San José, Costa Rica, since 1956

New Insurance Companies Knocking at the Door

Georgina Díaz is ready.

Díaz, general administrator of the insurance company Seguros del Magisterio, smiles as she describes her firm’s plans for the Costa Rican insurance sector.

“I think it will be an interesting market,” Díaz told The Tico Times. “I think in five years, you will see a market recently in its infant stage, but strengthening.”

Seguros del Magisterio, which has long sold insurance exclusively for educators in Costa Rica, recently received approval to be the first firm to break the 84-year-old monopoly of the state-run National Insurance Institute (INS) and offer insurance policies to the general public.

But it cannot sell insurance just yet.

There are still several steps to go in the process put forth by the Superintendence of Pension Funds (SUPEN), the government agency charged with regulating the newly opened insurance market, a process that has frustrated some insurance agents with its ponderous pace.

“There have not been any changes –there are still no options,” said Jorge Salas, president of insurance company EBS Seguros and president of the National Chamber of Insurance Agencies (CANECOS). “It has been a very slow process.”

While the Central American Free Trade Agreement with the U.S. (CAFTA) officially entered into force Jan. 1, Costa Rica passed a new insurance law last summer as part of CAFTA’s requirements that officially opened the insurance industry to private competition (TT, July 25, 2008). But progress has been slow, as both private companies and government regulators struggle to adapt to a system that had been under a monopoly for over eight decades.

Compounding SUPEN’s regulatory learning curve are its “very strict” hurdles for would-be competitors, Salas says.

Before being allowed to compete, firms like Seguros del Magisterio must first deposit $3.4 million in the Central Bank, and submit themselves to SUPEN analysis of their business plan and inspections of their books and offices.

Salas says it’s a good thing that SUPEN is working to keep out fraudulent firms and companies that have no interest in investing in Costa Rica, but thinks the regulator should be more flexible.

“It’s good to regulate,” he said, “but there must also be freedom to operate.”

For Díaz, who expects Seguros del Magisterio to be selling life and medical insurance policies to the general public by mid-April “if everything goes well,” the delays have been understandable.

“In reality, it’s been a learning experience, for us and also for (SUPEN),” she said. “They have been very understanding of us, and we have been understanding with them. … SUPEN has basically had to start from scratch.”

Seguros del Magisterio first presented its application for approval to SUPEN in November 2008. SUPEN did not respond to multiple requests for comment for this article by press time.

Several firms from outside the country are also gearing up to sell insurance in Costa Rica, but none is ready just yet.

Benigno Castillero, regional vice president at Panama’s ASSA Insurance Company, said the most stringent requirement for firms hoping to enter the Costa Rican insurance market are the country’s capital investment requirements, which Castillero said were, in some cases, three to four times higher than those in neighboring countries.

But the potential of the Costa Rica market will still draw investors, as the business daily La República reported earlier this week that only 34 percent of Ticos have voluntary car insurance, 29 percent have home insurance and only 6.8 percent have life insurance.

“There is opportunity in the Costa Rican market, but it is very difficult,” said Mauricio de La Guardia, executive vice president of Panamá’s International de Seguros, who called SUPEN’S requirements “burdensome” and designed to “defend” INS.

Meanwhile, INS, the dominant player in the insurance market for years, is gearing up for competition. According to INS President Guillermo Constenla, INS has been implementing changes with an eye on competition for over two years, and has seen its assets grow 75 percent from 2006 to December 2008.

“We want competition,” Constenla told The Tico Times. “The fight will not be easy, but we have the muscle, we have the technology, and we have the knowledge (of Costa Rica). It’s going to be an interesting fight.”

Constenla said INS welcomed regulation at the hands of SUPEN after years of selfregulation, pointing to the recent financial struggles of firms like American International Group (AIG) that operated with little supervision by the U.S. government.

He added that INS was eyeing overseas expansion to markets in Guatemala and Panama, and was working to improve services to its clients to remain competitive.

“Without clients,” he said, “there is no company.”

But INS has also taken advantage of a provision in last year’s insurance law that classifies third-party businesses that sell insurance in Costa Rica into two categories: agents, who sell insurance from only one company, like INS; and brokers, who offer a variety of options from multiple firms to their clients.

For agents who convert their businesses to brokerages, INS will reduce its commissions by 20 percent, a move that one agent considering the switch said could bankrupt his firm.

“INS doesn’t want its agents making sales for the competition,” the agent said. “They want to play hardball.”

Such rules were unprecedent in any other insurance market, said de La Guardia.

Constenla said any such projections were premature since no actual brokerages have been set up yet, and acknowledged that the policy of different commissions was not set in stone.

“At this moment we have decided to offer two different types of commissions,” he said, adding, “but we can change.”

Change, while slow so far for the Costa Rican insurance market, will eventually provide Ticos with a variety of options. It may not, however, guarantee lower prices.

“Many people think that fees are going to go down, but this isn’t necessarily the case,” Díaz said. “There are going to be many actors involved in this process.”


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