San José, Costa Rica, since 1956

The Winds of Change Blowing through INS

As many readers are aware – s o m e t i m e s painfully so – the National Insurance Institute (INS) is a government-owned monopoly. A law dating back to 1924 states that only INS and its agents are allowed to sell insurance in this country.

Because of its monopolistic status, INS has some drawbacks. With no competition, the products it sells are not exactly on the cutting edge of modernity. The service INS provides its clients is less than the epitome of speed and efficiency. The bureaucracy and paperwork would make gurus of administration pale beneath their tans. And INS is self-regulating – it is not subject to an insurance commission or any regulatory body.

Because it is firmly in the public sector, INS is subject to a lot of legalism and restrictions: the top echelon and directors are political appointees, and do not necessarily know beans about insurance; personnel cannot be hired or fired at will; employees are unionized and can’t be asked to dedicate themselves to their jobs as in the private sector; and equipment and supplies can’t be purchased without going through a painful bid and tender process.

Not all is negative, however. At INS, no one seems to give a hoot about the bottom line, so INS pays claims quite cheerfully.

They make the unfortunate claimants sweat blood producing ritual paperwork – but they do pay. I would not venture to suggest that they do it in order to live peaceful lives, but INS employees often seem to authorize payment of claims as generously as the rule books allow.

Enter the Central American Free-Trade Agreement with the United States (CAFTA). One of the covenants is that the 1924 law must change, and competition must be allowed. Before the market opens up, an insurance regulatory office must be set up, and the Legislative Assembly is already working on this. This writer thinks it will take a year or so, but he may be surprised.

Once the market is opened, it is widely believed that at least three foreign insurance companies will come to Costa Rica. These are companies that have a presence in the rest of the countries of the isthmus, and would want to cover all of Central America. How will INS respond to the challenge? The winds of change have been blowing for the last few months:

–INS has made it easier for clients to pay their premiums. They used to only accept payment in colones, in cash or by means of checks issued by the insured. Then they allowed checks in dollars from any account. Next, they accepted payments by credit card, but required a stub signed by the cardholder. Now, they no longer need signed stubs, and a telephone call will suffice.

–Until recently, in some cases, when the value of the item being insured was within a limit authorized by INS, insurance agents were able to “accept the risk” and tell the client that his car or house was insured as of the moment the application was signed and the premium received in the name of INS. But then the paperwork was subject to a lengthy scrutiny by INS employees who, like the Pharisees of Biblical times, could “undo” the agent’s acceptance if the tiniest legalism was not complied with.

As of early 2008, the agents’ limit to accept the risk has been considerably raised. Also, for several types of policies, insurance agencies are going to be able to do the paperwork and issue the actual policies themselves. This will allow most agencies to speed up the paperwork. Maybe the Pharisees within INS will find themselves on the unemployed list. Am I being optimistic?

–At the same time INS is authorizing agents to accept more of the risk and issue policies, it is publishing clear rules as to how rates and premiums are established. In the past, with several types of policies, agents were given a rate sheet with approximate premiums to be quoted to clients, but the rate was always finalized by an INS inspector who, usually after considerable delay and supplication on the part of the agent, would shift his physique from behind his desk and go to eyeball the property, boat or machine for which insurance was being applied. And he would finalize the rate based on his own, sometimes arbitrary judgment – not according to any rules that agents were aware of. The next step will be for the rules to be simplified, though as yet we haven’t seen anything in the works.

–Insurance agencies sell INS policies under contract with the insurance company. These contracts have recently been renewed for four more years, and, despite protestations from the agencies, the clauses stipulating that they must sell only INS products have been beefed up and given teeth. So it would appear that INS is going to fight to keep its sales force faithful. Of course, some agencies have sister companies waiting in the wings, ready to sell policies in competition with those offered by INS.

–INS is seeking to increase the number of locations where insurance can be purchased. The main thrust is to allow the state-owned banks to act as agencies. This might be effective for some sectors of the public, but sophisticates realize that most types of policies can be bought over the Internet, with no need for the client/applicant to wait in line or stand in front of a counter.


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