Commentary: Purchasing Insurance for Mexico

Tourists, property owners and businesspersons who drive, own homes, or operate businesses or subsidiaries in Mexico need to properly protect their assets south of the border. It is ironic that most agents place insurance coverages in the U.S. with great care, yet use a lesser standard of care when procuring coverages for Mexico.

When placing any type of insurance for Mexico, agents should analyze a number of issues.

Is the Mexican insurer reputable?
As the global economic environment continues in a state of uncertainty, it may be more important than ever to purchase insurance for Mexico from a financially strong insurer. No matter how reputable the wholesaler you use, if it is placing your insurance with a troubled insurer, you could be in for some unpleasant surprises in the event of a claim.

There are more than 50 insurance companies in Mexico; similar to the U.S., some are “good” and some are “bad.”

According to the 2000 report of the Mexican Insurance Commission (Comision Nacional de Seguros y Fianzas) only two Mexican insurance companies write more than $400 million in non-life premium. These companies are Grupo Nacional Provincial and Seguros Comercial America. The next three largest companies write between $100 million and $200 million in premium. Each of the remaining insurers writes less than $70 million in premium, (with quite a few writing less
than $10 million) including some companies quite familiar to purchasers of Mexico insurance.

Some U.S. insurers have purchased ownership interests in Mexican companies (most notably ACE-INA and GE Capital), and this trend continues.

Inquire about the size and financial strength of the insurers you place Mexico coverage with. In the event of further economic problems and/or the devaluation of the peso, coupled with a few natural disasters, such as a hurricane or flood—how will the insurer fare?

Is it necessary to purchase coverage from a Mexican insurer?
Mexico law mandates that only insurance companies that are licensed and admitted in Mexico can provide “civil liability” coverage that is recognized by the judicial system of Mexico. Although a few U.S. insurance companies will extend physical damage coverage (collision, comprehensive) on autos while in Mexico, they cannot and do not provide Mexican liability.

Similarly, Mexican law requires that any property located in Mexico be insured by an authorized, admitted Mexican company. Some U.S. companies will extend property coverage to large commercial projects in Mexico; however, for both homeowners and commercial property owners, both the underlying “fire” coverage and the Mexican liability coverage must be purchased from a Mexican insurer.

What are the differences between a U.S. and Mexico policy?
There are some major coverage differences between U.S. and Mexican insurance policies, and far too many minor differences to list here. Following are some of the major differences outlined by type of insurance:

• Auto: Rates, coverages, limits and deductibles vary greatly among Mexican companies. An ideal liability limit on a Mexican auto policy is $100,000 combined single limit. Mexican law is based on statute; claims for pain and suffering are unheard of. In the event of a bodily injury claim, Mexican law provides for a number of days multiplied by the daily minimum wage for settlement. Rarely do claims exceed $10,000.

Does the insurer automatically include legal aid and travel assistance? These additional coverages should be included in every policy. They will help tremendously in the event of an accident. Without them, your insureds could be on their own, racking up legal bills and huge headaches until the liability amount has been determined.

What are the physical damage coverages and deductibles? The main exclusions on a Mexican auto policy are vandalism and partial theft. The policy is written on a named perils basis, which includes coverage for collision, certain meteorological events, total theft, fire and other perils. It should be noted that ACE Seguros was recently the first company approved to offer an endorsement adding back partial theft and vandalism coverage.

• Homeowners and Commercial Property: While some Mexican companies offer all risk policies and reasonable deductibles, others offer only named perils policies with some strange deductible and coinsurance clauses. Unlike U.S. property insurance, coinsurance in Mexico is a “share in the loss” penalty applied after the deductible has been met. A coinsurance clause could effectively increase the deductible to 10 percent to 20 percent (or more) of the property value.

Check your policy carefully. The same insurance company may offer all types of options, ranging from all risk with no coinsurance (the good); to named perils with a coinsurance clause (the bad); to, well, we won’t get into the ugly.

• Liability: Liability in Mexico is determined by civil law and is based on limits defined by Mexican statute. Depending on your view of things, this is either a brilliant system or an antiquated one. Claims for pain and suffering and emotional distress are virtually unheard of and claims for property damage to others and bodily injury to others are settled on an actual loss basis, guided by statute.

Personal injury lawyers, as we know them in the U.S., do not exist in Mexico. Therefore, liability limits and claims exceeding $100,000 are rare. It is far more likely to have a property damage to others claim that approaches this limit (damaging someone else’s new Chevy Suburban, valued at $55,000, for instance) than it is to have a bodily injury to others claim that approaches this limit (damaging the occupants of the Suburban, for instance). This is almost an exact opposite of how claims are settled in the U.S.

Keep in mind that the liability insurance you purchase from a Mexican insurer will not respond to claims or suits brought against your insured in the U.S. or Canada for an incident which occurred in Mexico. All liability claims under a Mexican insurance policy must be brought and adjudicated in Mexico for coverage to respond.

As you can see from this brief summary, insurance in Mexico is just as complex as it is in the U.S. Although all types of insurance are available in Mexico, coverages, terms and conditions vary greatly among insurers.

Jim Labelle, CIC, is president of International Insurance Group Inc. Mexico Insurance Professionals, a subsidiary of International Insurance Group, focuses on providing all types of insurance for Mexico, underwritten by” A” rated insurers, through agents and brokers throughout the West. Agents can access Mexico Insurance Professionals’ products at the following websites: for auto coverage: www.mexicaninsuranceonline.com; for all other lines: www.mexpro.com; or by calling (888) INS-4-MEX.