An Investment in Insurance Education

Property insurance has yet to gain a proper foothold in Mexico. Although the country’s real estate industry has grown exponentially in the last few years, less than 2 percent of related transactions have title insurance in comparison with the US, where 98 percent of properties are bought with this failsafe. For the title insurance segment to grow in Mexico, the real estate sector must understand why all transactions should have insurance. Title insurance policies are contracts of indemnity that guarantee the purchaser’s and the seller’s ownership rights throughout a real estate transaction. The use of an escrow provides the buyer security when the seller is unknown, and protects middlemen, such as brokers.

In Mexico, there are only three title insurance providers. Pablo Marti, New Business and Sales Director of Armour Secure, has been working alongside Mexican real estate developers and investors to ensure their ownership rights, backed by Lloyd’s of London reinsurance. He says real estate transactions in Mexico, whether they are commercial or residential, are extremely complicated, due to the unique challenges posed by the country’s developing infrastructure and lack of legislative clarity. “Corruption and lack of formality within the public registry system increases transaction risk,” he says.

When searching for the ownership history of a property, there could be various owners who may have inherited the property or who may have sold the property without any record of the transaction, which complicates the land acquisition process for the developer. Armour Secure insures against risks such as forged or revoked documents and gaps within the chain of custody.

These insurance products were introduced into the Mexican market through the residential sector with US citizens who purchased second homes in the country. Today, Armour Secure continues to cater to the needs of foreign investors in Mexico and does not have many Mexican clients. “In residential, our activity is in Los Cabos, the Tijuana-Ensenada Corridor, San Miguel de Allende, Puerto Vallarta and the Riviera Maya, which are all tourist sites where US citizens purchase second homes,” says Marti. But with land ownership comes another unique challenge for Mexican real estate and infrastructure developers. “Most of the claims we receive come from transactions involving ejidos,” he says. “To purchase land from an ejido, there are many processes that must be followed. For instance, all information regarding these deals must now be published publicly.”

Protection against these issues has a high value that Marti believes companies are overlooking. “Today, we provide the largest number of title insurance policies within the residential sector but in monetary terms, commercial and industrial developments generate higher returns for the company,” says Marti.

This approach is set to become more and more ingrained in the Mexican infrastructure sector as Afores and international funds boost their investment in real estate developments and look for ways to ensure the safety of their affiliates’ pensions. “Although Afores have not yet made title insurance a requisite, they feel more comfortable participating in transactions that do have a policy because then the money of the affiliates is guaranteed if something goes wrong,” says Marti. Fibras and CKDs are also purchasing these types of insurance policies but there is still ample room for growth for Armour Control. “We are insuring approximately US$5 billion a year in Mexico but the market could be a lot bigger. If we had the residential market, it would be multiplied by 100,” says Marti. Armour Secure has 98 percent of the title insurance market in Mexico but Marti believes that this is only a drop in the ocean compared to the country's true potential.