The curious case of Panama

Abstract

A small country in Central America offers some interesting ideas on how the insurance industry can handle the COVID‐19 pandemic and crisis.

The COVID‐19 pandemic is a global catastrophe. Governments across the globe are implementing both old and innovative policies and measures to cope with the virus and its impact on the economy. Insurance, which serves as the backbone of the world economy, is now, more than ever, a necessary instrument in dealing with the crisis—both as an economic instrument and a social one.

Much has been written on the implications the current crisis is having on the largest insurance markets, such as the United States and European markets.1 From regulatory pressure to expand coverage through coercive mechanisms to lawsuits regarding the scope of coverage of certain policies, the literature is rather robust. However, one small and often neglected insurance market might have something to teach the rest of the world, which is the fact that the insurance industry can voluntarily fulfill its social function by supporting insureds during dark and perilous times.

Panama has a thriving insurance market relative to that of its Latin American peers. With an 8‐year compound annual growth rate (CAGR) of 5%, a penetration rate of 2.35%, and a premium density of $369.10 in 2019, the country's insurance market stands out.2,3,4 Not only are there national players in the market, such as the regional powerhouse ASSA, and the oldest local company Internacional de Seguros, but also large multinational companies, such as Mapfre, Pan‐American Life Insurance Company, and BUPA, just to name a few.

The country garnered a bad reputation because of the “Panama Papers”.5 Several countries, primarily those belonging to the Organization for Economic Cooperation and Development (OECD), have included Panama in gray and blacklists. This hinders the ability of the country, local corporations, and citizens to do business with their OECD counterparts. However, its local insurance industry is well‐regulated by the Ley 12 de 3 de abril del 2012, which works alongside with the Código de Comercio, the national commerce code (similar to the UCC). The industry is both Common Reporting Standards (CRS) and Foreign Account Tax Compliance Act (FATCA) compliant and follows International Financial Reporting Standards (IFRS). In the past few years, the Superintendencia de Seguros y Reaseguros de Panamá (SSRP), which is the national insurance regulatory entity, has intervened in several insurance and reinsurance companies, due to unsound business practices and/or inadequate capitalization.6,7 In every case, insureds were protected, and society benefited from the interventions. The market grew stronger because of the actions taken by the regulator and the insurance companies, who acquired the books of business of each of the liquidated companies.

Due to the COVID‐19 pandemic, most insurance companies have implemented measures to help their insureds and the country. For instance, health insurance carriers voluntarily waived the pandemic exclusion found in all policy forms. The entire market extended its grace period from 30 to 60 days, giving insureds more time to pay their premiums. At the time of this writing, several companies have voluntarily given premium discounts or reductions to their clients. In one case, a 40% discount on the premiums due in the months of April and May was given to private passenger auto insureds. Another company gave a 10% premium credit to all its auto insureds, as long as they were up to date with their payments. One common practice has been to waive or reduce the Collision coverage deductible during the time period when people can leave their homes. A 24‐hr national lockdown was put in place back on March 24th, and people can only leave their residences for a 2‐hr window according to the last digit of the national ID card.

Community support has gone beyond insurance‐related measures. Carriers are donating food, supplies, and money to local charities. One insurer is offering food and medicine delivery to its clients. A bank‐owned carrier has partnered with an international charity to donate insurance coverage to cars rented by the said charity and used to transport medicines and medical equipment for doctors. Clearly, insurance companies have gone back to their roots, by putting people and communities first, fulfilling their social role.

One of the biggest opportunities arising out of the current pandemic will come in the form of microinsurance. Right now, hundreds of thousands of people in Panama are uninsured, so they represent a large segment of nonconsumption that will be ripe for the picking when the crisis is over.8 Given that 86% of the employed population make less than $1,500 a month and that the median salary is $721.90, providing microinsurance will allow companies to diversify their portfolios, earn additional premium income, and further boost their reputation as crucial members of society.9,10 This last benefit will prove invaluable if carriers and stakeholders want to sell the idea to the government. By supplying coverage to those who need it the most and that, currently, have no way to fulfill this need, insurance companies will take away a heavy social burden that taxpayers’ money would have had to carry otherwise. Seeing that the current administration is probusiness and that innovation and social entrepreneurship are being pushed by it, the only thing missing is the will to pursue this endeavor. Up until now, carriers have not offered microinsurance products, primarily, due to regulatory constraints. However, industry stakeholders are currently working on modifying regulations in such a way as to allow and incentivize, the distribution of these products.

The regulator has also played a crucial role in the crisis, by helping carriers—and thus insureds and society—fend off populist policy proposals from the Asamblea Nacional, the Panamanian Congress. So far, two law proposals have been debated in Congress that would have had an impact on insurers. The first wanted to make it illegal for insurers to exclude pandemics from their contracts. The second proposal looked to implement a national 90‐day moratorium on premium payments. Carriers and the regulator joined forces to argue against these proposals because of the huge negative implications they could have had on the financial health of insurers and on rule of law. The lesson industry stakeholders, be them company executives, brokers, agents, regulators, or even policymakers, can take away from this is that, when industry players and regulators work together to avoid unnecessary coercive mechanisms, everyone benefits, and the market blossoms. That is, insurance ends up fulfilling its social purpose which, in turn, alleviates the pressure governments will have in times of pandemics and other catastrophes.

It might be too early to conclusively ascertain the impact different measures have had on the market and on insureds. We may not know, at least for a while, the result of the actions taken by the different stakeholders. However, Panama can serve as a future case‐study for carriers, academia, and regulators to see what happens when the market voluntarily puts in place diverse policies to help insureds without the need for government intervention. These are exciting times for the insurance industry as a whole, so let us make sure we learn from them.

Gutierrez Fernandez PJ. The curious case of Panama. Risk Manag Insur Rev. 2020;23:225–227. 10.1111/rmir.12153