Regardless of the Covid-19 pandemic, the ten largest insurance compensation in the history of Mexico are due to natural disaster events. An issue on which insurance institutions are focusing on the country's growing vulnerability to climate change.
According to the Mexican Association of Insurance Institutions (AMIS), Hurricane Wilma in 2005 was the climate event that caused the highest amount of compensation to insurers in the country, costing 2,478 million dollars.
“Wilma hit a lot of policyholders very hard and he was the one who parked on the Yucatan Peninsula and stayed. It hit Mérida really hard, I mean, we had Bachoco as our client there, the entire poultry industry, but especially the farms. These were very strong damages,” recalled Gerardo de la Garza Ramírez, president of the board of directors of the Mexican Association of Insurance and Bond Agents AC (Amasfac) Querétaro section.
The 2005 accident caused damage that doubled the costs of Hurricane Gilberto, remembered for hitting the Southeast in 1988, and which represented a cost of 1.203 million dollars.
From this account, Wilma affected the awareness of insurers about the burden of insuring damages due to hydrometeorological phenomena, which include hurricanes, floods, avalanches, stormy winds and snowfall, among others.
“Before that, there could have been cover for rain, hail, but not for flooding. So to be ruled a flood you had to see if there wasn't enough drainage and then they paid you,” said de la Garza.
Having coverage for damage caused by natural disasters in Mexico is not a far-fetched matter. It is estimated that between 2001 and 2013 around 2.5 million Mexicans were affected by meteorological phenomena, while economic costs totaled 338.35 billion pesos, according to the study “Commitments to Mitigation and Adaptation to Climate Change for the period 2020-2030” by the National Institute of Ecology and Climate Change (INECC).
De la Garza argued that climate change has pushed the sector to provide greater certainty about damage caused by weather events, while companies have also sought greater civil liability for the effects of their production activities.
“Today there is less fear of investing in risky environments thanks to insurance... You can build in the Riviera Maya, thanks to new engineering, but if something goes wrong you have insurance to close for six months because your coast was destroyed,” he said.
Responsibility of individuals
In addition to companies, insurance for damages resulting from weather events is also a decision that concerns people. De la Garza explained that they must be aware of the risks to their assets, such as their houses, and based on an analysis they must decide whether to take out insurance.
“Home insurance is one of the cheapest. In other words, we are talking about one in a thousand, for every million it is a thousand pesos in premium,” said the specialist.
However, he clarified that insurance should not be generalized to all cases. “We have companies to whom we have demonstrated that insurance for hydrometeorological phenomena and earthquakes will never work for them,” said the respondent.
Catastrophes have also pushed insurance to evolve, as was the case of the earthquake of September 19, which entailed costs of 1.343 million dollars, according to data on insured losses from AMIS.
“In the last earthquake, some insurers invented insurance that covers apartments with commercial value. Why, because you usually secure the bricks, the ground isn't secured,” said de la Garza.
On this account, those apartments inside damaged buildings that were insured could recover the commercial value of the property and avoid relying on the reconstruction of an entire building and on land use.
“And if your apartment was 5 million and your debt was 3.5, then they pay you the five million, you pay your debt and you keep a profit to buy something, whatever you can, but you no longer lose from the accident,” said de la Garza about this damage insurance.
Until 2018, the latest data available from AMIS, in Mexico 6.5% of homes were insured at the initiative of their owners, while the percentage was 5% for microenterprises, 15% for small businesses and about half for medium and large enterprises.
That same year, premiums for hydrometeorological risks totaled 10,865 million pesos. De la Garza explained that companies represent the highest premiums (the amount paid for insurance services) for damages caused by hydrometeorological phenomena, but it is individuals who represent the majority of insured units.
On the other hand, local governments have begun to gain awareness about insurance, which has led them to enter into agreements with insurance companies in order to redeem contingencies.
“Today there are many state and municipal governments that, if you pay for the property, they pay you for a basic housing service. I think it's very good... Querétaro has been the municipality for many years that requires civil liability insurance, even if it is a tortilla store, but when something explodes, there is insurance that responds,” said de la Garza, a type of coverage that is likely to spread more and more.
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