Insurance Information

by Mike Newton

THE GOOD, THE BAD AND THE INSURED Mike Newton

Insurance talk? It is a dry subject, one that will make most want to reach for the pillow. However in a country where "lead floats and cork sinks", this seemingly mundane subject can present surprises and in insurance surprise is usually a dirty word. Although the nuances and peculiarities of Nicaraguan insurance are not as straight forward as one would hope; some basic knowledge will help you get on the right path. When shopping for insurance for your family, Nicaraguan home or car it is wise to keep in mind that many of the rules are not the same as at home. Knowing where some of the pitfalls are and how to avoid them is the focus of this article

NICARAGUAN INSURANCE COMPANIES Closely aligned with the banks and self-governing? Nicaragua has five insurance companies; four private and one public. The private companies, founded in the late 1990's, are owned or closely affiliated with local banks. It is no surprise therefore that the regulatory body for insurance, is basically a sub-department under the Nicaraguan banking commission, (SIBOIF). The one public insurance company was founded in Oct 1979, when all private insurance companies were nationalized and merged into what is now known as INISER.

The State insurance regulator has by law the task of regulating all aspects of the insurance industry. As a matter of practice, it does not get involved much with consumer to company complaints, but focuses more on company issues: such as capital requirements and the quality and type of re-insurance contracts the local companies use. In essence the industry is self-regulating in terms of claims paying procedures, interpretation of policy provisions, premium payments and other company client issues. Well meaning corporate intentions aside, some Nicaraguan companies do a good job and others don't. This is one of many reasons an honest, experienced insurance broker becomes a valuable mediator between the customer and insurance provider. A professional broker should be able to explain well beyond the details of this article, but this summary is a head start.

HOMEOWNERS INSURANCE My wife crashing through the garage is not covered, but 6% student mortar-fire is? The basic fire policy, which covers a structure in case of fire, lightning and explosion, is used in conjunction with the "optional" coverage to create insurance similar to a homeowner's policy like those in United States and Canada. What most would assume should be standard comes in an optional package called allied lines. This allows great price flexibility for the insurance companies to compete, but also could make many policies close to useless if cost is the only barometer. This allied lines package consists of insurance for earthquakes, tremors, volcanic eruptions, tidal waves, hurricanes, tornados, labor strikes, student riots, looting, collision damage to your home by cars or aircraft (other than your own), and incredibly, flooding. Even with an allied lines package, the rules of the game are often different. One example is that flooding in Nicaragua is covered opposite as it would be in a homeowner policy in the states. In Nicaragua water damage to a house is only covered if it comes in contact with the ground before it enters the structure. So leaks from the roof or water damage from a broken pipe in the ceiling are excluded under Nicaraguan policies. HOME CONTENTS When your gardener goes on vacation so does your theft insurance. The stuff inside your house, TV's, furniture, paintings can be insured under optional contents coverage. Contents in Nicaragua includes everything except; gold, silver, jewelry, precious stones, furs, paper money, stock certificates, checks, stamps, commercial documents, and the catch all "rare objects of art or collectables". Additional coverage included by some companies at no charge include medical payments for injuries to immediate family, and/or small liability coverage. Many of the insurance companies offer an option that protects your personal property and household items from robbery. Though somewhat incredulously if no one is home when your house is robbed then Nicaragua theft insurance is invalid. If you leave your home alone, it is not covered, although that's when you need the coverage the most.

REPLACEMENT VALUE OR ACTUAL CASH VALUE My home has appreciated and my insurance depreciated? In many countries insurance is based on the idea of replacing the loss. This concept is called Replacement Value. Nicaragua uses Actual Cash Value and most of the time value is established at the time of the claim. Sounds reasonable enough. However this can be problematic. First local companies apply a depreciation factor to the lost item. Secondly, as in the case with real-estate, the item insured usually appreciates so the declared value of a house in San Juan del Sur will generally increase over time not decrease.

