Cross border activities in Colombia of relevant actors of the agricultural insurance market, have highlighted some doubts regarding the operation of the cross-border agricultural insurance system and the operation of the insurers offering these insurances from abroad and over some of the modalities under which the agricultural insurance programs are structured. Let's see.
1. Foreign insurers registered in the RAISAX, are not subject to supervision of the Financial Superintendence of Colombia, SFC
The first question that arises is to know if foreign insurers registered in the Registry of Foreign Insurers and Intermediaries of Agricultural Insurance, RAISAX, are subject to the supervision of the Financial Superintendency of Colombia, SFC, and if the policy-holders are considered financial consumers for the purpose of exercising the financial consumer protection action before the SFC. The answer is negative, as we will explain.
Through Law 69 of 1993, which establishes the Agricultural Insurance in Colombia, creates the National Fund for Agricultural Risks and contains other provisions regarding agricultural credit, established the agricultural insurance as an instrument to encourage and protect the production of food, seek the economic improvement of the rural sector, promoting the economic ordering of the agricultural sector and as a strategy to boost the country's global development. The purpose of this insurance is the protection of agricultural investments financed with credit resources from the national system of agricultural credit or with the producer's own resources, preventing the needs of national and international production and commercialization and the integral development of the primary economic sector.
Given the low impact of agricultural insurance in Colombia, in the decade of the 90's and the beginning of the 21st century, Law 1450 of 2011, empowered insurance companies from abroad, directly or through authorized intermediaries, to solicit and issue insurance policies form abroad in the national territory. In addition, this Law required the SFC to create a registry for these companies and their intermediaries.
The abovementioned implies that foreign agricultural insurers can offer and place agricultural insurance policies from abroad in the national territory, and a resident in Colombia can acquire these policies through this cross-border modality. To do this, by virtue of the minimum information that Colombians must have in order to acquire agricultural insurance in the national territory, from foreign insurers, the SFC created a registry where these insurers must be registered to be able to market their insurance products locally. This registry is the Registry of Foreign Insurers and Intermediaries of the Agricultural Insurance, RAISAX.
Now, once foreign insurers and intermediaries of agricultural insurance are authorized to issue the mentioned policies, by virtue of their registry in the RAISAX, does it imply that these companies are subject to the supervision of the SFC?
On September 20, 2018, the SFC through Concept No. 2018081943 issued a statement on the matter as follows:
"It is important to specify that although the legislator authorized on an exceptional basis foreign insurance companies to issue to residents in the country, directly or through authorized intermediaries, agricultural insurance policies and empowered the Financial Superintendence of Colombia to establish the mandatory registration of these companies or their intermediaries, the corresponding registration in the Registry of Insurance and Intermediary Entities of Agricultural Insurance Abroad (hereinafter RAISAX) does not grant them the status of entities monitored by this" (Free translation of this text).
In the same way, it was clarified that the RAISAX aims to "provide information to agricultural policy-holders about which are foreign insurance entities that by their rating, reflect minimum conditions of solvency, experience and professionalism, by which they are authorized to act in the Colombian market ", but this registry does not imply a recognition financial consumer, of the policyholder of these foreign policies. The latter is because in accordance with Colombian Financial Consumer Protection regulation, contained in Law 1328 of 2009, such condition refers only to persons entering into contracts with supervised entities by the SFC. Accordingly, as long as consumers of foreign agricultural insurance policies enter into contracts with non-supervised insurers, they do not acquire the condition of Colombian Financial Services Consumers.
That is, the policyholder of an agricultural insurance policy of an agricultural insurance company from abroad is not considered a financial consumer. Therefore, in case a dispute arises between the policyholder and the foreign insurer, the former could not file a financial consumer protection action before the SFC, taking into account that the jurisdictional power attributed to the SFC by article 57 of Law 1480 of 2011, Consumer Statute, is limited to "knowing the controversies that arise between the financial consumer and the supervised entities related exclusively to the execution and fulfilment of the contractual obligations assumed on the occasion of the financial activity, stock market, insurer and any other related to the management, use of investment resources captured from the public ", and as mentioned above, said policyholder does not hold the status of financial consumer.
2. The legality or not of the Agricultural Insurance under the modality of parametric insurance
One of the main difficulties that the previous Government had when implementing massive agricultural insurance programs in Colombia was the misconception that it was given on the basis that supposedly the structuring of parametric insurance programs in the country was illegal for supposedly violate the indemnity nature of insurance. Once these mistaken statements were overcome and after understanding the real form of compensation, operation, actuarial and statistical support and benefit of parametric insurance, the government published Decree No. 2458 of December 28, 2018, by means of which the damages covered by the agricultural insurance, include the loss of profit, provided that it is agreed in an express manner in the insurance contract, and allowed the modality of parametric insurance. Thus, article 1 of the Decree provides:
"Article 1: (...) Agricultural insurance coverage: The agricultural insurance will cover the damages caused by natural and biological risks beyond the control of the policyholder, insured or beneficiary that affect agricultural activities; including, among others, the lost profit, as long as this is object of an express agreement within the respective insurance contract "(Free translation of this text).
The reason for the above is found in Article 3 of Law 69 of 1993, in accordance with the provisions of Article 1088 of the Colombian Commercial Code, in the sense that agricultural insurance is a property line of business, which is considered a contract of mere indemnification, that can cover at the same time the emergent damage and the loss of profit. The latter only if it is expressly agreed.
Likewise, Decree 2458 regulated the coverage of the parametric or index insurance, taking into account that due to the specific characteristics that define the agricultural activity, the evaluation of some of its risks implies a need to do so, due to the presence of correlated risks or systematic, such as those related to weather phenomena of great intensity that are based on the development and operation of index insurance, whose operation relies on the assurance of pre-established objective parameters, which when exceeded generate the payment of compensation that should be aimed at compensating affected producers, or recover the affected goods.
With this new regulation, an enormous window is opened for the real assurance of agricultural risk in Colombia, which will allow the development of agriculture in the regions that have needed it the most in this post-conflict stage.
