Introduction – Costa Rica's Initial Steps in the Insurance Sector and Background

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In 2007 Costa Rica ratified the CAFTA agreement, known locally as the TLC. It opens many sectors of the country's economy to competition and lowers protectionist tariffs on a number of items. While at the same time maintaining or increasing Central America's benefits on exports to the US initially given in the Caribbean Basin Initiative. One big area of the agreement was the opening of the insurance market to international (and local) companies. This article talks about INS and the market prior to its opening for competition.

Once the agreement was ratified, the country had to approve 12 laws in order to bring the country's legislation into compliance with the agreement, the law affecting the insurance sector is known as Law #8653 – the Regulation of the Insurance Market, which entered into effect on August 7, 2008.

Prior to this date, it was illegal for any entity besides INS (The National Insurance Institute) to sell insurance in Costa Rica. This is why Stewart Title, for instance, calls their title “insurance” a title guarantee. For information about a service that will actually protect your property title going forward, see this page on the  Private Property Registry.

The INS was created in 1924, under Law #12, at which time it was called the “Bank of Insurance”. This was during the third Ricardo Jiménez Oreamuno, administration, and the President masterminded the law along with legal eagle Tomás Soley Güell, who at the time was Secretary of Taxes and Commerce. The intention of this law was to take profits from what was seen as the greedy insurance companies, and use them for the benefit of the entire country. One immediate correlation, for example, was that the monopoly was to operate the fire departments of the country. The idea being that since the insurance company sold fire insurance, it was in their interest to finance the fire department, which in turn would minimize their losses. In theory the Costa Rican people would benefit from lower rates, since a state owned monopoly would not be required to earn profits in order to satisfy investors. In addition, with such a small population it has to be recognized that any private insurers of that time period would more than likely cooperate in order to maximize profits at the expense of consumers.

In the nearly 85 years of its monopoly, the INS has generally maintained a high “approval rating” among Ticos. While they have offered a more limited number of policies than might be found in other countries, they also have a tendency to actually pay legitimate claims, as well as make rates affordable for social insurance ( such as the obligatory automobile insurance, workplace risks and school children's insurance) with coverage being adequate.

With the opening of the local market to competition, the INS has not behaved in a counter-competitive fashion, for example when compared to the ICE in the telecom sector. It has concentrated its political actions more in the area of making sure there is a level playing field and taking advantage of the established brand in the marketplace and infrastructure advantages its size and history give it. As of 2010 it is still the dominant insurer in the market, with more policies and more clients than any of the private companies operating here.