MEXICO: An introduction to Insurance
The following overview first appeared in Chambers Latin America 2024 and is awaiting update from the firm.
The great challenge for the insurance industry in Mexico today lies in the evolution of the Mexican Legal System, which, as of 2011, had a constitutional reform in which human rights are now the basis for interpretation and application of the legal environment, which is breaking paradigms and forcing insurers to improve their operations in general, but particularly their underwriting and claims analysis processes.
To put it in context, it is important to establish that the Mexican Legal System, which traditionally had been codified, is migrating towards a hybrid system that in addition to the codified laws, is also based on judicial precedents created by federal courts and the Supreme Court of Justice of the Nation, who dictate the parameters of interpretation of the law based on human rights, predominating the protection of consumers, from a protectionist point of view.
In the insurance field, the criteria issued by the courts have been transcendental, because they are generating parameters of compliance with the law. That is to say, there are no legislative reforms that oblige insurers to take measures in this regard, but the courts, for the purposes of litigation before them, consider that obligations are only complied with under certain conditions. For example, such criteria range from how an insurance contract must be delivered to the insured, to the unconstitutionality of the provision regulating the lack of timely payment of the premium, because the mechanisms for the payment of the premium also depend on the insurer. It is worth mentioning that, in addition, the burden of proof has been reversed practically in its entirety to the insurer.
The statute of limitations in insurance is also the subject of discussion in the courts, because the circumstances of each of the cases that arise are being taken into consideration so that the insured may benefit, in the best possible way, from the right derived from the insurance contract. Particularly the case of civil liability and its coverage by the liability insurance is being analysed in the Federal Courts severely impacting the insurers by establishing that the statute of limitations is practically indefinite. This has severe technical implications because insurers do not have legal certainty as to when the coverage granted ends, which is also reflected in reinsurance.
The impact of the application of human rights has not only transcended into the coverage offered by insurers through liability insurance, but also in their own actions, since their conduct is being analysed by the courts to determine whether they have acted negligently and, if so, to condemn them with substantial fines for punitive damages that are outside the insurance contract and that directly affect the insurer's assets. An example of this is the consideration of a federal court to condemn a health insurance company to pay punitive damages for delivering the file to its lawyers (for their defence), when such file contains sensitive information of the insured (data of the health of a person), such as the condition derived from the human papillomavirus.
Therefore, insurance companies are in a delicate moment in which they must adopt measures from their corporate governance that allow them to prove that their actions, at all times, have been based on due diligence; and in addition, they are suffering the impact of the conduct of the supply chain of their service providers of all kinds, such as insurance brokers, adjusters and claims analysts, who have direct contact with people who may belong to vulnerable groups.
In the legal market, law firms must be sensitive to these trends in order to advise our clients in the best possible way, as the merely corporate vision is obsolete and even risky. The vision must be integral, from the point of view of human rights and the interrelation that exists between the company and the world that surrounds it, from its employees, suppliers, clients, etc, with the purpose that all those who participate in it are involved in the respect for human rights, according to the Codes of Ethics and Conduct that are adopted from the heart of the corporate government.
The moment in which the Mexican Insurance Market is living is crucial for its evolution, which must be achieved with the support of the reinsurance companies from a technical point of view, in which the rates are improved based on a loss ratio affected by the litigation index that is currently being experienced. In addition, it is essential that the supply chain adds value, in the sense that contact with the people affected, under any type of coverage, should find in the insurer a solution and not a problem.
Mexico is an exceptional country whose economy is in constant growth and the insurance industry has responded accordingly. With more insurers registered in the country, the product offering has diversified substantially to offer more and better satisfactions to those who need insurance; and furthermore, the circumstances that have been mentioned are putting pressure on insurers to provide a better quality service.