Contributed By Ocampo 1890 S. C.
Mexico’s legal system is coded, meaning that laws are created as a result of a legislative process opposite to the case law system. Insurance law is a Federal matter. Therefore, the Federal Congress creates and amends those bodies of laws.
The regulator can create some rules.
The Supreme Court is now very active in creating jurisprudence and criteria to lead the local and federal courts on how they should interpret the law. For example, the Supreme Court has created punitive damages as a spin-off of moral damages. However, the criteria the Supreme Court creates are only applicable by the courts when they are to resolve a similar case.
In Mexico, insurance and reinsurance is a heavily regulated area. Insurance contracts are governed by the Insurance Contract Law. Insurers, surety institutions and reinsurers are regulated by the Insurance and Surety Institutions Law and the Insurance and Surety Circular.
Insurance can only be written by licensed insurance institutions. Obtaining a license is not easy as it depends on a complex, often long process. Usually it takes between eight and 24 months to set up an insurance company from scratch.
Reinsurance can be taken by any licensed insurer in Mexico or an international reinsurer registered in the Foreign Reinsurers Registration carried by the Insurance and Surety Commission.
There are no differences between the requirements for writing consumer insurance, SME insurance and corporate insurance. SME insurance can be written by a property insurance company. In Mexico an insurer can obtain a license to write any of life, property and personal injury and health insurance.
There exists currently a large regulatory load on insurance companies (Mexico has already implemented the Solvency II model), with the outcome being that the Mexican insurance industry is one of the strongest in the world. There are several standards the insurance and surety companies must comply with, such as the minimum equity capital, several reserves that must be kept, all of them affected by the dynamic solvency model that they have to apply. These standards can be found in the Insurance and Surety Institutions Law and the Insurance and Surety Circular.
Shareholders must be approved by the Insurance and Surety Commission. They must comply with both economical and moral solvency.
Property insurance premiums can be deducted as long as the insurance is related to the core business. Life insurance can be deducted by the enterprise only in key person life insurance.
Individual life insurance premium cannot be deducted. Group life insurance can be deducted by employers that purchase life insurance for their employees.
In Mexico, insurers can be filial to a foreign financial institution, have foreign direct investment in equity capital or national equity capital. In the former, there is a specific regulation, mainly regarding equity capital rules, for example that 51% of shares must always be the property of the foreign financial institution. There are no restrictions on nationalities, but the regulator will ease the process of registration if the investor is from a country with which Mexico has entered an international trade agreement.
In Mexico, insurance must be written by licensed Mexican-based insurance companies. Insurance companies can write reinsurance too, in the operation they are licensed. Foreign reinsurers must be registered on the Foreigner Reinsurers National Registration carried out by the Insurance and Surety National Commission. To be registered, the reinsurer must demonstrate solvency by being rated by Moody’s, Fitch, etc. Insurers can only cede risk to registered reinsurers. Otherwise, the insurer must create the reserves with their own resources.
In Mexico, insurance companies can be owned by national or foreign investors. Both must comply with Solvency II criteria, meaning they have to demonstrate financial and moral solvency.
The Insurance and Surety National Commission must approve all equity transfers.
Insurance brokerage should be performed by licensed brokers. There is an exception, as insurance that is formalised through adhesion contracts (those that cannot be modified by any of the parties, such as bancassurance products) can be intermediated by non-licensed brokers, but they must comply with some criteria, such as to train the persons that will be selling insurance on a regular basis.
Non-foreign insurers cannot write insurance for Mexican risks, in Mexican territory, unless whomever is willing to buy insurance from a foreigner insurer can demonstrate that there are no insurers writing that specific risk in the Mexican market.
Fronting is tolerated. It is not forbidden, but it is not regulated. Fronting can be up to 100% of the risk. In fact, the biggest insurance policy in Mexico, Pemex’s Policy, is allocated through a tender conditioning the competing insurers not to retain any risk. If the cedent retains risk, they can deal with it accordingly. In fact, they must act if they didn’t have reinsurance at all, and the cedent is liable to the insured notwithstanding if the risk was totally or partially ceded.
Merger and acquisitions are common in the Mexican insurance market. They must be previously authorised by the Insurance and Surety National Commission, which will be granted using the same criteria for the incorporation of a new insurance institution, namely to analyse the purchaser’s moral and financial solvency.
Eventually, mergers and acquisitions must be approved by the the Federal Economic Competition Commission too, but only when the merger or acquisition can affect the insurance market.
