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At first glance, Cuba’s opening market offers opportunities for the world’s biggest insurers. The country has been struck by more than a dozen hurricanes and tropical storms since 2001, while its 11m people are mainly uninsured. Cuba’s citizens, business and foreign investors would clearly benefit from the risk management expertise and financial resources international insurers could provide.
Nonetheless, there are numerous economic, regulatory and cultural factors that block entry to Cuba. Despite President Barack Obama’s historic visit to Havana in March, it will take time and governmental policy changes to overcome the challenges.
The Cuban leadership that has been in place since the late 1950s has a history of abruptly launching economic experiments, and then quickly calling them off — making the prospect of operating in Cuba a risky one for international insurers. Equally challenging will be selling policies to Cubans who are accustomed to the government meeting their basic needs.
Cuba showed signs of wanting to broaden its economy in March 2014 by enacting Foreign Investment Law No. 118. This was intended to stimulate direct investment, but has so far had little impact.
The law stated that joint ventures and totally foreign-owned companies must insure all their property and casualty risks, with the first option for coverage going to Cuban insurers. If Cuban insurers do not offer terms and conditions that align with international markets, then an opportunity opens for foreign insurers — subject to Ministry of Finance rules. In other words, if a foreign insurer wants to do business in Cuba, it must be either a partner of the Cuban government or secure its permission to operate there.
Cuba’s insurance industry is tiny and consists largely of two government-run insurers run under the auspices of the state-run Caudal Group. US insurers, however, will be among the businesses that begin to explore the prospect of foreign capital and investment flowing into Cuba. Progress will be slow. In 2013, insurance premiums per head totalled barely $35, ranking Cuba 85th in the world on this criterion, far below most of its Caribbean neighbours. The restrictions on vehicle and property ownership have inhibited the creation of a competitive, vibrant insurance market.
Cuba began allowing permanent residents to buy and sell real estate freely in late 2011. The step was a small, albeit positive, one. Still, in Cuba, home ownership is restricted to one primary residence and one vacation home. Buyers and sellers agree to a property’s price, or they simply swap residences — and that means there are no home mortgages. Because little or no capital is accumulated by this sales process, the typical Cuban would be understandably reluctant to purchase an insurance policy covering their residence through either a homeowners’ or renters’ insurance policy.
The idea of transferring risk to a private insurer, rather than letting the government absorb whatever losses occur, is alien to Cubans. It is also one of the primary reasons international insurers remain wary of doing business there until Cuba shows a greater commitment to encouraging the formation of a traditional market economy.
Robert Hartwig is president of the Insurance Information Institute
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