Southern exposures. (Industry Strategies: Latin America).

In order for U.S. insurers to compete in the Latin American markets, they will have to modify and adapt their underwriting guidelines and procedures, especially those related to beneficiary designations and medical reports.

In Latin America, the growth of a middle class with enough disposable income to buy life insurance has captured the attention of U.S. insurers. In order to compete in this arena, U.S. companies must modify their underwriting guidelines and procedures, especially those related to beneficiary designations and medical reports, to fit this market.

U.S. insurers must factor cultural and regulatory differences into their marketing strategies. It takes more than language to establish effective communication, and speaking the same language is just the beginning of a long learning process. Regional and cultural differences can and will affect the communication flow.

Nor is it enough for a U.S. insurer to jump into a market by acquiring a local insurance company that will start selling its products with insufficient planning.

The decision of whether to enter the Latin American life insurance market should start with some thought-provoking questions:

Q: Where can an insurer find bilingual insurance professionals who understand the U.S. style of doing business and the Latin American culture and can merge the two into a winning formula?

A: The best solution may be to recruit from companies that already are doing business in these markets.

Q: Is it better to buy an existing company in a market or establish a start-up?

A: It is more difficult to establish a start-up if the company is not familiar with the business environment and doesn't have the connections. A U.S. insurer doesn't want to leave behind a monument to failure if the business doesn't go as planned.

Q: What distribution system works best: brokers, agents, direct mailings or a combination of all three?

A: It depends on several considerations, but a brokerage is the most viable.

Q: What about legal and local regulations?

A: An insurer's in-house counsel can iron-out the details with his or her counterpart at the company that is an acquisition target or a local lawyer who specializes in insurance.

Do the Homework

While there's no formula that predicts the success of such an enterprise with certainty, all the information needed to make a market analysis--such as the demographics, the per capita income and spending trends of the population and the local requirements for foreign companies wanting to do business in that country--are available through local government entities, private marketing companies and universities that gather this type of data for their own use. The information exists. The problem is figuring out where to look for it.

In Latin America, most life insurance is sold without a medical exam because the face amounts are small. The application asks for a minimal amount of general health information. The local sales force is apt to have plenty of questions when the new U.S.-owned life insurance subsidiary begins to ask for motor vehicle records, attending physician's statements and inspections reports. They will want to know why the insurer wants the information, whether it is really necessary and how to counter complaints that other insurers aren't asking for it.

The U.S. insurer will need to instill in the sales force the idea that this information is needed in order to sell higher face amounts at affordable and competitive rates. Explaining why some policies will be charged a higher premium to cover a higher risk also will be a challenge for the underwriters.

Since term and universal products usually have more questions on the application than simplified products, brokers and home office personnel will have to be made aware of the importance of properly collecting the details to all "yes" answers on the application:

* "Follow-up visit":What was the follow-up for?

* "Routine visit": With normal or abnormal results?

* Had electrocardiogram done":results?

* Will travel":Where?

* Had surgery":Why? When? Where?

This is even more important if the applications will be underwritten in the United States, because even using imaging technology a few days can pass before the underwriter notices that details are missing.

Sports and medical questionnaires will have to be translated and revised to fit the specific country's Spanish language style. For example, "suscritor" means "the ProPosed insured" in one country and "underwriter" in another. "La propuesta" means "the application" in one place and "the proposal" in another.

A local company will already have procedures for processing and investigating claims. Otherwise, the insurer can use a U.S.-based investigation agency that networks with local investigating sources in that country to get the required records.

The insurer also can require the paramedics or personnel collecting the blood and urine samples to ask the proposed insured to show identification and to make a photocopy for the home office, if possible.

Sometimes there are no medical records available because they are never produced. In Latin America, not everybody visits his or her doctor regularly for routine check-ups. The practice of keeping medical records is not widespread, and those that do keep records may have only a handwritten note or receipt with a few lines stating the condition treated and the medication prescribed. That's not much help for the underwriter who needs to evaluate a complete medical history.

When asking for records, it is better to send a letter to the doctor with specific questions addressing the patient's medical history. Larger hospitals are usually better at providing records. If the underwriter can't get records, depending on the medical history at hand, the application could be postponed until the client gets a complete medical exam.

Sort Out the Details

Beneficiary designations will sometimes seem strange, or lacking an insurable interest on first view.

For example, in Chile there is no divorce, and often a man who no longer lives with his wife, and is now in a new common-law relationship, will name both the wife and the common-law spouse as beneficiaries for different percentages of the benefit, instead of buying two policies.

Underwriters also see "godson" ("ahijado" in Spanish) or "hijo de crianza," which means "stepson" but (usually) without adoption or court papers to prove it. In this culture, it is not unusual for the aunt or uncle to take in a nephew or nephews and raise them as their own when a family situation dictates it, without going through custody procedures.

Driving records are either nonexistent or very difficult to obtain, because there are no computer records of traffic violations.

One way to find out if the proposed insured has been in a car accident is to review the medical history:

* Has the client received any disability benefits?

* Has the client been treated by an orthopedic surgeon?

* Has the client received physical therapy?

* Is the client taking any medications?

For high net-worth cases, where money laundering can be a concern, an underwriter can hire a local private investigation company to get information about everything from the client's life style to moral standing in the community, types of associates and acquaintances, to net worth. In the United States, insurers routinely conduct telephone interviews with applicants who want to buy large amounts of life insurance, because it has been cost effective. In Latin America, it would be even more cost effective to do a personal interview at the home or workplace of the proposed insured.

Obtaining financial statements or income tax statements can be hard because many people don't like to provide this information, fearing an audit. The insurer can ask for financial statements or develop a "financial statement" form that is part of the application for life insurance.

To do business in the foreign markets, U.S.-based insurers will have to adapt their products, underwriting requirements and procedures to the peculiarities of each country, and listen to the local brokers and home office personnel who know the business environment and can provide valuable information to establish a profitable business. It is important to be flexible and open to new ways of doing husk ness to find solutions to the new challenges presented by the Latin American markets.

Dan Velazquez is senior underwriter, Great American Life of Puerto Rico.