail that all existing contracts with agents date to before the opening of the market and have exclusivity clauses. He said once the regulations for insurance sales are approved by the Consejo Nacional de Supervisión del Sistema Financiero, the Central Bank’s oversight entity, existing contracts will be renegotiated if the agents desire. Normally the contracts are for five years, but shorter terms will also be subject to negotiation, he said.

Carlos Benavides of the UNISERSE agency said his company, one of the largest in the country, is under contract with the Instituto Nacional de Seguros until the end of 2011, so it won’t be venturing into brokerage territory before then. He thinks many of the 70 present Instituto Nacional de Seguros agencies will disappear in the next few years, as overhead is too high to compete selling just Instituto Nacional de Seguros products. Being a captive agency will not be acceptable in the new environment, he said.

Benavides suggested that the Instituto Nacional de Seguros will have to wake up and pay attention to service quality.

A large number of Instituto Nacional de Seguros products have been rejected by the regulators because there now are technical requirements, not just the criteria of the company, regulators said.


Banco Nacional plans an aggressive entry into the marketplace
For The CAFTA Report
Published April 27, 2010

Banco Nacional has named a chief of its insurance division and said that it would use its customer contacts to become a serious player in the national insurance market, which is now open to competition.

Named was Carlos Solís Hidalgo. The subsidiary is called BN Corredora de Seguros. Solís Hidalgo has experience in the insurance industry and worked with Citibank in Chicago, Banco Nacional said.

The bank has had experience in insurance, mainly as it applies to policies linked to credit. It said its goal was to become No. 1 in the Costa Rican insurance market. That probably is not good news to the Instituto Nacional de Seguros, which maintained a monopoly until passage of a new insurance law that sought to encourage competition in the area.
Juan Carlos Corrales, general manger of the bank, said that the insurance subsidiary would offer value-added products.

Solís Hidalgo said that the client base of Banco Nacional represents a potential large enough to insure the success of the new subsidiary. He promised an aggressive business strategy.

The bank will develop different product to fashion a comprehensive package that includes pensions, investments, banking accounts and credit cards, he said.

Solís Hidalgo noted that the consumer in Costa Rica is used to a limited offering of insurance that includes basically life, hospitalization and fire. He did not mention if the bank subsidiary would handle vehicle insurance.

As more companies enter the market with their unique insurance products, Costa Ricans are facing the prospect of becoming for the first time comparison insurance shoppers.

Insurance oportunities at a glance:

Insurance changes in  brief, accoridng to the U.S. government:

· Central America will allow U.S.-based firms to supply insurance on a cross-border basis, including reinsurance; reinsurance brokerage; marine, aviation and transport insurance; and other insurance services.

· The commitments in services cover both cross-border supply of services (such as services supplied through electronic means, or through the travel of nationals) as well as the right to invest and establish a local services presence.


Breakup of insurance monopoly gets OK

For the CAFTA Report

(July 1, 2008) The Asamblea Legislativa today voted for the second and final time to eliminate the monopoly of the national insurance company.

The 31-12 vote was expected, and the breaking of the Instituto Nacional de Seguros monopoly was foreseen by the free trade treaty.

The Sala IV constitutional course has reviewed the bill and found no legal flaws. Lawmakers delayed action until they heard from the court.

Lawmakers of the Partido Acción Ciudadana, long-time foes of the free trade treaty, opposed the bill. Orlando Hernández of that party said that the measure has major implications for the institute.

Oscar Núñez, head of the government's Partido Liberación Nacional in the legislature, said that the insurance institute will continue to be an important service for Costa Ricans but that it will have to compete with other firms.

It was April 24 when lawmakers took the first major step to end the state monopoly over the sale of insurance. The legislation received the first of two required approvals then.

The legislation allows foreign insurance companies to offer their services in Costa Rica. At the time of the vote only the Instituto Nacional de Seguros could do that.

Lawmakers clashed then over the prohibition in the measure that would prevent the Instituto Nacional de Seguros from offering its services in other countries. The measure is one of those dozen enabling bills for the free trade treaty with the United States. Under the treaty, the institute could sell insurance in the other signatory nations. But this is specifically forbidden by the current legislation.

Lawmakers also expressed concern over the future of the firemen, the Cuerpo de Bomberos. The fire budget used to comes from the institute. An alternate source of funding, a small tx. allowed the fire corps to become free of the institute in a ceremony in September.

Despite the second approval of the measure, foreign insurance companies cannot open up shop quickly. The country has to set up the regulatory structure for this industry.

The Instituto Nacional de Seguros sells a limited number of policies. Costa Ricans do not have complex choices in insurance as do citizens of other countries. So consumers here are not used to dealing with the subtle differences in policies.


Superintendent named for insurance regulator

By Dennis Rogers
Special to The CAFTA Report


Costa Rica’s newly-opened insurance industry has a supervisory agency in operation, dubbed the Superintendencia General de Seguros or the insurance superintendent general. Economist Tomás Soley took charge of the agency Oct. 20. He will oversee the development of the regulatory operation for Costa Rica’s newly opened insurance market.

As a result of the Central American free trade agreement with the United States, Costa Rica was obliged to remove the monopoly enjoyed by the Instituto Nacional de Seguros since 1924. In theory, the market is no longer a monopoly now that the enabling legislation has passed the National Assembly, but until the administrative structure is established, the institute will be the only operator.

Some aspects will still be controlled by the government, with workman’s comp coverage and the small obligatory liability coverage included in the annual vehicle registration not planned for wide sale until 2011.

The new agency, to be known by the usual alphabet soup of SUGESE, will be overseen by the Superintendencia de Pensiones, known informally as SUPEN, while the final regulations are established and the agency takes shape. According to Wilbert Quesada who coordinates the work of establishing the new regulator, At present, there are four or five pension agency employees working on the matter now and has budgeted about 20 positions in the independent entity.

However, Quesada said “anybody can apply now for approval though we don’t have any formal applications yet.” He said several companies with foreign capital have expressed interest in the local market.

The full text of the regulatory plan as passed by the legislature (in Spanish) is available HERE!



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