A misunderstood and little known clause called "rule of proportional insurance" aggravates the idea of replacing your insured real-estate loss. Basically it states if the value of the insured house is higher than the declared amount in the policy, the insured is assumed to be a co-insurer by the percentage difference. Example: you insure your house for $100,000. Two years later it is worth $200,000. The percentage difference is 50% between the policy amount and the Actual Cash Value of the house. A damage claim for $20,000 would be paid out by the insurance company after deprecation and after subtracting 50% co-insurance. It works like this: $20,000 minus deprecation and minus the 50% con-insurer penalty. Truly bad news, but only for those who have not used a competent insurance broker, since the way to eliminate deprecation and the co-insurance penalty from your insurance policies is to have your broker get the insurance company to stipulate to an agreed upon value at the start of the policy.

AUTOS Accident after midnight? Sorry, we don't insure pumpkins. Auto insurance can seem like a no-brainer, with the significant difference being only the price, but this is not the entirely true. While there is considerable standardization in the auto policies each of the five Nicaraguan companies have their idiosyncrasies. One company, for example excludes coverage late at night, or in the early morning hours any where there is (in their opinion) not sufficient security. Seems arbitrary, yet another company has a clause which voids coverage if there is not a certain percentage of tread on the tires. All except one company exclude damage claims when your vehicle is towing a trailer.


Driving drunk, reckless and without a license? We cover that. Any road worthy vehicle is required by laws to have the minimum third party liability coverage called civil responsibilidad. While "road worthy" is a relative term in Nicaragua the small liability policy required by law is very well written with no exclusions. In many countries of the world auto insurance coverage is totally void if the driver has violated the law, by say being drunk, driving reckless, or without a license. Not in Nicaragua, the drunk driver who smashes into you with insurance will still have his company pay out the minimum amounts of the policy. However this applies only to the minimum liability, all other auto coverages; collision, robbery, and higher liability limits are void if an accident occurs while driver is deemed intoxicated, under the influence of narcotics or in the commission of a crime.

A FEW GOOD BROKERS Your parachute may have holes in it. The old adage about insurance being like a parachute... you don't care about it much until you need to use it ... and then hopefully it deploys holds true here as well. Claim disputes and misunderstandings between insured and insurance companies do occur. First there is no legal duty on the part of the insurance local companies to make sure the policies they sell actually are issued correctly for the risk they cover. A rumored internal audit of one national company's found well over half of the policies they have "on the books" are incorrectly insured. Some common errors are made for businesses run out of a house. Structures (homes) that are used for business purposes have a higher insurance premium than regular homes. Claims loss of these on these properties can be denied. Other frequent errors occur in Granada and Leon, where you have a mixture of adobe and block construction in the same house. Often times the policies are priced on cement block portion of the structure to achieve a lower premium for the homeowner. This practice will result in claim denial as these structures are not considered properly insured by the insurance company.

Compounding the situation is the fact the agents and brokers are not as well regulated and trained as in some other countries. All brokers are required by law to have a 100,000 Cordobas ($5,892) bond for malfeasance, but it is rarely used. Although liability for errors and omissions is a known concept in Nicaragua, pursuing a legal claim against an agent or insurance company in the overburden Nicaraguan judicial system is futile. So what can you do to make sure your insurance works when you need it? Shop around for a broker not insurance. Why? Because unlike other markets, local companies use the same rates for standard risks. For example, insurance for new residential construction cost $4.50 per 1000 of insurance. A house of 132,000 will cost 594.00 plus 15% tax and a small policy fee. There are some slight differences in auto policies pricing because of the different insured values the local companies assign to the vehicles.

A good intermediary can tell you which company is best for your auto, and often times may suggest a different company for homeowner's coverage. Having an insurance broker represent you costs nothing extra, because the commission paid by the company is built into the cost of the insurance. Understanding policy conditions and wording is the key to being insured correctly. Interview or meet with different agents or brokers then choose one to represent your interest to the five Nicaraguan insurance companies. Ask questions and don't assume something is covered just because it was in another local. Even knowledgeable agent may not know the answer off the top of his head, however, a good agent will acknowledge he doesn't know and will find out.

About the Author:

Warren "Mike" Newton with 26 years in the insurance industry, advises corporate and individual clients throughout Latin America and the United States. He is a licensed attorney, graduate of Loyola University Law School, and holds a Chartered Life Underwriters (CLU) degree from The American College, Bryn Mawr PA. Mike lives in Nicaragua with his family and is owner of the insurance brokerage firm CSISA, www.nicaragua-insurance.com

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