Scope for Growth in Insurance SectorTue, 11/01/2016 - 15:10
The Chinese character for “crisis” is a combination of the characters for “danger” and “opportunity.” The infrastructure sector contributes an average of 6 percent to developing economies around the world, and given that this number has dropped to as low as 2 percent in Mexico, it would be easy to focus on the dangers the industry faces today. Pablo Crain, CEO & Country Manager Mexico of insurance giant XL Catlin, prefers to focus on the opportunities. “The infrastructure insurance sector has a fantastic opportunity to thrive,” says Crain. “The sheer size of Mexico’s population provides a large domestic market, considering that local consumption has exploded due to the middle class’ accelerated growth of 80 percent since 2000.” The Mexican economy is expected to grow at a rate of between 1.7 and 2.5 percent in 2016 and this, coupled with Mexico’s geographic position, should increase opportunities for infrastructure projects.
Perched atop three tectonic plates and sandwiched between the Pacific Ocean and the Gulf of Mexico, the country is threatened by a wide range of natural phenomena and is a regular victim of earthquakes, hurricanes and floods. This puts great stress on the national road and hydraulic networks, but also has spurred improvements in risk management. “Patricia was the largest hurricane in history, and luckily nothing major happened but it drastically raised awareness of insurance in the country,” says Crain. “Companies are beginning to prepare for these types of events and improve their risk management culture.”
According to Crain, one effective method of reducing risk and increasing profit is through the implementation of sustainable infrastructure. Meanwhile, climate change has increased sensitivity toward environmental protection as well as generating usual weather patterns. The use of sustainable materials and more efficient solutions can drastically reduce the risk for construction companies and garner support for infrastructure projects from the international business community, particularly the insurance sector.
“Sustainable buildings generally have lower risk than traditional buildings due to lower energy consumption and the types of building materials used,” says Crain. To provide a helping hand, XL Catlin has customized a series of products and innovative solutions specifically designed for the Mexican market, such as crisis management, to enable companies to mitigate the inherent risks of operating within the national infrastructure sector. Such products are particularly pertinent for foreign enterprises entering the industry in Mexico for the first time.“Companies are expanding to new countries, and we created products that cater to their specific needs, such as crisis management solutions,” says Crain. “Companies must be alert because each country has different jurisdictions, insurance-related processes and accounting that need to be understood.”
Along with the private sector, public institutions also have important responsibilities to meet regarding infrastructure risk management. The federal government must ensure that education, health, transport and hydraulic infrastructure is adequately protected from natural disasters and that reparation funds are provided when required. This task is handled by FONDEN, the natural disaster fund, which repairs damage using modern, resilient techniques and materials. While this is an important step, Crain believes that the government should also consider transferring risk through insurance and reinsurance instruments.“In the case of public infrastructure, the government has adapted mechanisms to finance risk with FONDEN,” says Crain. “The transfer of risk is an important method that allows both private and public sector institutions to have a clear understanding of what they are insuring, where it is located and how much it costs to rebuild.”
Above all else, Crain believes that the key to companies protecting themselves from natural disasters lies in education and XL Catlin uses its international standing and experience to play a leading role in fostering a more sustainable, efficient and profitable insurance sector in Mexico. “XL Catlin is highly involved in educating the sector and developing strategies to establish a better insurance culture in Mexico,” says Crain. “Combining our global footprint and local expertise allows us to reach out to larger numbers of people and companies.”