February 14, 2018
There are different ways to establish an International Insurance Program for a risk located in Mexico which are:
- Controlled Master Program (CMP)
- Non-Controlled program
- Stand-alone local coverage
First of all, it’s important to remember that non-admitted insurance in Mexico is prohibited, as per Article #3 of The General Law of Insurance Institutions and Mutual’s, which establishes the general legal framework for all insurance related operations in the Country. This law states the following for Property/Liability exposures:
ARTICLE 3 – Concerning Insurance Operations in Mexico
1. Section II – It is prohibited to purchase insurance with foreign companies for:
- Property and Other Lines of Insurance – when the occurrence or risk is in Mexico.
- Civil General Liability Insurance – when the occurrence or event is in Mexico.
So based on the above, exposures in Mexico have the need of a local admitted policy.
Therefore, in reviewing the above (3) options for International Insurance Programs in Mexico, we have:
1.Controlled Master Programs (CMP) Programs are very popular, especially for companies that have several subsidiary operations in different parts of the World and the controlling risk manager wants to make sure that he/she has a “unified” insurance program for all operations. These CMP programs will include a “master” policy which is issued in the country of origin of the parent company and a “local admitted” policy in Mexico (and/or other countries). Some issues we’ve seen regarding the placement of CMP programs are:
- Placement of a “bare bone” Fire, Lightning & Explosion local policy, covering the rest of the perils under the master/DIC (difference in conditions) non-admitted policy.
- Placement of a Mexican All Risk local policy, but excluding or reduced limits for catastrophic perils like Earthquake, Flood & Wind.
- Inadequate local premium allocation based on the amount of exposure in Mexico.
- Some liability coverage’s not included under the local policy.
The advantage of the CMP program is that the local and DIC policy are written by the same International carrier. So in case of a claim, you avoid a dispute between different carriers. Also, the non-admitted DIC policy normally has a broader scope of coverage, so in case of a non-covered loss in Mexico, there might be a possibility of coverage under the broader DIC policy.
2.Non-Controlled Programs Are similar to CMP programs with the only difference of having 2 different carriers: one for the non-admitted DIC policy and another carrier for the local admitted policy.
This arrangement normally happens when the controlling DIC carrier is not willing to provide coverage for CAT perils or is providing coverage with reduced limits. As CAT coverage is widely available in Mexico (up to full values), the Insured might want to take advantage of this local capacity and structure the program this way. The non-admitted DIC policy will “sit on top” of the local policy and provided the broader coverage for the rest of the perils (non-CAT). A disadvantage may be a possible dispute between the DIC and local carrier in case of a claim, in which each carrier may think the other policy is responsible for covering such loss.
3.Stand-Alone Local Coverage May be the ultimate solution when an International carrier is unwilling to provide DIC coverage. This is common when the main carrier from the country of origin does not have any International capabilities of establishing a CMP program or International DIC policy. Also, it could happen when the risk in Mexico is not acceptable for the carrier in the country of origin. In this case, the only solution is to place the coverage 100% on a local basis and as broad as possible (as per local standards).
It’s important to remember that local policies are not as broad as International or DIC policies, so there might be some coverage limitations. These major limitations should be disclosed, so everyone is aware and avoid surprises in case of a non-covered claim.
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