A Better Relationship Between US and Cuba Creates Insurance Opportunities

October 2015 • Lockton® Companies

L O C K T O N C O M P A N I E S

President Obama and Raul Castro announced the restoration of diplomatic relations between the US and Cuba at the end of 2014, more than 50 years after an economic embargo was placed on the island nation and diplomatic ties were severed. For the first time in recent history, it appears that relations between the two countries are becoming amicable. New trade and travel regulations have been passed as well as the restoration and reopening of embassies in Havana and Washington. It is important to note that the economic embargo is yet to be lifted, though, as the US Congress has maintained a strong opposition to this step.

Insurance Implications

New regulations have created opportunities in life, health, and travel insurance for authorized travelers. Authorized travel includes family visits, educational opportunities, government work, and journalistic endeavors among others. Companies subject to US jurisdiction are now authorized to issue travel policies for individuals ordinarily residing outside of Cuba who travel to or within Cuba. This includes the servicing of those policies, such as payment of claims and emergency medical services.

While travel-related policies are the only ones available to US carriers at the current time, it has given insurers and brokers alike a peek into a potential new market of the future. Outlined here are some important characteristics and developments of the current Cuban insurance industry.

Now new trade and travel regulations have been passed

as well as the restoration and reopening of

embassies in Havana and Washington.

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October 2015 • Lockton Companies

KEY FACTS AND DEVELOPMENTS

Workers’ Compensation (State Social Security—not handled by the insurance market)

Medical Expenses insurance for visitors to Cuba or those temporarily residing in the country. All travelers entering Cuba must hold a valid travel policy that includes healthcare cover.

Third-Party Auto Insurance Cover is not a compulsory general requirement, but is demanded by the Ministry of Transport to obtain a license to become an operator of services involving the transportation of goods or people.

COMPULSORY COVERAGES

There are only two operational carriers in Cuba: Esicuba and ESEN, subsidiaries of the state-owned holding company Caudal.

Esicuba is the only writer of general liability as well as the majority of property policies, with the exception of agriculture.

ESEN covers liability in terms of motorized vehicles, as well as being the only writer for agriculture and life insurance in Cuba.

Asistur is one of the only national brokers and Intermar is one of the only loss adjusters; both are also subsidiaries of Caudal.

MARKET PARTICIPANTS

Nonadmitted insurance and fronting operations are not permitted in Cuba since the law dictates that insurance must be purchased from a local insurer, with few exceptions granted. All insurance of foreign interests must be placed with Esicuba.

Joint ventures and foreign entities may ask the SSC (Cuban Insurance Regulator) for an exception if they feel that the terms of Esicuba are inferior to that of a global program, in which they can request to place their insurance directly overseas. If Esicuba is unwilling to meet the terms of the foreign company the SSC may exceptionally grant this.

ADMITTED/NONADMITTED

CUBA

Population: 11.2 Million

Largest Cities: Havana (2,201,610),

Santiago de Cuba (423,392)

Currency: Cuban Pesos (CUP) and

Convertible Pesos (CUC)

Key Industries: Agriculture, Manufacturing,

Mining, Tourism, Oil and Gas

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October 2015 • Lockton Companies

� Foreign Investment Law No 118 of March 2014 aimed to stimulate direct foreign investment in Cuba, allowing it in all sectors except for health, education, the military, and communications media. Companies with mixed local and foreign investment, and totally foreign-owned companies, must insure all their property and casualty risks.

� Many companies have expressed interest in bringing their products to Cuba.

� US telecommunications companies are now allowed to sell personal communications equipment in Cuba, plus authorization to work on the improvement of Cuba’s antiquated internet and telecom infrastructure. While AT&T, Verizon, and other major players have not rushed in, IDT Domestic Telecom from New Jersey has already established a direct telephone link with Cuba and is doing business with Etecsa, a leading Cuban telecommunications firm.

� Starr International Co. is pursuing growth in Cuba. Starr’s travel assistance unit, Switzerland-based Zug could provide services and insurance to clients who wish to go to Cuba.

� Brazilian Insurer Capemisa applied to be the first private insurer in Cuba in 2013, planning an investment of $10M; at the end of 2014, its application was still in process.

� The main insurance regulator and initiator of insurance legislation is the Insurance Superintendence of Cuba (Superintendencia de Seguros de Cuba—SSC). The Ministry of Finance and Prices, which the SSC is part of, review and approve all insurance legislation and regulations.

� Cuba is situated in an active seismic area, and although most are of very low intensity, there is a large exposure to earthquakes. Besides that hurricanes are a major exposure, with Hurricane Sandy recently imposing massive damage to the city of Santiago de Cuba.

With all of the sudden changes in this fast-evolving situation instability has to be expected, with the insurance sector being no exception. Currently, insurers face a litany of challenges, including a Cuban population that puts insurance relatively low on their list of priorities. Also, as stated before, the US Congress must lift the economic embargo for full insurance activities to occur. Nonetheless, insurance carriers are realizing that in Cuba, along with travel insurance, the insuring of the agriculture and hotel industries will be sizeable opportunities.

So, as the two governments continue to restore full diplomatic and economic relations, it becomes ever

more important that carriers, brokers, and the insured are aware of the regulations and protocols when

it comes to insurance in Cuba. Once the economic embargo is fully lifted and a client wants to move in,

carriers and brokers alike can’t afford to be lagging behind.

Sources: AXCO Insurance Market Reports, Kennedys Law LLP