Puerto Rico presses forward with insurance reform

Puerto Rico governor Ricardo Rosselló Nevares signed two bills into law directed at the insurance industry, the first to increase the opening of the local market to international reinsurers and the second to expand consumer options when contracting insurance services.

In a statement Sunday, the governor's office said that both Senate project 935 and House project 1330 are modeled after legislation proposed by the US National Association of Insurance Commissioners (NAIC) to promote better insurance coverage in Puerto Rico and to establish a regulatory framework in the industry that is fair.

Giving reinsurance a boost

Senate Bill 935 was presented in May at the request of the governor and it amends the US territory's insurance code to boost participation by international reinsurers in the local market.

"The law guarantees a financially healthy and competitive insurance industry in order to maintain accessible insurance costs, especially in the purchase or renewal of insurance policies against catastrophic risks such as hurricanes and earthquakes," read the statement.

Puerto Rico has faced an uphill battle in its efforts to recover from catastrophic damage associated with hurricanes Irma and Maria in September 2017, difficulties compounded by a pre-existing fiscal crisis and fragile electrical grid.

Over the past several months, Puerto Rican authorities, including the governor and local insurance regulator (OCS) head Roberto Rios, have stepped up efforts to demand accountability from insurers amid thousands of complaints of slow or unsatisfactory handling of claims related with the storms.

"In recent days we held a summit to address the concerns of the insured in the claims process associated with hurricanes," said Rosselló Neveras, adding that it is the government's express policy to establish a regulatory framework that ensures economic growth.

Similarly, Rosselló Nevares added, "In the coming days, we will be presenting measures to bring justice, because we are not satisfied with the response of insurers and that has an effect on our ability to recover."

The government statement highlighted the importance of the reinsurance market to the local insurance industry, "particularly for property insurers that offer insurance products associated with catastrophic risk losses."

The new law will allow local insurers to claim a tax credit for reinsurance as is already the case in the US mainland. The recognition of this credit will have the effect of strengthening the ability of insurers to meet capital liquidity requirements.

In addition, the measure promotes an increase in the participation of international reinsurers in the local market by incorporating NAIC's recommended regulatory scheme, allowing insurers' contract with reinsurers to expand the financial and underwriting capacity, strengthening financial solvency guarantees and alternative insurance products in the market at more accessible costs.

Service Contract Model Act

Rosselló Nevares signed House Bill 1330 as an adaptation of the Service Contract Model Act, a model legislation that was first proposed by NAIC in 1997.

The law promotes a balance between consumers and insurance companies, by providing greater options to consumers in their service contracts.

The act also encourages marketing innovation and development of lower-cost and more effective means of providing services under service contracts, while placing the risk of innovation on the providers rather than on consumers.