The Mexican insurance industry is open to mergers and acquisitions.
Insurance and surety distribution must be performed by licensed brokers. Licenses are provided depending on the nature of the operation. There are licenses to sell life, health and accidents, property and casualty, liability, marine and transportation, financial lines, diverse/technical risks, surety and pension.
Insurance and surety brokers can be either persons or corporations. Licenses are granted by the Insurance and Surety National Commission upon examination depending on the type of license.
Insurance and surety brokers are governed by the Insurance and Surety Institutions Law and the Insurance and Surety Circular. They owe various obligations towards the insurer and the insured, such as understanding the insured’s risk, to deliver all the documentation to the insurer and to provide the insurer with all the information related to the proposed risk. They are also obliged to collect the premium only in cheques written to the insurer.
Insurance and surety brokers (corporations) must comply with corporate governance too.
There are no restrictions regarding the nationality of the broker or their shareholders. They can be an international broker, but must be registered in Mexico to sell insurance in Mexico.
As an exception, insurance that is allocated using adhesion contracts can be sold by non-broker corporations. Those corporations, regarding the insurance selling operation, are inspected by the Insurance and Surety National Commission. They must train their personnel to sell insurance; and such training must be performed by the insurer they sell insurance for.
Banks can sell insurance when they belong to the same financial group. They must train their bank employees to sell insurance.
Selling insurance using digital media is developing in Mexico. Regulation is rather complex as there are some requirements that must be complied with, such as express consent from the insured in health and life insurance. Delivering all the information is a challenge too, as the regulations oblige the insurer to give the insured a number of documents – namely the policy, general conditions, particular conditions, insured’s rights, loss manual, premium receipts, etc.
Reinsurance distribution is through reinsurance brokers, which must be corporations licensed by the Insurance and Surety National Commission.
The insured is obliged to disclose any and all the information the insurer needs to know about the risk. However, that obligation is limited to the questionnaires the insurer provides to the insured to get to know the risk. If the insurer fails to inquire information, that cannot be used against the insured’s interests.
Insurance contracts are not deemed commercial contracts any more. Therefore, insurance contracts are to be interpreted favouring the insured’s interests.
If the insured fails to disclose all the information pertaining to the risk or somehow mislead the insurer, then the insurer will be entitled to rescind the insurance contract without judicial declaration, by noticing the insured with that regard within 30 days after learning the situation.
If the insurer fails to provide information during the negotiation of an insurance contract, the insured is entitled to ask for correction according to the original offer.
Before 2013, insurance brokers’ obligations were not easily determinable.
Since 2013, an insurance broker has obligations towards both parties – insured and insurer. The broker must understand the insured’s risk, must provide the insured with all the insurance options in the market and must deliver the information and documentation related to the insurance contract. The broker must provide the insurer with all the information related to the risk (that collected from the insured and other information pertinent to decide as to whether the risk is insurable), must deliver the collected premium cheques no later than 14 days after collection, and the insurance they sell must be in line with the insurer’s registered contracts.
There are no case law precedents to date.
An insurance contract is deemed to be a consensual agreement. However, The Insurance Contract Law provides that proof of the existence of the contract is the policy itself, or for the insurer to confess the existence of the contract. The insurance contract must contain the name and address of the insured, the insurance purchaser, the insurer, a description of the insured interest, the premium and the clauses that will be binding parties. Life insurance shall also include the name of the beneficiaries appointed by the insured.
There are several requirements in the Insurance and Surety Circular, such as obligatory clauses, fonts and formats.
It is mandatory for insurers to sell insurance through contracts that have been previously registered before the Insurance and Surety National Commission. Selling non-registered insurance will not result in the voidance or nullity of the insurance, but the insurer cannot claim such voidance and is subject to fines.
The position is the same if there are multiple insureds or potential beneficiaries under a contract in Mexico.
Opposed to the over-regulated insurance contract, reinsurance contracts are governed by commercial law, meaning that the parties will be obliged in the manner it appears they intended to, as long as it is not illegal.
In Mexico, insurance and surety are dealt with as separated risk transfer instruments and are highly regulated. Bonds are deemed a surety too.
In Mexico, if anyone is to receive an amount of money if an uncertain event occurs, this is deemed insurance. Likewise, a surety operation will be deemed for warranties of payment.
Extended warranty is not deemed an insurance operation. This can be provided by corporations with their own resources.
ART transactions written in other jurisdictions are not regulated, and therefore cannot be registered as reinsurance or used for solvency purposes.
