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Editorial & Column
Lets Hear It For Deregulation, Again!
By FRANCISCO JAVIER CIMADEVILLA
February 12, 2004
When in 1999, Congress took steps to bring down the wall that separated the financial and insurance industries, you knew we were in for some changes.
Since the 1930s, federal legislation and regulations prohibited banks and other financial institutions from entering the insurance business; in turn, they barred insurance companies from offering financial services.
The Financial Services Modernization Act of 1999, a.k.a., Gramm-Leach-Bliley, changed all that. There was quite a bit of apprehension at first. For one, the local insurance industrycompanies, agencies, and brokerstook a giant deep breath and held it. Would they be able to survive the onslaught as the cash-rich giants in our financial sector competed for their insurance business?
Now with the benefit of a few years experience, we can take stock of the results. And, as reported in our front-page story today, while banks have started to make a pretty penny on a new line of business, the traditional insurance industry continues to thrive.
But, most important, consumers have become the big winners in the new bank-insurance trend.
For the past three years, local banks have issued insurance premiums worth more than $700 million. That means that in that short period of time, theyve managed to secure 5% of the local insurance market, estimated at $5 billion annually. In some market segments, such as credit, auto, life, and property & casualty categories, financial institutions have already snatched 10% of the total market.
Yet insurance companies have not seen their business affected, as actual insurance contract subscription activity remains in their hands. Other traditional insurance industry players, such as agencies and brokers, far from being down and out, are gearing up to a new way of doing business through new alliances with banks and other financial institutions.
In the process, consumers have become the big winners in this insurance industry reshuffling. Now consumers have easy access to insurance products through the regular bank branch or securities brokerage house networks that exist in every municipality in Puerto Rico.
And, although rates have not yet decreased as a result of the fierce competition among suppliers, that competition is making the product menu more varied and available to a wider audience. It is also forcing traditional intermediaries, like brokers, to once again become aggressive in their efforts to serve and retain clients.
"Consumers have become the main beneficiaries of this financial insurance trend. They are getting a better and greater distribution of products and higher competition among suppliers," former Insurance Commissioner Fermin Contreras told us.
With no more than 10% of the island population carrying insurance coverage other than the standard mortgage, auto, and health products, both local financial institutions and traditional insurance providers are poised to tap into a growing market. As a result, new insurance products already experiencing increasing demand on the U.S. mainland also will be introduced and expanded locally.
This Caribbean Business article appears courtesy of Casiano Communications.