History of insurance in Argentina Essay

In 1984, about 200 insurance companies were in operation in Argentina. Although various legal restrictions have been placed on foreign insurance companies, many retain offices. The Superintendent of Insurance of the nation regulates the insurance market, which is a branch of the Ministry of Economy. The Argentine insurance market is characterized by a relatively large number of insurers with no single organization dominating the industry. From 1994 to 1997, there was a reduction in the number of insurers as some closed operations or were liquidated. Observers believe that there will be further reductions in the number of insurance companies as consolidation of the industry and the quest for economies of scale and critical mass continues. In Argentina, insurance companies are not allowed to raise their prices without notifying their customers and explain why the raise in prices took place, nor are they allowed to renew policies without prior notification of the changes in the policy. If an insurance company does not comply with this regulation, one can take legal action against them by contacting the National Supervisory of Insurances (Advameg Inc, 2007). This paper will address the significant development of the Argentine life market of insurance, especially under the stable current conditions. Insurance Landscape in Argentina Types of insurances Apart from the obligatory social insurance, there are also a number of possibilities for obtaining private insurance to cover other eventualities. The most common insurances include: Life Insurance The need for a life insurance depends on age, and dependents. Life insurance foresees in a payment to the beneficiaries of the deceased one. This payment can take place at once, or as a partial interest bearing payment. The names of the beneficiaries are stated in the insurance policy. Insurance companies calculate the costs of your policy based on three factors. The first one is the mortality table that classifies people into groups and their rate of mortality. The higher the risk of the mortality group you belong to, the higher your cost of policy. Next is the interest rate. Insurance companies invest their money in stocks, bonds etc. The higher the interest rate of the investments, the lower the cost of the insurance. Last factor of influence on the price are the operating costs of the insurance company. Life insurance are classified according to duration where distinction is made between temporary (term) insurance and life-long insurance. Temporary insurance only covers the insured person for a time-span specified in the policy. Life long insurance provides covers until death. Secondly is premium which bring in a distinction between Fixed Premiums and Risk Premiums. Fixed premiums mean that the same amount of premium is paid during the insurance. Risk premiums rise in premium as the age of the insured person goes up. Thirdly is the persons being covered by the insurance. Lastly is the flexibility of payment of premiums where a distinction is made between traditional life insurances and savings life insurance. The traditional insurance demands that premiums are paid at set dates. With savings insurances the date and amount of premium payment are more flexible. Take into account that price is not the only criteria when choosing a company. The reputation and service the insurance company offers should also be considered importantly. Furthermore, the company should be registered so that assistance can be given in disputes between the insurance company and clients. When buying a life insurance, one ought to answer all questions on the policy form correctly which mainly refer to health issues before signing and submitting the forms.   This is mainly because if later it turns out any questions where not answered truthfully, the insurance company can decide not to pay.   Further important points when buying a life insurance include the start and end of the policy, the benefits that might be paid out and those that can become less after a certain age is reached, Clauses regarding age and payments, and the time the company takes to start the running time of the insurance. Car Insurance By law it is mandatory to have car insurance in Argentina. Car insurance in Argentina covers the driver and/or insured person and third parties from damages suffered from fire, theft and accidents. Premiums paid are calculated based on the brand and model of car, usage of the car , geographic location, marital status, sex and age. The peson buying the cover must keep in mind the start and end of coverage, how old a car is, and the value of the parts to be insured   especially if they are to be insured independently. Household Insurance The household insurance in Argentina covers the material as individuals in your household. Examples of what is covered by household insurance are damages due to fire, theft and burglary, water damages, civil responsibility, personal accidents, accidents of domestic employees. Wear and tear of property, damages due to war or natural disasters such as earthquakes and tornados is not covered. Choosing insurance Make sure before deciding with which company to buy an insurance, you know what the financial situation of the company is. Besides the price of the policy the service and reputation of the company should also be important factors to consider when deciding. If to buy directly with an