The insurance market in Panama has been going through an important change since 2012. With the approval of Law 12 of 2012, a new legal framework was created to regulate the sector, replacing Law 59 of 1996. The old law was considered outdated by private and public sector players, and the new one seeks to raise the level of the Panamanian insurance market to international standards. According to Luis Alberto della Togna, superintendent of insurance and reinsurance at the Superintendencia de Seguros y Reaseguros de Panamá (SSRP), “The new law updated the sector’s needs, creating new ways to control and supervise players, following models from other countries. It was drawn up through a consensus with brokers, insurers, reinsurers and the government.” The new law also provides for consumer protection for the first time, allowing the SSRP to investigate customer complaints.
Sea Change
Among the new law’s main changes are an increase of minimum capital requirements for local insurers from $2m to $5m, the opening of the sector to alternative distribution channels and the functioning of the SSRP as an autonomous agency responsible for enforcing regulations regarding financial viability and consumer protection. On the increase in minimum capital requirements, Katherine Arjona, deputy director of the SSRP, told OBG the objective of such a measure was to enhance regulation and to attract good players. The new law may make it harder for new firms to enter the market, but is also helps to attract ones seeking to do long-term business in the country. “Companies were entering Panama but not carrying out operations,” she said. “Under the new law, such practices should be much more difficult.”
With the opening of new distribution channels, the selling of insurance will not be restricted to brokers any more but will also be made through places like supermarkets and drugstores. The goal is to increase the market penetration of different types of insurance and reach a segment of the lower-income population that still has a low rate of coverage. Gabriel de Obarrio, CEO and general manager of the insurer Generali, told OBG, “The market is still largely controlled by brokers and agencies, but with the new legislation, insurers can develop alternative marketing operations with other channels, like pharmacies, social media, internet and supermarkets. The potential for growth is high, and we can expect penetration rates to rise substantially.”
Arjona suggested that new distribution channels could be important to fostering microinsurance. Cesar Chang Osorio, general manager of Tecnica Seguros, acknowledged that such changes can be beneficial to consumers but said that the direct relation between the insurance company and the client might be harmful for the latter. “The broker can be an important intermediary negotiating prices and conditions, which does not happen if the relationship between the consumer and the insurance provider is direct,” he told OBG. The autonomy gained by the SSRP from the Ministry of Commerce and Industry increases the power and scope of regulation and supervision. It also provides versatility and flexibility: since changes can be made through agreements, it is no longer necessary to promote a change in the law and get approval from the national assembly. “Thus, even if further changes are necessary the new framework provides a faster and more efficient way of doing it,” Arjona told OBG.
Improved Oversight
Salvador Morales, assistant vice-president for finance and planning at Generali, sees the law as a change that will improve regulation, but not without challenges. “For big firms, the increase in capital requirements is not a problem, but smaller firms may have a harder time complying. The change might provoke mergers and acquisitions,” he told OBG.
Thus, consolidations may rise, given the high concentration of the market. Morales also pointed out that beginning in January 2014, firms have to present information according to International Financial Reporting Standards. Increased supervision and compliance requires more technical and qualified staff and in a full employment economy that is not always easy to find.
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