Changes are going to take place in the Costa Rican Insurance industry - with or without the passing of the free trade agreement with the United States
By Dennis Rogers
Special to A.M. Costa Rica

The opening of Costa Rica’s insurance monopoly is already under way, says Carlos Benevides, owner of a large agency in La Uruca. That’s with or without the pending free trade treaty with the United States.
 
Benevides is a 50-year veteran of the insurance business, most of that, of course, with the Instituto Nacional de Seguros, which has had a constitutionally-mandated monopoly since the early 1950s. He now operates the  UNISERSE agency.

He says INS was already preparing for competition when about 10 years ago it spun off its agents as private operators. Previously all had been employees of the company. The agents had to take charge of their local operating expenses and employees.

With further opening contemplated for January 2008, Benevides said that INS will expect the existing agents to be “loyal,” but “if a client wants a product they don’t offer, you have to give it to him.”

No obvious new entrants to the market appear to be waiting. Benevides does not expect the government banks to get involved, but thinks the “megabanks” like Scotiabank and HSBC might. They already have insurance subsidiaries and won’t need additional infrastructure. HSBC claims it will have 100 agencies in Costa Rica within five years.

Personal policies like life or medical coverage will be the easiest areas for new entrants. “There already exists a black market for personal insurance in this country,” says Benevides. Vehicle and property insurance requires more qualified personnel such as appraisers and accident investigators. It will take several years for anyone to put this infrastructure in place, he said.

Benevides expects aggressive promotion of different sorts of insurance with the establishment of competitors for INS. New entrants will eventually “penetrate all the niches,” he says. Despite its mildly socialist bent, INS does not seem to market to lower-income people. Products like small life insurance policies to cover mortgages or other loans are sold in other Latin American countries by the banks themselves.

Medical policies are an area with potential for innovation, especially those that can make agreements with private hospitals. INS does have policies to cover these arrangements, but none really is tailored to the needs of foreign retirees. Benevides expects a long line of new entrants in this area.

Vehicle insurance is the type most in need of reform, he said. A general reduction of the accident rate, which might be helped by pending legislation to raise Costa Rica’s ludicrously low traffic fines, is the biggest need to allow motor vehicle insurance rates to fall. A reform of the traffic courts and more police have also been touted but never put into action.

As for the economic aspect, Benevides says small accidents in the metropolitan area where usually no one is hurt have as big an impact as major highway crashes caused by drunken or reckless driving. With socialized medicine and a simpler (if inefficient) legal system, the latter have less impact on insurance costs than they would in developed countries. Most of the publicity for the legal reforms has emphasized the human costs, with extra attention to spectacular accidents.

Some sort of mandatory coverage to replace the tiny liability coverage which is part of the annual vehicle registration fee, will also be needed, he said. At present, it is easy for someone with limited assets to avoid civil responsibility for an accident. Benevides feels competition will bring rates down enough to allow more drivers to afford coverage, but elsewhere this has proven not to be the case.

Costa Rica’s “bomberos,” the firemen and rescue units, are part of INS. Benevides said it will simply no longer be the case that INS can take on those costs. It has not been determined how the service will be funded. A tax on electric bills has been suggested, and the Asamblea Legislative is considering the issue.

Cost cutting will still need to be a priority for INS. In 2006 it was revealed that some employees were promised retirement bonuses of one year’s salary for each year labored, up to 25 years. Such arrangements do exist in the private sector but are usually capped at eight years.