San José, Costa Rica, since 1956

The Insurance Revolution in Costa Rica

The Instituto Nacional de Seguros (INS) was created in 1924 and, by law, was the only insurance company allowed to operate in Costa Rica. One hundred percent governmentowned, it was selfregulating and, perhaps because of this, insurance in this country is somewhat different from that in other countries.

In July 2008, following the dictates of the Central America Free Trade Agreement with the United States (CAFTA), the legal restriction to competition in the insurance market was removed. An insurance regulator, SUGESE, was established, which rapidly engaged in organizing the insurance market.

They passed two sets of regulations: (1) the conditions for insurance companies to become established, and (2) the conditions under which insurance companies may operate. SUGESE also extended these conditions to insurance agencies and brokerages.

Seguros del Magisterio, an insurance company that, as the only exception to the legal monopoly, has been operating for several decades offering insurance to members of the teachers’ unions, was quickly authorized to sell their products to all comers.

However, the insurance they offer is limited, still geared to teachers, and no change is foreseen.

Aseguradora Mundial, a Panamanian company, was the first insurance company to complete a new application and obtain the green light to go into business. They have until November 2009 to fulfill certain conditions, set up shop and get SUGESE’s approval of the products they will offer. A spokesman for Mundial says they will initially offer automobile insurance, but they expect to have on offer a full spectrum of casualty and personal insurance policies by mid-2010.

It is said that four other insurance companies, all specializing in personal insurance, are also running SUGESE’s gauntlet – but are several months behind Mundial.

It seems to this writer that, with the end of their 85-year-monopoly on the threshold, INS panicked. In October 2008, INS issued a warning to their sales agents and agencies, saying that if they converted to brokers or brokerages (1) the rates of commission would be reduced to 20 percent of their present level, and (2) their client portfolios would revert to INS. No insurance agent or agency could afford either of these measures.

Logic indicates that INS should woo their agents with improved commissions and conditions in order to secure the continuity of their services – but INS officials apparently don’t know that you can catch more flies with sugar than with vinegar!

Also, perhaps out of fear for their jobs, INS employees are currently “going by the book” – and, in the case of INS, this means desperate amounts of bureaucracy and delay – all in detriment to service to the client. To make matters worse, INS has required that its clients “disclose” all sorts of information, allegedly in compliance with the moneylaundering laws. This means, for example, that whereas two documents were formerly required to insure a car, now six have to be completed – and INS demands original signatures thereon – no copies. So much for INS becoming more efficient in order to meet the competition!.

Perhaps because they want to find positions for key employees who are overloading the payroll and who can’t be easily funded in the newly competitive local market, INS wants the government to authorize them to sell insurance in the other Central American countries. It is not unheard of for a leopard to change its spots, but INS will have to make a great effort to become service-oriented, as is required in free, competitive markets.

There is a saying that “the darkest hour is just before the break of dawn.”

A reliable, but confidential, source informs me that at least five of the stronger INS agencies are covertly preparing applications for SUGESE, requesting authorization to set up parallel brokerages to sell insurance from other companies.

SUGESE is supposed to respond to the completed applications within 30 days, but as they will be breaking new ground, it would not be surprising if there were greater delay. My conservative forecast is that by Christmas there will be brokers offering products from all the insurance companies competing in the Costa Rican insurance market.

The opinions and viewpoints expressed are those of the writer. For more information, please contact David Garrett at 2233-2455 or Our purpose is to give the reader a better understanding of insurance in Costa Rica.


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