also in this section Business & Economy Briefs

Economic crisis affects Panama's insurance industry

by Willy Carrera

The economic slowdown that the country is experiencing is most notable for its effects on small businesses and working people, with many establishments closing their doors or moving to less expensive premises, mergers and takeovers, vast lots of repossessed cars and buses for which there are few buyers, and legions of working people on the streets looking for jobs.

The insurance industry, historically one of the more upscale sectors of the nation's economy, may be moving in the same direction. Although the insurance companies have been one of the important engines of Panama's financial sector, at the moment they don't wield their accustomed economic clout.

Enrique Bandera, president of the Panamanian Insurers Association (APADEA), said that the insurance industry represents 4.9 percent of the country's Gross Domestic Product, based upon about $400 million in premiums paid every year. As a percentage of the economy, Panama's insurance sector surpasses other Latin American countries — for example, in Mexico, a far larger country than Panama, the insurance industry accounts for 1.5 percent of the Gross Domestic Product. Panama occupies third place among Latin American countries when it comes to premiums paid per capita, which is taken as the main indicator of how widespread the practice of buying insurance is among a country's population.

The industry is a bastion of Panama's middle class. Insurance companies directly employ some 2,500 people in Panama, and there are another 2,500 or so independent insurance agents. Almost all of this business is concentrated in the capital, whose supermarkets, real estate business, restaurants and other businesses indirectly depend on the insurance industry's health.

However, according to industry statistics, in the first trimester of this year there has been a nine percent decline in premiums paid, compared to the same period in 2000. Life insurance premium payments have gone down some 20 percent.

"There are people who have stopped paying on their policies, and others who have cashed in their life insurance in order to pay other bills," Bandera said. "It's symptomatic of a difficult economic situation."

"At the moment, we haven't taken drastic measures like reducing our work force," he said, "but if the economy doesn't see some substantial changes we will be obliged to make adjustments like other businesses have made. Buyouts of some insurance companies by others, like the merger of Pribanco with Banco del Istmo, can't be ruled out."

The president of APADEA said that Panamanians, who are accustomed to having health insurance through the social security system — which is also troubled due to the economic crisis — value the security that being insured represents and are trying to preserve both the public health care system and their private insurance coverage. "They know the importance of having this coverage," he said. "One possibility for the reactivation of this sector would be for the government to permit the deduction of the initial payment on a life insurance policy from income taxes. The possible decline in government income could be made up by the investment of the insurance companies' income in government bonds, which would create a source of long-term financing on favorable terms," Bandera suggested.

also in this section Business & Economy Briefs
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