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Current events in the insurance industry in Mexico

The great challenge for the insurance industry in Mexico today lies in the evolution of the Mexican legal system, which, since 2011, has 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 in context, it is important to establish that the Mexican Legal System, which had traditionally 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, predominantly consumer protection, from a protectionist point of view.

In the insurance field, the criteria issued by the Courts have been transcendental, because they are generating parameters for compliance with the Law. That is to say, there are no legislative reforms that force 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 almost entirely 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 in the case of civil liability and its coverage by the liability insurance, are being analyzed 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 have no 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 to the coverage offered by insurance companies through liability insurance, but also in their own actions, as their conducts are being analyzed by the Courts to determine if they have acted negligently and, if so, to condemn them with substantial punitive damages that are outside the insurance contract and that directly affect the insurer’s patrimony. An example of this is the consideration of a Federal Court to award punitive damages to a medical (health) insurance company, for delivering the file to its attorneys (for its defense), when such file contains sensitive information of the insured (data of the health of a person), such as the condition derived from the Human Papilloma Virus.

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, since 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 the contact with the people affected, under any type of coverage, must find in the Insurer a solution and not a problem.

Market trends.

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 in addition, the circumstances that have been discussed are putting pressure on insurers to provide a better quality service.

The number of cyber attacks has boosted the development of products that cover Cyber, which has also forced the existence of service providers capable of responding according to the needs of the insurance and reinsurance market. Moreover, in the context of Personal Data Protection under the lens of Human Rights, the companies that have them under their custody must have more and better protection and reaction systems in the event of a breach with the threat of disclosure.

Likewise, liability coverage is in full development. Until a few years ago, this coverage had little relevance in the market due to its low loss ratio. However, as from the criteria recently developed by the Supreme Court of Justice of the Nation, it has gained an important relevance within the market, because the sentences for the compensation of damages and losses now tend to be truly compensatory based on the principles of fair compensation. The great challenge is twofold; as a matter of principle, the occurrence of the claim requires much more specialized attention from the insurer and the supply chain (especially adjusters), but the area of opportunity lies in the correct and adequate underwriting of the civil liability coverage in all its specialties, for which a deep knowledge of the matter is required.

Future of the market.

Technology integration is another investment priority for insurers in 2023. New customer segments are emerging with unique demands, such as technological developments in their processes, increased micro-mobility, and younger generations seeking more comprehensive services that support financial health. In response, insurers are feeling the pressure to offer new types of products, such as usage-based, parametric or on-demand insurance.

Speed to market is critical, and insurers must rely on a modern technology infrastructure to innovate effectively. This includes adopting cloud technology that easily integrates with other software, eliminating databases and the use of applications with little or no code, to launch products faster, more efficiently and with fewer IT resources, all with the major challenges of applying technology to the insurance industry.

The implementation of advanced analytics and cognitive technologies is expanding throughout the insurance industry. Some popular use cases include:

• • Acceleration of risk assessment and underwriting prices.
  • Advances towards contactless claims with the support of artificially intelligent drones for damage assessments, self-inspections and robotic image assessments.
  • Increased use of chatbots for claims support and risk mitigation.

In the life and health sector, providers are looking to use AI to focus on proactive care, introducing IoT-based health apps and medical-grade sensors. This empowers policyholders to lead healthier lifestyles and reduce future claims. However, the regulatory challenge is important, in addition to the standards that the Supreme Court of Justice of the Nation itself is dictating regarding the way in which the insured should be considered in the face of the insurer, in the sense that the advice they should receive from the insurer should be timely and professional.

AI can also benefit industry management teams, including legal teams seeking to streamline reviews and identify risks in supplier contract or claims disputes through investments in contract AI solutions, which are being pursued through contract perfecting engines using electronic contract perfecting mechanisms, improving legal certainty for the parties and reducing the cost of policy issuance.

Continuing the trend of recent years, environmental, social and governance (ESG) initiatives continue to be a strategic and compliance focus for insurers, offering a significant challenge and opportunity to make a positive impact.

As economic losses caused by catastrophic weather-related events have increased 250% over the past three decades, ESG – and mitigation of weather catastrophe risks – are increasingly essential to the mission and underwriting practices of property and casualty carriers.

According to specialist research, 85% of global insurers believe ESG will impact all functions of their business, led by investments (91%) and closely followed by risk and internal audit (90%) and underwriting (88%).

Insurers also derive significant benefits from adopting strategic ESG practices, including enhancing reputation, mitigating potential losses and being part of creating a more resilient planet. But challenges to this adoption remain, with 25% of global respondents from these specialists commenting that understanding ESG-related regulations as their top challenge to implementing their ESG agenda, followed by understanding how best to act on ESG; and matching ESG initiatives with client needs.

As the industry’s ESG posture and disclosure requirements mature, operators must work closely with their suppliers and functions to assess their ESG impact and ensure compliance.