In recent years, Mexico has undergone a significant political, social and economic transformation. There are many drivers that have fuelled this transformation, including new government policies, the Covid-19 pandemic and the availability of new technology and big data. The insurance sector is not immune to this transformation, and is presented with important challenges but also unique opportunities.
Consumers are more aware now of the current risks to their health and assets. Insurers must innovate and adapt their products if they intend to grow and fulfill consumer demands.
Here are our considerations on the top trending insurance products now developing in the Mexican insurance market.
Top trending insurance products
Healthcare and wellness services
Covid-19 has brought awareness like never before on the importance of health, access to medical services and most importantly, the positive effects that prevention and wellness have in our daily lives. Consumers demand new and accessible private healthcare that includes wellness and prevention and better coverage, considering the loopholes that exist in health coverage in Mexico.
Insurers have been developing and implementing new technologies to create innovative and cost-efficient products. Foreign investors are also keen to participate.
We have been working in projects to create innovative integral solutions in healthcare, combining risk assessment, use of technology and development of healthcare infrastructure.
Parametric catastrophe insurance
Mexico is a country highly exposed to natural hazards, increased by the effects of climate change. In September 2020, the federal government cancelled the National Natural Disaster Trust (Fonden), a long standing social programme covering damages during natural disasters. As a consequence, local governments and the private sector are demanding alternatives to cover such an important risk.
This challenge has been faced with the design of parametric insurance products. Under parametric insurance, the insurer pays coverage if the indicators specified in the policy are met irrespective of the losses caused by the natural disaster or event, as in a traditional insurance.
We have been actively involved advising Mexican insurers, local and international reinsurers, funds and intermediaries in the structuring and implementation of the first parametric products being placed in the Mexican market. In these cases, the main challenge has been adapting the products to Mexican law and regulation, as parametric products depart from the traditional coverage and technical calculation of insurance products commonly used in the market and reviewed by the regulator.
The personal risks that board members are facing have increased in Mexico, particularly in the financial and stock market sector. There has been a substantial increase in regulations that impose new obligations and liabilities on directors and officers, mainly in financial and public companies.
Despite the increase in demand, this last year we have seen Mexican insurers (generally fronting this product for foreign reinsurers) reviewing their limit and coverage, and irrationally increasing the premium disproportionate to the claims and occurrences experienced recently in Mexico. The lack of better underwriting by insurers (and their reinsurers) has resulted in the following problems and the occasional claims resulting therefrom: confusing wording of policies; disputes arising from the lack of approval by the insurance company on the appointment of legal counsel; excessive control and abuse by insurers in the payment of defense fees; slow responses from insurers to claims from their clients; and lack of specialisation of the Courts in reviewing claims arising from these cases.
Although this may deter the use of this coverage, directors and officers of public companies and companies of the financial sector continue to require this coverage.
Cyber insurance has substantially evolved in Mexico in the last five years. The risk of suffering a cyber-attack has increased exponentially. The main drivers are technological innovations and the massive use of technology due to the Covid-19 pandemic.
We have seen relevant cyber-attacks in Mexico. The Mexican Central Bank (Banco de México) was recently attacked, as well as banks and insurance companies. The Insurance and Bonding National Commission (Comisión Nacional de Seguros y Fianzas) (CNSF), the main insurance regulator, was also targeted. There is no sector that is immune from cyber-attacks and liability arising therefrom (exacerbated by privacy laws and financial secrecy) and, therefore, the demand for these products will continue to increase.
The insurance market has reacted and offers protection for this kind of risk. It is currently expanding coverage of civil liability insurance to include protection against cyber-risks, and has also created specific cyber insurance products. International experience is key for this development, and international players are working with Mexican insurers to develop new products better suited to satisfy the requirements of the Mexican market.
Insurtech is being developed but is yet to disrupt the insurance market. There has been a substantial increase in insurtech start-ups and investment in such enterprises, providing non-regulated services. Demand for products focused on digital customer experience is and will keep growing.
In 2020, the CNSF issued secondary regulation, under the Fintech Law, to implement sandboxes models in the insurance sector. Under the regulation, the CNSF may authorise, on a temporary basis, a company to operate regulated insurance services with low regulatory requirements. There is no public information on any model that has been authorised as of today, but it remains as an alternative to implement new technology in the insurance sector.
As a general rule, the Fintech Law rather than promoting insurtech, has been a deterrent.
Insurance is more relevant than ever. The recent crisis arising from the Covid-19 pandemic, increasing natural disasters, and the over regulation and use of technology are going to be key drivers of insurance businesses in the coming years. The Mexican insurance and reinsurance industry must search for growth through new service-based models, innovative products and better focus on prevention.
Considering that the use of insurance in Mexico remains very low, we are now facing a unique opportunity for the insurance and reinsurance sectors to significantly increase its participation in Mexico.