November 1, 2001 by Peter Bassel, Toronto branch manager of Loyalist Insurance Broke
Mexico is increasingly becoming a business frontier of interest to Canadian and American business people alike. Growth and opportunity have flourished since the signing of NAFTA and the election of Vincente Fox two years ago, ending 70 years of Institutional Revolutionary Party (PRI) reign. Opportunities in Mexico are available in all aspects of the economy from primary industries through secondary industries to the tertiary industries. The climate, the cost of land, labor and material have lead to investments in manufacturing and agriculture. Infrastructure improvements are prompting greater numbers of Canadian based contractors to perform work in Mexico.
As a result, millions of dollars of goods are now being transported from Canada to Mexico, and vice versa, on a daily basis. This trade has greatly increased the need for broad, compatible cargo, transportation and commercial trucking coverages for both Canadian truckers and shippers operating in Mexico, as well, eventually under NAFTA, Mexican truckers delivering finished goods to warehouses in Canada.
The growth of the “maquiladora” industry has been phenomenal. More and more Canadian corporations are moving production facilities to both Mexican border cities and mainland Mexico. The influx of Canadian capital and management into the Mexico tourism industry has been substantial, enabling Canadian based corporations to develop and manage hotels, recreational vehicle parks, condominium complexes, and other services.
Thousands of Canadian executives, tourists, retirees, and expatriates travel to and own homes in Mexico. These clients need personal lines and specialty expatriates health, medical, and emergency evacuation coverages in Mexico in addition to legal aid services, which can be purchased as an endorsement on most Mexican liability policies.
Why Canadian brokers?
With these business opportunities opening up, Canadian business people are putting their assets and companies at risk in a new country with a different currency, language, insurance and legal system. As a result, until now, most Canadian brokers have left their clients to fend for themselves when it came to dealing with these new exposures.
Canadians have a long tradition of doing a lot of research to find an insurance agent or broker that can help them with their needs and that they trust. It goes without saying, but brokers are generally located close to their customer’s business operations. They are able to build up trust through face-to-face contact, through getting to know the customer’s business needs, through speaking the customer’s language and based on their local knowledge of the legal and insurance environment.
It is hard enough for Canadian brokers to keep up to date with local Canadian legal implications on their client’s insurance needs to have to worry about spending their time keeping up to date on another country’s issues. This, however, does not mean that Canadian brokers cannot benefit from the NAFTA boom. Partnerships with specialist wholesale brokerages dealing in the Mexican market can facilitate a complete relationship without loss of the business.
Knowing the market
Canadian brokers avoiding the “challenges” involved when one of their clients decides to expand operations into Mexico are not only losing good business associated with a long-term relationship with that client, but are also exposing them to the stress of having to figure out who to deal with in a foreign country in a foreign class of business without any of their home based resources to fall back on and not enough time to perform a due diligence. This applies throughout the chain from the Mexican broker to insurer and the products offered. Although regulated, stories of brokers selling insurance for companies that are insolvent or providing bare bones covers that do not really address their customer’s needs, all in an effort to provide the cheapest rates, are far too frequent in the Mexican insurance market.
Furthermore, if Canadian brokers have clients traveling to Mexico, or have business interests in Mexico, they are exposing these clients to other brokers, and all the competitive implications that are associated.
It is our belief that Canadian companies and individuals with exposure in Mexico are best served by continuing to work with their Canadian brokers. There is no reason for brokers to risk losing clients, potential clients, or control of a portion of an account because they cannot handle exposures in Mexico. In fact, Canadian brokers can find themselves with opportunities to handle the Canadian portion of an account as a result of having been the only producer in the area to be able offer to review the client’s Mexican insurance needs.
To be aware
Mexican law requires that primary insurance in Mexico be placed with an admitted Mexican insurer. Although difference-in-condition coverage is available from U.S. carriers it is not generally available from Canadian carriers. Mexican policy forms and terms and conditions are often quite different from those for corresponding Canadian coverages. Be sure to obtain English translations of all policy forms prior to binding coverage.
Approximately 50 insurers are admitted in Mexico. With the relatively small number of insurers in Mexico, the financial strength and service standards of Mexican underwriting companies varies dramatically. Interestingly, many U.S. insurers with Mexican operations have only a handful of employees in Mexico and may not provide the same level of service, risk management, and coverage lines as Mexico’s largest insurance companies.
The Mexican market is property driven. In fact, one of the most difficult coverages to place in Mexico today is transit/cargo coverage. Liability exposure as we know it in Canada does not exist in Mexico.
Although Mexico has had an impressive comeback from the peso crisis of a few years ago, the potential for peso fluctuation remains. Therefore, all policies are denominated in U.S. dollars.
What should brokers look for in Mexican insurance opportunities? The following is a brief list of possibilities:
Snowbirds and other travelers travelling to Mexico by car to an apartment or condo, or clients who own a motor home and drive it south for the winter. With the value of the peso versus the Canadian dollar and the wonderfully predictable weather in Mexico, it is becoming more and more popular as a winter destination. Despite perceptions to the contrary, driving and living in Mexico is safe. Once snowbirds try Mexico for a few days or a week, they often find themselves going back year after year for the whole winter. This group has two main Mexican insurance needs: auto insurance and property insurance (mainly contents).
With increasing trade due to NAFTA and George W. Bush’s interest in opening up the border between the U.S. and Mexico to more trade and trucking, Canadian truckers that have to this point spent most of their time in the U.S. will now find they also need to drive to Mexico.
With increasing trade, the need for insurance on items and goods that are being shipped is enormous, leading to cargo insurance opportunities.
Business owners with their wide range of potential operations in Mexico are also a great opportunity.
Airplane legal liability for small planes is available at reasonable rates for clients who want to fly their own plane to Mexico.
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