insurance company or through an agent is also another factor. The Argentina Insurance Report provides independent forecasts and competitive intelligence on Argentines insurance industry. It includes BMI’s Insurance Business Environment Rating (IBER), which brings together a number of pieces of relevant quantitative data, together with BMI’s Country Risk Rating (CRR). It is now much easier to consider the business environment for the insurance sector in any one country relative to the business environment for other industries in that country that are surveyed by BMI, and the business environment for the insurance sector in other countries. Argentina’s IBER is a moderately attractive insurance market for foreign insurers. Within the region, the Bahamas has the highest IBER ranking, with a very high score in the risks to realization of potential returns. The competitive landscape, in both the non-life and the life segment, is fragmented. Both segments are open to participation by foreign groups. It is likely that the landscape will change dramatically in the next few years, possibly after considerable consolidation. This means that there is opportunity for cross-border operations that currently have a relatively small presence to become major players in the market. We do not however, expect any completely new market entrants. Although there a strong growth forecasts for Argentina, these are not at the moment translating into high growth rates for the insurance market. (BMI, 2008). The competitive landscape, in both the non-life and the life segment, is fragmented. Both segments are open to participation by foreign groups. It is likely that the landscape will change dramatically in the next few years, possibly after considerable consolidation. This means that there is opportunity for cross-border operations that currently have a relatively small presence to become major players in the market. ` However, completely new market entrants are expected. Economic and political reform if reinvigorated provides positive flow-on effects for the insurance market. Increased transparency has been campaigned on as an issue. However, it remains to be seen if it will be implemented. Although there is a strong growth in Argentina, this is not at the moment translating into high growth rates for the insurance market. (Braga, 1996). SWOT Analysis for Insurance in Argentina (Strength Weakness Opportunity Threats) SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective.The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. Internal factors are the strengths and weaknesses internal to the organization. External factors are the opportunities and threats presented by the external environment.The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all key fields; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix. The aim of the insurance company ought to be maxinizing the strengths and opportunities and minimizing the weaknesses and threats. (Business help, 2008) Opportunities and threats Opportunities SWOT Analysis influences the Opportunities for the insurance businesses and these can be seen as targets to achieve and exploit in the future for example: Being in a good financial position creates a good reputation for future growth, Skilled and experienced workforce means that they can be moved and trained into other areas and locations of the business, competitor going bankrupt therefore creating a takeover opportunity, availability of broadband technology plus the installed in the area which is useful for Internet use, Increased spending power in the Local/National economy, and moving the insurance services into a new market sector . (Business help, 2008) Threats The final part of the analysis will also be seen as the most feared: the Threats. It has to be done and therefore taking into account the weaknesses, the threats seem too clear. For examples: Large and increasing competition from other insurance companies, Rising cost of Wages, Possible relocation costs, Local authority refusing plans for future building expansion, Increasing interest rates by lenders therefore increases borrowing repayments, and lastly existing covers becoming unfashionable or unpopular. (Business help, 2008) Opportunities for a US Insurance companies. As consolidation of the insurance industries and the quest for economies of scale and critical mass continues companies can still find their ways to certain regions as long as they meet the requirements and laws. (Wray, 2008). Need to Resort to International Law Accordingly, a body of international law, not dependent on the law or interpretation of any one country, has developed as the standard for expropriation claims against a host government. In turn, most political risk insurance policies over the years have required that for there to be an expropriation, the government’s actions must be in violation of this standard of international law. Application of the traditional standard to regulatory takings has proven to be difficult. Because of the â€Å"public purpose† test, normal regulations or change of law is not a wrongful action under international law and therefore is not an insurable event under political risk insurance expropriation Coverage. On the other hand, it is easy to imagine a host government attempting to cloak a wrongful expropriation with the appearance of legitimate regulatory action. (Wray, 2008). The credit derivative market: During the past ten years, credit derivatives have become a basic tool for risk management in the banking sector for both corporate credit and country risk management. Since the mid-1990s, banks have increasingly used credit protection to diversify and reduce corporate and emerging market exposure inherent in their lending activities. Insurance companies have also participated (mostly in the non-emerging market arena) both as providers of protection (to capture higher returns and better spreads), and as buyers of protection (to manage their exposure and diversify their portfolios). Insurance companies buy insurance to transfer resources from good times to bad times.  