Following the approval of the Insurance Market Regulation Law on July 1 2008, Costa Rica abandoned public sector exclusivity in the insurance industry in favour of market-driven competition. Three years later, the industry has seen the arrival of international insurers and the raising of supervisory standards; nevertheless it has not yet seen the proliferation of innovative products and distribution channels or a significant share market participation of new insurers.
By mid-2011, the number of insurers operating in Costa Rica had been augmented by the entry of new private sector players to a total of 10. Before liberalisation, INS, the state-run insurer, had a share of 99.99% of the total premiums of the market. In 2010 that share was of 98.74%, and was followed by ASSA with a share of 0.61% and Magisterio with 0.41%, MAPFRE, ALICO and PALIC shared the remainder.
By comparing penetration and density it can be stated that Costa Rica remains an underdeveloped insurance market, and still has an important catch-up potential. By 2010 the penetration (premiums as a percentage of GDP) in Costa Rica was 2.07% and density (per capita spending on insurance) was $165 per person. Both are significantly lower than the Latin America average, and than comparable countries such as Panama (penetration: 3.42%; density: $266). Thus, the window of opportunity in Costa Rica's insurance market is still, and will remain open for, several years.
So, what will it take to develop this potential? On the regulatory side, there are issues concerning the expedited availability for insurance products, and the flexibility to allow proliferation of distribution channels such as brokers and Bancassurance. Those issues are being revised by the regulator. Also the supervisor must take action regarding the technical sufficiency of price tariffs and avoiding dumping practices in the market. For the private sector, banks will need to take serious and coordinated actions to develop Bancassurance and private insurers will need to implement more aggressive and innovative strategies to gain significant market shares, notwithstanding the positive fact that public sector insurer is also proactively strengthening its business strategies to fight rising competition.
After three years of de-monopolisation, the development of the market in Costa Rica has been very slow; the following years will be critical to take that potential to its natural level and regulatory and private sector have important tasks to do.