San José, Costa Rica, since 1956

Opportunity Abounds as INS Monopoly Crumbles

President Oscar Arias on Tuesday signed into law a bill opening the country’s insurance industry to private competition and ending the state-owned National Insurance Institute’s (INS) 84-year monopoly.

The imminent end of Costa Rica’s 84-year-old public insurance monopoly is expected to increase local demand for most kinds of insurance, increase the variety of policies offered and reduce the cost of certain types of insurance, experts predict.

Insurance agencies describe the market opening as a major opportunity for Costa Rica. Meanwhile, INS, the largest insurance company in Central America, is coming to terms with losing its monopoly. With the goal of not only surviving, but thriving in the soon-to-be competitive insurance market, INS is introducing new types of policies and attempting to improve its much-criticized customer service.

“The market will grow,” said insurance agent David Garrett. “Customers will have more options to choose from. Prices will tend to drop. Policies will likely become more flexible.

INS’ policies are very rigid in the sense, for example, that if you want to insure your house against fires, there’s only one policy available. With more competitors, there will be options in terms of currency and deductibles.”

Jorge Salas, president of insurance agency EBS Seguros and the National Chamber of Insurance Agencies (CANECOS), also expects liberalization of the market to be good for the country and consumers.

“I think it will have a very positive impact,” Salas said. “This will allow greater penetration of insurance in the market. We expect greater innovation in terms of products and services available. We estimate that the market will grow substantially in the long run. It won’t happen from one day to the next.”

The Work Ahead

As part of Costa Rica’s Central American Free-Trade Agreement with the United States (CAFTA) commitments, on July 1 legislators passed in second and final debate a bill paving the way for private insurance companies and ending INS insurance monopoly.

However, before private companies can set up shop in the country, the government will need to establish an independent agency to regulate the insurance market.

The National Council for Financial System Supervision (CONASSIF), the Central Bank agency charged with regulating the financial system, will have up to 18 months to establish what will tentatively be called the Superintendence of Insurance. In the meantime, one of the existing regulatory agencies, most likely the Superintendence of Pension Funds (SUPEN), will regulate the insurance industry, according to Wilberth Quesada, SUPEN’s communications director.

In part to protect INS, the bill establishes high capital requirements – the highest in Latin America, according to Salas – for firms wishing to open here.

The bill also awards INS more flexibility with regard to procurement. The institute will be able to freely hire agents and consultants and buy real estate, computers and reinsurance. It will not, however, be allowed to operate outside the country.

Shape of Things to Come

Garrett and Salas both contend there is a large unmet demand for home and car insurance in Costa Rica. They see these sectors as having substantial growth potential.

Only 27 percent of homes are currently insured, and just 30 percent of cars are insured beyond the obligatory minimum, which pays $1,000 for personal injury and nothing for property damage (TT, April 25).

Salas expects the costs of home, life and health insurance to drop as a result of competition.

He also expects a whole new sub-market to develop: micro-insurance for smalland medium-sized enterprises and for home insurance for people with limited resources.

“This is the latest trend in South America,” he said. “It serves a very important social end by granting access to insurance to groups that previously didn’t have it.”

As part of efforts to revamp its services, INS will soon launch its own home microinsurance policy.

The end of the INS monopoly will present both opportunities and challenges for the country’s insurance agents. Agencies are currently under exclusive long-term contracts with INS that would prohibit them from selling other companies’ policies once the market is opened.

“At the moment there is a certain fear in that insurance agencies are contractually tied to INS,” Garrett said. “When the new insurance companies come, we’re going to have to find some way of competing with them if we continue working only with INS.”

Salas said the chamber will sit down with INS to renegotiate the terms of the contracts.

“The contracts need to be legally revised because, in our opinion, they will lose their validity once the market is opened,” he said. “We want the freedom to work with whoever offers the best policies.”

Preparing to Compete

INS is moving toward improving its services and better tailoring them to customers’ needs. Accomplishing this will be no small feat. A recent CID-Gallup poll financed by INS found just 55 percent of Costa Ricans were satisfied with its services.

“We have taken a diverse set of measures over the past year and a half to offer more efficient service to our customers,” said Guillermo Constenla, INS executive president.

INS has extended its customer service hours and is planning to hire 300 additional agents to sell policies. Independent insurance agencies have been strengthened with the power to activate policies without having to go to INS’ offices first. The institution is also decentralizing, granting additional autonomy to its local offices. Internal procedures are being streamlined to increase efficiency, Constenla said.

With the stated goal of ensuring that the institution can compete in an open market, INS announced new policies in June for several of its products. In home insurance, in addition to micro-insurance, INS added partial coverage at no cost for the costs of removing rubble, as well as coverage for rain- and other water-related damages.

Constenla cited INS’ growing sales volume as proof that the institution’s competitiveness strategy is working. Sales grew from $330 million in 2005 to $506 million last year. He estimated that sales would increase further this year, despite high gas prices that have reduced available income.

“This is the result of our improved attention to the customers and our more aggressive approach to sales,” Constenla said. Salas said he believes INS can become an important regional firm, but only if it becomes less bureaucratic and more customer-oriented.

“It’s been improving, but it needs a radical change to put it up-to-date with market trends,” he said.

Regardless of its efforts, it is inevitable that INS’ market share will drop to some degree once private firms enter the country.

“I believe INS will lose a share of the market,” Garrett said. “I am sure INS’ heads are willing to compete and create new products, but they are dragging with them a strong bureaucracy that will make that change hard.” Liberalization at

A Glance

During the 2004 CAFTA negotiations, Costa Rica agreed to gradually open the INS insurance monopoly by 2011. However, given the delays in CAFTA’s implementation here, some of the deadlines have passed.

Immediately: Costa Ricans will be able to purchase insurance policies in foreign countries, and foreign firms will be able to provide cross-border (shipping and air transportation) insurance.

By 2008 (expired): All other types of insurance except mandatory insurance (basic auto and workrelated risk insurance) will be available through private insurance companies.

By 2011: Mandatory policies will be open to competition.



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