They do this by pooling risks, e.g., motor vehicle insurance. If population is large and individual risks are independent then aggregate loss is predictable. This enables simple strategies for setting premiums as a mark-up over the expected aggregate loss. Practical considerations  include availability of data for insurance companies, which enables them to estimate the distribution of aggregate losses from their pool of risk. Low enough transactions costs (collecting data, writing policies, settling claims) are what are considered as policies, which make risks attractive. Catastrophe risks, e.g., floods, hurricanes, and earthquakes together with weather risks temperature and rainfall fluctuations are not attractive to many insurance companies. The Catastrophe risks are low-frequency high-severity risks unlike motor vehicle risks, which are high-frequency low-severity risks. Low frequency has probabilities of occurrence and damages are not precisely computed. There is need for a lot more data than when it is high frequency, Variance of loss is high, Premium setting is difficult, and Capital requirements to ensure solvency are large. Markets for Catastrophe Risk A large proportion is not insured or under-insured. Premiums can be high (as high as seven times the expected losses the actuarially fair level). Premiums can change drastically with an event suggesting that probabilities of extreme events is not well established and therefore revised with any new information.   Markets for catastrophe risk do not work very well. Conclusion Recent developments. Congressional legislation now allows insurance carriers and other financial institutions, such as banks and securities firms, to sell one another’s products. More insurance carriers now sell financial products such as securities, mutual funds, and various retirement plans. This approach is most common in life insurance companies that already sold annuities, but property and casualty companies also are increasingly selling a wider range of financial products. In order to expand into one another’s markets, insurance carriers, banks, and securities firms have engaged in numerous mergers, allowing the merging companies access to each other’s client base and geographical markets therefore Argentines can be covered by US insurance companies. This way many insurance companies are able to insure unattractive risks. Insurance carriers have discovered that the Internet can be a powerful tool for reaching potential and existing customers. Most carriers use the Internet simply to post company information, such as sales brochures and product information, financial statements, and a list of local agents. However, an increasing number of carriers are starting to expand their Web sites to enable customers to access online account and billing information, and some carriers even allow claims to be submitted online. Many carriers also provide insurance quotes online based on the information submitted by customers on their Internet sites. In fact, some carriers will allow customers to purchase policies through the Internet without ever speaking to a live agent. In addition to individual carrier-sponsored Internet sites, several â€Å"lead-generating† sites have emerged. These sites allow potential customers to input information about their insurance policy needs. For a fee, the sites forward customer information to a number of insurance companies, which review the information and, if they decide to take on the policy, contact the customer with an offer. This practice gives consumers the freedom to accept the best rate. If this does not make the insurance landscape manageable then it is on the collapse. (Bureau of Labor Statistics, 2008). Work cited: Business Monitor International, (n.d.). Argentina insurance report. Accessed 16thMay 2008 from: http://www.businessmonitor.com/insurance/argentina.html Business Monitoring International (BMI), (2008, March). Argentina insurance report, pages: 31. Accessed 16thMay 2008 from: http://www.researchandmarkets.com/reports/c89667 Michael Braga, Tempa Bay business Journal, (1996, 21st June). Bankers insurance group on EEC Argentina. Accessed 16thMay 2008 from: http://www.bizjournals.com/tampabay/stories/1996/06/24/newscolumn1.html Business help, (2008). SWOT Analysis-Opportunities and threats Analysis. Accessed 16thMay 2008 from: http://www.bizhelp24.com/marketing/swot-analysis—opportunities-and-threats.html Robert Wray. (2008, April). Political risk Insurance Newsletter. Connecticut Avenue, nw suite 350, Washington dc, Volume 4, Issue 1 Advameg Inc, (2007). Argentina forum. Accessed 16thMay 2008 from: http://www.nationsencyclopedia.com/ Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2008-09 Edition, Accessed 16thMay 2008 from: http://www.bls.gov/oco/cg/cgs028.htm