Insurance Sector Regulations in Mexico and the Northern TriangleBy Héctor González | Tue, 09/06/2022 - 10:00
In some regions of the world (especially in Latin America), insurance, in any of its modalities, is commonly seen more as an expense than as an investment for risk protection.
Beyond the actual significance of purchasing insurance, whether it’s life, auto or merchandise insurance, the great majority of people in Latin American countries are not concerned about knowing the different insurance products that are available and how they can benefit them. This means that the problem lies not only in the "expense" they may incur when buying insurance but also in the prevalent lack of interest and disregard of the array of insurance products.
Contrary to the underdeveloped and poor conditions of Latin America as compared to other countries with more sustainable economies, these latter, through their almost unlimited resources and the enormous efforts made by their large corporations and government agencies across different sectors, also foster a culture of prevention, which in Latin America remains unusual and extremely limited.
However, an insurance culture transcends the economic conditions of a country and its people. The insurance industry depends also on advertising and promotional campaigns for its products and on raising awareness among people of the benefits it offers, to name just a few.
Furthermore, it is becoming increasingly critical for consumers to become more aware of the regulations established in each country concerning the insurance sector, both for their own insurance protection and to understand what their rights and obligations are.
Insurance Laws and Regulations in Mexico
In Mexico, regulations for the insurance sector are implemented by the National Insurance and Bonding Commission, known as the Law of Insurance and Bonding Institutions (Ley de Instituciones de Seguros y Fianzas).
This law, published in 2013 in the Mexican Official Gazette (Diario Oficial de la Federación), is intended to regulate the insurance sector throughout Mexico. In other words, it lays the foundations for the insurance sector's organization, operation and functioning as well as the rights and obligations of policyholders to protect their interests.
On the other hand, the Insurance Contract Law (Ley Sobre el Contrato de Seguros) also governs the agreements established between insurance companies and consumers.
Both the Law of Insurance and Bonding Institutions and the Insurance Contract Law are the most relevant regulatory frameworks when it comes to the insurance sector in Mexico.
Nevertheless, despite the fact that a large number of insurance customers know about insurance and its applicable regulatory frameworks, it is just enough to bolster a prevention culture in a country experiencing security and safety hazards.
This is highly relevant because, according to reports published by the British Standards Institution (BSI), a global supply chain intelligence provider, and the International Transport and Logistics Insurance (TT Club), as of 2020, Mexico ranks third in the world for the highest cargo theft rates, only after Brazil and India.
Furthermore, according to the Crónica newspaper, in 2020 and 2021, two out of every three robberies in North America, occurred in Mexico.
On top of this, according to the first quarterly report of 2022 from Sensitech Supply Chain Intelligence Center (SCIC), Mexico registered 4,857 incidents of cargo theft. This represents an increase of 8 percent compared to 2021 and 13 percent compared to 2020, for the same period.
In spite of such frightening data, a culture of insurance remains extremely low, despite the obvious dangers in a country that offers few guarantees as to safety and security.
Insurance Laws and Regulations in the Northern Triangle
Throughout Central America, the culture of prevention and insurance is practically the same for all countries in the region: limited and scarce.
Especially in the so-called "Northern Triangle," formed by Guatemala, Honduras and El Salvador, where the practice of purchasing insurance services should be widespread but is not, even with the high risks associated with cargo transportation.
The Insurance Activity Law (Ley de la Actividad Aseguradora) is the main piece of regulation for the insurance sector in Guatemala, which establishes the regulatory framework for insurance companies' activities in the region.
Nonetheless, there is one particular feature that draws a great deal of attention in the insurance sector, as there is a government agreement that provides for the compulsory purchase of insurance, called Regulation for the Purchase of Compulsory Civil Liability Insurance against Third Parties of Urban Collective Transportation of Passengers and Cargo, aimed at establishing the obligations for the owners of cargo vehicles.
In Honduras, the National Insurance and Reinsurance Commission of Honduras (Comisión Nacional de Seguros y Reaseguros de Honduras) is the agency in charge of supervising insurance institutions. The Insurance and Reinsurance Institutions Law (Ley de Instituciones de Seguros y Reaseguros) regulates insurance and reinsurance activities and operations.
Lastly, in El Salvador, the Superintendency of the Financial System (Superintendencia del Sistema Financiero) is an agency in charge of the supervising insurance sector entities in the country and the Insurance Companies Law (Ley de Sociedades de Seguros) is the legal framework governing the insurance sector.
It is worth noting that, alongside Honduras, El Salvador has not implemented mandatory insurance for the cargo transportation sector, despite being two of the three countries that make up the Northern Triangle.
According to data and reports published by the United Nations Office on Drugs and Crime (UNODC), the most dangerous countries in the Central American region for freight transport are Guatemala, Honduras and El Salvador. These are the three countries, which comprise the aforementioned Northern Triangle, where organized crime is most prevalent along highways.
While this is the region with the highest incidence of on-the-road crime, this does not mean that other Central American countries are free of similar incidents, as the problems in this region (made up of seven territories) tend to be very similar.
It should be noted that in 2016, the Alliance for Prosperity program was signed between Guatemala, Honduras and El Salvador, with the support of the US, (an agreement with the firm objective of reducing crime and violence in the first instance). Although the truth is that, to date, no progress has been recorded.
Despite the high incidence of crimes against the transport sector and the actions taken to mitigate them, the level of insurance purchasing continues to be extremely low.
What should first be understood is that the insurance services meet their objective of protecting people's assets. At the same time, it is essential to understand the regulations and their active role as consumer protection measures to ensure the growth of the sector and the promotion of a culture of prevention. Insurance culture in Latin America needs to be fostered.