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Puerto Rico was battered by hurricanes in 2017 and work continues to fully restore infrastructure and services. Insurers were thrust into the spotlight over claims-handling delays, which have impacted both the general population and businesses.
BNamericas spoke with the insurance commissioner of Puerto Rico, Javier Rivera, about how work is progressing, how insurers have been coping, what the industry can take away from last year's events, whether any insurers are planning to relocate, and more.
BNamericas: How is the island recovering following the hurricanes in terms of infrastructure?
Rivera: In terms of fully restoring essential services, we're more than 90% there. We have federal funds assigned and there is, of course, money coming from private insurers. We're pleased with how reconstruction work is progressing in the area of essential services.
Regarding electricity, we're looking to have service fully restored by the end of May.
[In addition] Puerto Rico is in the process of receiving approval for billions of dollars in federal funds for the area of infrastructure and housing and for bolstering the electricity system. Puerto Rico also has a planning board that has strengthened the building code and updated flooding maps so they reflect the current situation and help ensure the country is more prepared for future events.
BNamericas: Why is Puerto Rico attractive to international insurers?
Rivera: It's attractive for various reasons. It has a tax and legal framework that is very attractive when you compare it to that of other jurisdictions, even other states. It also has a very good geographic position, in the middle of the Americas. On top of that we have a skilled, largely bilingual, and competitive, workforce. We're also an accredited jurisdiction by [US standard-setting and regulatory support organization] NAIC.
BNamericas: Since 2005, your insurance center has been promoting Puerto Rico as an important member of the international community of insurers. Do you think, after the events of last year, the industry still looks at the island favorably? Are there any insurers that are leaving the island?
Rivera: We're still an attractive market. We don't expect to see firms wanting to leave the island - just the opposite: we've received requests from 4-5 insurers looking to enter Puerto Rico. Three to four in the area of property and one in life. We've not received information about any insurer experiencing financial solvency problems that can't continue in the market or simply wants to leave Puerto Rico.
BNamericas: What about microinsurance?
Rivera: There is a large segment of the population that could benefit from microinsurance. There is a lot of space in the insurance sector and we're beginning to witness genuine interest from insurers looking to participate in the microinsurance business model in Puerto Rico.
I think there is space to develop a parametric model for the low-income segments that want basic, accessible coverage against a catastrophic event such as a hurricane or earthquake. We're opening this door. It's important to give our low-income segments more inclusive options.
BNamericas: Are these digital microinsurers?
Rivera: No, not yet. Although, there are companies that are already taking advantage of electronic tools.
BNamericas: There have been reports about the large workloads of insurers resulting from the amount of claims. In general are they adapting and/or improving their levels of service?
Rivera: Yes, considerably. There have been immense improvements in terms of handling the high volume of claims. Insurers have sent us, proactively, service improvement plans. It took time for insurers - more for some than others - to draw up plans to deal with the emergency effectively.
BNamericas: What lessons can the insurance industry learn?
Rivera: There are lots of lessons for both the industry and the general population. One, for example, is that purchasing insurance is a serious decision; it is not like buying a typical product. The consumer must understand what they're buying.
Another example concerns the industry's operational planning model for catastrophic events. We have a huge opportunity to revise plans and be better prepared. The industry can learn where it failed and improve its plans so that it can manage future events like this in a much more efficient manner. It has been a major learning experience and I think the industry will gain a lot from it.
Concerning pricing, I think the industry learned - and will continue to learn - the importance of suitable pricing, especially in segments like condominiums, particularly coastal ones.
It is important to charge the right amount, and not consider lower prices in order to compete, to be able to deal with events like this responsibly. It is healthier to have more stable pricing.
BNamericas: Regarding fines issued to insurers by OCS for delays in paying claims linked to last year's hurricanes, insurers complain they have had to make a huge effort to handle processes stemming from a meteorological phenomenon. Are these complaints valid?
Rivera: The core function of the Office, as a regulator, is to monitor how the market operates, considering the interests and rights of both insurers and citizens. The companies have no problems with us carrying out this role. The Puerto Rico Insurance Code gives insurers 90 days to answer a claim; but this Office has given them more than 130 days [in light of the severity of the events].
We have insurers with their internal-logistics problems but we also have citizens without a roof. The socio-economic role of the industry at times like these is vital. Businesses need to keep operating and, thus, a prompt response from insurers.
We've been visiting each insurance company personally and, also, personally communicating with them to hear about their plans and their commitments.
Editor's note: This interview was conducted in March 2018