Mexico is one of the few countries where there is no mandatory legal requirement for all drivers to be insured at all times. It is perhaps unsurprising therefore that, according to the Mexican Association of Insurance Companies (Asociación Mexicana de Instituciones de Seguros, AMIS), only 27% of cars in the country were insured in 2016, down marginally from 28% a year previously. This is strikingly low compared to other countries in Latin America, where the figures in Brazil and Uruguay were 75% and 80%,respectively, while Argentina and Chile have coverage rates over 90%.
Recent reforms at the federal and state level have tightened the law, but they still fall some way short of a universal requirement as enforcement is regarded as weak. As of September 2014 all cars travelling on federal highways, roads or bridges require insurance. Meanwhile, in late 2015 the Mexico City authorities altered the transit law to require that all cars travelling within the city limits must carry at least basic civil responsibility insurance covering third parties and their property in case of an accident, up to a total liability of MXN250,000 ($15,000). From January 2016, those found not to be compliant faced fines of between MXN400 ($24) and MXN2800 ($169) if proof of insurance was not provided within 45 days. Even after the changes, however, it was estimated that only half of cars in Mexico City had the required level of insurance.
A strong increase in car sales has seen car insurance become the standout performance in terms of premium growth in recent times, with premiums jumping by an impressive 15.9% in the first three quarters of 2016. To a certain extent, this is due to the weak exchange rate, since new car sales often reflect the prevailing price in US dollars, meaning that the object being insured has itself been increasing in value, necessitating a corresponding rise in the premiums to insure it. However, the biggest driver of growth in the auto insurance segment during 2016 was record car sales, which reached 1.6m for the year, up 18.6% on 2015.
Set up in 1993 and specialising in auto insurance, Qualitas is now a clear market leader, with a commanding 29.4% market share in the segment. By offering competitive prices, an agent-based marketing model and a focus on securing contracts to provide coverage for fleets of vehicles, the firm has expanded quickly. It is a good example of how a disruptive new entrant to the insurance sector can become a leading player in just a short amount of time.
According to AMIS, between 2011 and 2015, the number of insured cars which were stolen annually fell from over 83,100 to 61,900, but they have since picked up again towards an annual level of 66,800, with the monthly number having spiked from 5400 in September 2015 to reach 6300 by August 2016. At the same time, the number of cars recuperated remained relatively steady around 2400 per month. These trends can be expected to feed through to higher premiums, but they also underline a growing need for consumers to think carefully about taking out comprehensive car insurance, which also covers theft.
Continued strong growth in car sales through 2017 and 2018 would bode well for the auto insurance segment, although maintaining the momentum seen in 2016 may prove challenging as interest rate hikes begin to bite on car loans and broader economic uncertainties potentially undermine consumer confidence. Despite decades of discussion about making car insurance mandatory at the federal level, progress seems unlikely in the medium term in the face of political opposition. While more state and municipal initiatives could be beneficial, strong enforcement is crucial. For example, one suggestion from the insurance industry was for insurance checks to be carried out in Mexico City, when cars were subject to their regularly required check-ups. Already, this opportunity is used to check whether drivers have any unpaid speeding fines. Without legal changes and better enforcement, the required cultural shift would seem a long way off.