Insurance Post CAFTA

INSURANCE IN COSTA RICA POST THE CENTRAL AMERICAN FREE TRADE AGREEMENT (CAFTA)

These notes were developed from a Seminar presented by David Garrett on 18 January 2012 on developments in the insurance market since the introduction of CAFTA. The content has been updated and approved by his colleagues at Garrett Associates.

The market will how ever continue to develop and change; keep an eye on the other information resources on the Club website where further developments may be reported.

Introduction

  • Pre CAFTA, insurance was only available from INS, the state monopoly provider; the concept of insurance brokerage did not exist in Costa Rica
  • Post CAFTA, the opening of a free market led to the development of insurance brokerage services, although that professional market is still in its infancy. A broker’s job is to know providers and products and help customers find the best insurance policies for their needs

Auto Insurance

  • When an insurance policy is paid, anyone with a valid driver’s license can drive the vehicle
  • Premiums for full coverage are currently running at c. 10% of the vehicle value
  • C6.000.000 3rd party liability is included in the annual Marchamo (road tax / licence)
  • There is no formal blue book in CR but www.crautos.com is now deemed the ‘unofficial’ blue book; it is used by INS and other insurers
  • The onus is on the owner to establish a vehicle’s value. Marchamo values are inflated and unreal. Note particularly that INS will not automatically adjust or reduce your vehicle value when renewing / paying your annual renewal premium. They are quite content to maintain an inflated value and charge you accordingly
  • Insurance will be paid out pro rata on insured value. However, if a vehicle is over-valued, less will be paid – there is no point in insuring for more than the market value of your vehicle.

Home Insurance

  • INS still has the monopoly but recently Assa and Mapfre have entered the market and are offering home insurance as well
  • Similarly, onus on owner to establish value of home. Since professional valuer fees are charged on % basis, there is an in-built incentive to over-value – better to consult friendly builder on current building replacement costs
  • Note – value only buildings, not property

3 parts to insurance:

  • Fire and natural disasters (earthquakes, landslides, floods) – worth having but depending on value of home and potential costs of repair
    • INS known to debate payment if near vulnerable hillsides etc., important to understand risk issues, debate worthiness of insuring and try to establish accuracy of cover being offered – but INS becoming more ‘reasonable’
    • Insurance around 20% of rebuilding value
  • Contents / theft – INS insurance against theft not worth having, too many exclusions
  • 3rd party Liability – also not worth having as case law illustrates CR courts are not inclined to condone litigious behaviour of North America: courts place onus on personal responsibility for safety / avoidance of risk
    • If property is in a corporation, individual would have to sue the corporation – process would take years with little likelihood of success – therefore normal home owner doesn’t really need it
    • However, service providers (hotels, B&Bs, tourist facilities) may consider it, though similar principle applies to attitudes of courts

Medical Insurance

  • 4-5 companies have entered market – most looking for group policy market
  • Only two offering individual policies – Pan American the biggest, main competitor to INS. Some better principles in policies: some pre-existing conditions covered, in contrast to INS not covering pre-existing conditions, at outset and for ever
  • In response to Pan American being approved, INS has increased policy costs by 80% – despite the rate increase INS is still significantly cheaper than the competitors

Workers Insurance / Compensation

  • Enrol with INS for payment of Home Owners workers compensation cover: one payment a year at two levels – first, simple process for –
    • 1 maid / housekeeper plus one handyman e.g. gardener, for up to 3 days per month – approx cost C43.000
    • 2 maids plus handyman – approx C88.000
  • But if more employees at more hours, need to follow more complex process (though some contributors said it wasn’t particularly complicated)
  • Mandatory to report as employer regardless of hours being worked
  • If employee injured at work and not covered, employer will be charged costs e.g. costs for employee to eat / care for family during work absence, and loss of income from other employments
  • Employer is also responsible for payment of CAJA – if injured at work, CAJA will seek to claim healthcare costs
  • If worker is part time, you are advised to ensure they are covered for (CAJA) health care, if it is being paid from other employment / by spouse etc. request evidence of payment. Ignorance is no defence.

Sheelagh E Richards

January 2013

With thanks to David Garrett, Tim Garret and Alex Zamora
The Garrett Insurance Group
Tel: 2233 9520
tim.garrett@unicencorredora.com