MEXICO: An Introduction to Insurance

MEXICO: INSURANCE 

Economic Overview: 

With a population of nearly 130 million, a rich cultural history and great diversity, favourable geography and abundant natural resources, Mexico is among the fifteen largest economies in the world and the second largest in Latin America.

Mexico has shown positive recovery rates in the post-COVID-19 period, although the specific international context of 2022, such as the conflict between Russia and Ukraine, has also had an impact on the national economy, causing inflationary indexes to increase during the year. Having said this, it is expected that inflationary indexes will be reduced month by month until the end of the year in a positive manner. Likewise, the industrial sectors that have offered in these months a greater impulse to the national economy are construction, mining, manufacturing and tourism, with the latter growing 88.7% in the month of April.

Thus, given the circumstances, Mexico's current economic outlook is challenging but positive. That is to say, even though inflation has increased, the indexes according to private banks are expected to go down by the end of the year in conjunction with the injections of remittances and the most important industrial sectors of the country. Likewise, even with inflation, the domestic consumption index has not been affected, largely due to the use of credit, so that even domestic consumption continues to increase month after month in accordance with the expected rates.

Mexican Insurance Market Today: 

The Mexican insurance market is always challenging players to develop new ideas, products and solutions.

In this context, and despite the existence of a rather passive regulator, the Mexican insurance industry is growing, exploring new trends such as insurtech-related businesses where technology platforms and apps are exploring the market to start operations with significant investments.

In order to allow the provision of financial services to be tested in a controlled and less costly environment, Mexico remains at the forefront of the use of technology in the financial sector. This is particularly true of the insurance sector, where although in principle it is prohibited to carry out active insurance operations without being an insurance institution properly authorised by the federal government through the National Insurance and Bonding Commission, there is currently a temporary exception scheme to the regulatory framework under the so-called Novel Models or Regulatory Sandbox.

The insurance regulation allows the creation of an Authorised Company that operates Novel Models under a temporary authorisation of up to two years, which implies that whoever intends to sell insurance that represents a potential benefit to the client may do so without submitting, in principle, to a long and complicated process of authorisation before the regulator to become an insurance institution. A company that is not an insurance institution may test a Novel Model by selling insurance to a limited number of clients before offering it to the general public, using innovative technological tools or means.

In that regard, the Mexican insurance market is no exception to one of the global trends that is impacting the world at large, namely technology. The use of electronic platforms for insurance contracts is becoming more and more latent, together with the preference of customers to have a more direct relationship with the insurer and without the need for intermediaries.

In addition to the above, the use of artificial intelligence and big data is becoming a necessity for the optimal management of information in the market. Blockchain is under analysis to be used in the insurance market.

All of the latter has an impact on the insurance market in general, so a new level of competitiveness and new lines of business are expected. Consequently, different challenges arise, such as the need for smart contracts regulation, blockchain and cyber attacks.

Insurance Topics and Trends: 

The insurance market has been impacted by new trends in legal interpretation. As an important trend in insurance is the protection of human rights, its application has been seen in the field of insurance contracts, with the courts now resolving insurance cases taking into account the protection of human rights.

In that regard, ultimately insurance companies have received multiple judicial claims concerning two subjects. The first is related to insurers' refusal to provide medical insurance coverage to disabled people (e.g. those with Down syndrome) and the second has to do with the non-payment of coverage for disabled people under an existing policy. Claims are based upon discrimination due to alleged violations of the human rights of persons with any sort of disability; plaintiffs are bringing actions through constitutional trials, claiming also for torts, moral and punitive damages. The striking point is that they are using these means of defence considering the insurer's acts as those of an official or public authority. Consequently, using this legal institution they are seeking to remedy the insurance company's omissions through issuing a new policy or to obligate them to pay.

Regarding liability insurance, courts have created a trend that the insurance contract will be effective for the victims after their knowledge of the policy, notwithstanding that the insurance action is time-barred, which can be interpreted to mean that insurers and reinsurers will be obliged to pay claims after policies' effectiveness is over, for a rather unlimited period.

A current problem is the extension in the term of prescription of two years. The law states that the statute of limitations period for a victim contract will be counted from the date on which the victim becomes aware of the existence of the insurance contract. The trend is that courts have stated that statute of limitations of two years will be counted upon the victim's knowledge of the policy, thereby creating an interpretation that insurers’ liability would be extended indefinitely.

This may have a severe impact on insurers and reinsurers who considered a policy terminated and closed, as victims are filing claims for damages incurred almost a decade ago, alleging that they have had recent knowledge of the existence of a policy covering the insured’s liability. That surely will affect insurers' and reinsurers' reserves.

Several cases are now at trial alleging that the liability action has a civil nature, with the claim being brought more than two years after the occurrence of the damage. If that claim is not filed in a timely manner, the insured is released because of the lapsing of the statute of limitations. Therefore, the action under the insurance contract may be effective, but the underlying obligation to indemnify no longer exists.

Relevant Insurance Law Changes: 

Finally, regarding discrimination, Congress has approved an amendment to the Insurance and Bonding Institutions Law that obliges insurers to create and develop special insurance products to cover people with any sort of disability. The amendment has been recently promulgated by the President and is therefore law.