Playing Monopoly with Insurance
Our purpose is to give the reader a better understanding of insurance in Costa Rica. The opinions and viewpoints expressed are those of the writer, and do not necessarily represent the official position of the National Insurance Institute (INS).
THE phantom of “de-monopolization” is in the air. The Central America Free-Trade Agreement (CAFTA), which probably will be signed in the next six to eight months, allows competition in the Costa Rican insurance market as of the year 2008. Created as a government monopoly by a law dated 1924, in its 80 years of life INS has never faced competition.
I see the opening of the insurance market as a good thing. Imagine if, for example, there were only one chain of pizza parlors in the city. It could offer only one size of pizza, one type of pastry, two or three different toppings, and no home delivery.
Service could be slow. But if you wanted to eat pizza, you would have to accept what was provided. But if another pizza chain were established, you could expect the competition to offer home delivery, various pastry thicknesses, many sizes and toppings and – most importantly, quick and courteous service. Competition can’t be bad!
How is INS going to adapt to an open market? Apart from a radical change in the mindset of the people employed by INS, expect slightly cheaper insurance, a greater range of product options, speedier service, more flexibility with claims, and less generous payments thereof. INS will have to get leaner. (I was going to say meaner, too – but on reflection I think just the opposite would be more appropriate!)
SOME glaring examples of INS’s current rigidity, which I hope will change:
1. On most policies, deductibles are not negotiable. Abroad, insurance companies allow you to opt for a higher deductible/lower premium, or vice-versa.
2. On most policies, assets must be insured at Actual Cash Value (which includes depreciation) rather than Replacement Value – which is a better option in an inflationary economy such as ours.
3. INS routinely rejects applications for medical insurance where the applicant has pre-existing conditions. Once INS turns you down, they almost never recant.
4. INS usually presumes the “utmost bad faith.” You have to prove everything. Lots of paperwork. No faxed forms. Copy of your grandmother’s birth certificate! Must be notarized! Can’t be stale-dated!
5. Paperwork requirements change at the whim of the attending employee.
6. Paperwork is slow and antiquated. Examples: “binders” are not accepted; credit card payments are a nightmare; policies cannot be modified within the grace period.
7. The standard period for auto insurance is six months. You cannot buy a yearly policy. This regulation is contrary to the expressed wishes of many INS clients, it keeps the auto insurance department churning unnecessarily and clients feel the specter of becoming uninsured twice a year instead of once!
8. INS can modify, unilaterally and without so much as a client’s “by your leave” the General Conditions of a policy. These changes are seldom in the client’s favor.
9. INS is not meticulous in negotiating the cheapest and best re-insurance contracts. This makes for a higher threshold of premiums.
10. Traditionally, INS insurance was only denominated in colones. Lately, INS offers some types of policy in dollars – but it punishes the client with the exchange rate.
I SENSE resistance to change in the “official” pronouncements of some of the INS hierarchy – but in general, I believe INS is going accept the challenge, adapt to a competitive market and give new insurance companies in the market a run for their money. Already, some enlightened middle-managers within INS are saying that things must no longer be handled “the old way.” Hopefully, increasing numbers will see the writing on the wall and also react favorably.
When the market is open, some homespun insurers may set up shop, and it is likely that more than one international insurance company will participate.
Several insurance companies provide service in other Central American countries, and a logical step would be for them to open in Costa Rica as soon as possible.
As INS is the only insurance company, it “self regulates:” it makes up the rules that it then has to – more or less – follow.
In anticipation of the open insurance market, a law incorporating an official regulatory body, outside INS, is being cobbled together.
Some legislators want the future Superintendencia de Seguros (Insurance Superintendence) to be part of the Superintendencia de Pensiones, the arm of the Central Bank that oversees pension funds. The important thing is for there to be an independent regulatory entity setting the rules and making sure that all insurance companies – including INS – abide by them. It will provide clients with a means to appeal if they feel they have not been fairly dealt with.
THE opening of the market is a great opportunity for insurance companies – the amount of insurance currently in place is well below what would seem reasonable for the economic activity and wealth of this country. For example, I recently saw in a local newspaper that only 21% of vehicles are currently insured!
This lack of coverage can be attributed to people’s happy-go-lucky attitudes, and resistance to INS’s way of giving service. When the man-on-the-street’s cavalier attitude toward risk succumbs to the inevitable advertising blitz by new insurance companies, the size of the market will probably grow enough to sustain several insurance companies giving excellent competitive service.
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