The Obama administration’s decision to thaw the 54-year freeze in U.S.-Cuban relations has set off a flurry of speculation about a new market for American businesses and, with it, the opportunity for U.S. insurers and reinsurers to dip into long uncharted waters. 

FAST FOCUS

Even if diplomatic relations were restored, lifting the trade embargo would take an act of Congress.

An estimated 170,000 Americans traveled to Cuba last year, most of them to visit family or as part of exchange programs.

It’s unclear whether U.S. companies will be permitted to take their commercial insurance with them if they expand into Cuba.

Even though the consensus is that economic relations will be restored in baby steps, not strides, and could take a decade or more to be fully realized, the excitement is palpable.

“We don’t get very many brand new areas to start almost from scratch,” says Brenda Rose, vice president and partner at Firstbrook Cassie & Anderson Ltd., a Canadian brokerage. “Whatever opportunities there might be, talking about insurance isn’t necessarily the first thing businesses think about, but it is absolutely fundamental. Whatever developments there are, businesses will need insurance.”

“Our relationships with Cuba are on the mend. It is very positive, and people are looking toward the future,” says Sean Jackson, managing director of IMA Global Risk.

Following two years of heightened tensions between the two countries, President Kennedy approved the embargo of Cuba in 1962, instituting broad economic sanctions that have remained in place ever since. The embargo essentially prohibited most U.S. companies from engaging in business in Cuba and forbade U.S. insurers and reinsurers from providing coverage to any entities or individuals taking part in travel to Cuba.

Even if diplomatic relations were restored, a trade embargo still exists and would need to be lifted by Congress, a move that at present is fraught with controversy. Another big sticking point in moving forward will be the Cuban government’s remuneration for expropriating property of U.S. citizens. There are a number of insurance companies that still hold significant property claims against the Cuban government, which have been certified by the Department of Justice. Just how these will play out in the future and what effect they may have on broadening relations between the two countries remains to be seen.

Meanwhile, U.S. citizens are still barred from regular tourist travel. Nonetheless, there will be an immediate change in the travel and financial sectors that will be a boon not only for American visitors to Cuba, but also for the tour companies that take them there. Under the new Treasury Department regulations, non-tourism categories of travel have been expanded, and the red tape associated with travel has been significantly lessened. U.S. insurers, previously prohibited from providing travel, health and life coverage for U.S. and other travelers to Cuba, will no longer face that restriction.

“The difference for insurers is that what they used to do in terms of providing coverage, if it was done, had to be done under a specific license and they had to apply to do it,” says a U.S. Treasury Department spokesperson. “The changes in regulations mean that they are authorized to provide that coverage without having to apply for a license to the Office of Foreign Assets Control (OFAC) at Treasury, which is the office that enforces all sanctions. Now, no license is needed.”

It’s completely changed the game. Awareness has just skyrocketed.

Tom Popper, president, InsightCuba

An estimated 170,000 Americans traveled to the island in 2014 either to visit family in Cuba or to take part in educational and cultural exchanges. Almost immediately after President Obama’s announcement of more open relations, tourist interest in travel to the island soared. Tom Popper, president of InsightCuba of New Rochelle, N.Y., the first company to sponsor so-called people-to-people tours, says his company offered 170 tours for about 3,000 travelers in 2014. He expects that figure to swell to 5,000 this year. According to the company website, InsightCuba provides travelers “with unique access to people and places the average tourist rarely sees.”

“It has completely changed the game,” Popper says. “Awareness has just skyrocketed. Although we’ve been doing this regularly for 15 years with a fair amount of success, generating awareness that Americans can travel to Cuba legally has been tough.”

Cuba requires all island visitors to purchase a basic medical policy from Asistur, the sole Cuban insurance agency providing medical coverage for tourists. However, InsightCuba and most tour companies provide additional coverage with customized health, travel and emergency evacuation policies. Popper says until now, InsightCuba purchased that coverage from an insurer in Canada but “it is likely that we can now deal with a company in the U.S.”

The Treasury regulations allow U.S. insurers “to issue or provide coverage for global health, life or travel insurance policies for individuals ordinarily resident in a country outside of Cuba who travel to or within Cuba.” In addition, that authority also extends to U.S. policyholders in a third country who are “authorized travelers” to Cuba under U.S. law.

Previously, InsightCuba had to work with a financial institution in Canada to pay for hotels, meals and other tour-related expenses and to cover the cost of a traveler’s care in the event of a medical emergency since U.S. banks were barred from doing business or making financial transfers to Cuba. That, too, has changed.

“U.S. banks can now open correspondent accounts with Cuban banks. That is new and was not the case before,” the Treasury spokesperson says. “Also, you have the aspect of authorized travelers using debit and credit cards while traveling in Cuba. And the financial institutions that want to engage in that activity will be able to do that also without applying for specific licenses.”

For Popper, by far the most important change is a massive reduction in the paperwork required of both the tour companies and the travelers. He says his company’s people-to-people license to conduct tours of Cuba was scheduled to expire July 31.

It’s kind of like the old East Germany but with really nice beaches.

Michael Boyd, president, Boyd Group International

“We started in October to write it, and we were going to submit it in March. It was upwards of 1,000 pages and not easy writing,” Popper says. “They ask you for every departure, every group, a full account of what happened, dates, designated representatives, what activities you did, what time of day, what sort of meaningful interaction there was, and what it meant for Cubans and Americans—a short essay for every departure, every single activity, every day. The difference now is you don’t have to submit any of it. People are calling it the honor system.”

The new regulations also loosen restrictions on construction, agriculture, telecommunications and medical supplies. However, in terms of commercial policies such as property-casualty, shipping, marine and export-import credit insurance, it is unclear whether companies will be permitted to take their U.S. insurance with them if they expand into Cuba. A Commerce Department spokesman did not provide an answer when asked about commercial insurance for companies doing business in those areas.

“Currently, insurance policies issued from the United States list Cuba as an excluded coverage territory,” says IMA’s Jackson. “So by loosening up trade sanctions and allowing more travel to Cuba, the insurance market in this country is going to have to respond and somehow allow coverage.”

Over the last few years, Jackson says, OFAC has been granting more specific licenses to allow companies or organizations to travel to Cuba even though they did not specifically fit under the previous rules. For example, Jackson says, he worked with a mission organization that was granted an OFAC license, and that organization was able to obtain coverage for general liability, accidental death and dismemberment, foreign voluntary workers compensation and some property coverage in Cuba from Ace.

“Without that waiver, the underwriter would not have granted the coverage,” Jackson says. “It all starts with the opening of travel initially—first for U.S. government staff and politicians and then travel by schools and mission organizations and then eventually with all sanctions being lifted and manufacturers being allowed to sell there. It is still early and might be another year or two off. I see it changing, and I definitely see U.S. companies wanting to do business there.”

Insuring business ventures in Cuba has not been much of an issue in Canada, Rose says. “There hasn’t been a great deal of demand, and often international ventures have chosen to self-insure,” she says. “Further, many of our carriers here do have a U.S. association, a U.S. parent company or even U.S. reinsurance.”

There are more than 200 insurance companies licensed and admitted in Canada, Rose says. “But even though they are domiciled here as a Canadian entity, links to U.S. companies have made it impossible for them to participate in any Cuban-based business,” she says. “Very few insurers are willing to extend the policy territory to do that. Eventually, I think we are hoping this means that the economy will be more open for international participants, but nobody knows what the terms of that will be. How much is the government still going to be involved? There’s another government we have to think about here, the Cuban government, and what are they going to permit?”

For now, flights to Cuba will remain in the hands of charter companies that pay handsomely in terms of landing fees charged by the Cuban government. Commercial airlines in the United States will be able to apply for licenses to offer direct service, but that could take a year or more. Airlines from Canada, Europe, Mexico and Latin America already fly to Cuba because they are not affected by the American embargo.

Michael Boyd, president of Boyd Group International, an aviation consulting firm based in Colorado, says although some commercial airlines might schedule flights to Cuba from the United States, he does not expect great demand for them.

“The majority of traffic is Cuban-Americans visiting friends and relatives in Cuba. If you opened scheduled service, they would still be most of the travelers,” Boyd says.

We traveled around the island in new, clean, built-in-China tour buses listening for hours to perfectly scripted—from a sightseeing and political perspective—and perfectly memorized commentary.

Ellen Westrick

The reason? There is no place to go and no place to stay once you get there. “There are more hotel rooms on the Las Vegas Strip than there are in all of Cuba,” Boyd says. “You can’t find hotels because they just don’t build them. There are a few resorts open to foreigners, but few can afford them. Regular tourists won’t be in them because there is nowhere to go. There just isn’t a big market for it now. It’s kind of like the old East Germany but with really nice beaches.”

Boyd also does not anticipate a large jump in business travel.

“It is not because of the U.S. embargo. It is because they have no money,” Boyd says of the Cubans. “Their system has just denuded the place of wealth.”

The average annual salary in Cuba is less than $300, and most Cubans work for the government. There also is not much to buy, those famous Cuban cigars notwithstanding. Just ask Ellen and Bill Westrick of Naples, Fla., who spent a week in Cuba in 2013 on a cultural exchange with a group of 20.

“The opportunity to purchase items was rather limited,” Ellen Westrick says. “At several restaurants where we would go, vendors—primarily women—would be selling bracelets, necklaces, very well made from local seeds and nuts. They also had lace tablecloths and napkins that were handmade and embroidered, and local art work.

“I remember seeing a washer-dryer in the window of one store in Cienfuegos, and the price was astronomical and beyond the reach of any Cuban. I suspect they were put there by the government to impress the tourists and make it look like the items could be easily purchased, as in a U.S. department store.

“We traveled around the island in new, clean, built-in-China tour buses listening for hours to perfectly scripted—from a sightseeing and political perspective—and perfectly memorized commentary. The bus rides to the various education sights took us on narrow roads traveled by other tour buses and by the local shared transportation, which is a donkey and cart. Cart drivers must stop to pick up someone needing a ride or be fined.”

“Havana looked like Beirut—a bombed-out mess,” Bill Westrick says. “We got a tour from an architect who spent 20 years working with very limited funds to do renovation, and all he has done is change the facades so they would look good. He says he wished he had the resources and people to bring it back to its former glory.”

The Westricks say the two hotels where they stayed, one in Cienfuegos and one in Havana, were nice and clean. In Cienfuegos, the air conditioning broke, but they figured out it was a circuit breaker problem and were able to fix it. Not so in Havana, where they stayed in a newly renovated beachfront hotel. The hot water system broke, and it took two days for the hotel maintenance staff to figure out what was wrong and make the repairs.

Their travel group wasn’t used to having cold showers for two days and complained loudly, Ellen Westrick says.

“The sad thing about this,” she says, “is that, when we were leaving, our tour guide, who is one of the more moderately wealthy Cubans, said, ‘I apologize again for lack of hot water for your stay in Havana. I wanted to let you know that I live in a relatively nice apartment, and I don’t have hot running water.’”