In Mexico, insurance contracts came into being alongside commercial law in the late 1800s. Therefore, interpretations use the commercial rules, meaning that the parties will be obliged in the manner they appear they were willing to. However, the insurance industry from the 1990s onwards has become a highly-regulated activity.
Since 2000, Federal Courts and the Supreme Court have used regulatory laws to construe and interpret insurance contracts. In this decade, insurance contracts are no longer allocated under commercial law, but rather public and social laws, as the insured is deemed to be the weak party whose rights must be protected by courts.
Insurance contracts are interpreted using the contra stipulatorem principle, meaning that the contract will be interpreted against the party that drafted the contract. As stated previously, insurance contracts are almost always drafted and registered by the insurers.
That position has been sustained by the Supreme Court, even in cases where the contract was drafted by the insurer, and the insurer is an insurance expert. The reasoning behind such position is that the insurer is still the expert party in the relationship and has the better position.
It is possible to submit all the information used to write insurance in court in order to determine what the parties were willing to cover/exclude. However, the interpretation of the contract will use the contra stipulatorem principle.
Warranties must be identified as such. They need to be purchased from a surety and bonding company, which must register their warranty contracts before the Insurance and Surety National Commission.
The consequence of beaching a warranty is to enforce it or to rescind it.
Any condition precedent to the insurer’s liability must be expressly described as such. The consequences of a breach of a condition precedent are for the insured to enforce it through a lawsuit.
Insurance disputes must be brought to the civil or commercial courts. As stated before, the insurance contract is interpreted using the contra stipulatorem principle and trials are carried out that way. The burden of proof most of the time is reversed to the insurer, as the insurer must prove that the loss occurred under exceptional circumstances.
On the other hand, reinsurance contracts are interpreted using commercial principles, meaning that both parties are deemed on an equal footing, so the court must analyse their claims in equal circumstances to determine what the intention was.
Insurance and surety institutions law provides that insurance-related lawsuits can be brought to either federal or local courts at the insured’s discretion, as long as the court is located where CONDUSEF (the financial services consumer association) has an office. Such decision cannot be challenged by the insurer.
Parties can agree to appoint international courts too.
The litigation process starts with the filing of the lawsuit. Along with the lawsuit, all documentary evidence must be filed too. The court will then register the lawsuit and summon the defendants to answer it.
The defendants must answer the lawsuit in either nine or 15 working days, filing all the documentary evidence they have related to the case.
The court will then open the trial to the Prove Section, where parties must exhaust the evidence they offered. Parties can offer witnesses, confessions, expert witnesses, documents and any sort of evidence to prove their case. This section lasts up to 40 working days, and can be prolonged by the judge, depending on the volume of the evidence.
After the Prove Section is closed, the judge will call the parties to file their closing allegations. Once they file them, the judge rules the sentence.
All sentences can be challenged by appeal. The Courts of Appeal can modify, revoke or confirm the sentences. The sentence of the Courts of Appeal can be challenged by an “Amparo” trial, which analyses constitutional rights.
An Amparo trial sentence cannot be challenged.
A foreign judgment can be enforced. It is necessary to homologate the sentence on which a Mexican court will determine that the trial was given, respecting due process and that it doesn’t contravene human rights. The judge will notify the defendant that an international court intends to execute a sentence, and the defendant can oppose with very limited action. The judge will then enforce it.
Arbitration clauses in commercial insurance and reinsurance contracts can be enforced as long as they are properly drafted in insurance and reinsurance contracts.
Arbitration awards are enforceable through local or federal courts.
Mexico is part of the UNCITRAL (New York Convention). Therefore, the enforcement of arbitration awards made in other jurisdictions can be enforced using UNCITRAL’s rules.
Insurance disputes are very unlikely to be resolved by mediation or arbitration. On the other hand, reinsurance is commonly resolved by arbitral panels.
Insurers commonly face penalties to pay for damages and prejudices for late payment of claims. However, there has only been one case in which an insurer has been condemned to pay punitive damages for breaching the contract.
Mexican regulators are waiting for the market to move forward before taking a position regarding InsurTech. At present there is no regulation on InsurTech.
Mexico are currently still exploring how to sell insurance through digital platforms, and regulations are very tough in this regard.
Mexican regulators are yet to clarify their position on InsurTech issues.
There are no particular risks emerging in Mexico, other than those in other jurisdictions, such as cyber risks.
The regulator’s response, other than to ease the registration of new insurance contracts, is not needed as insurers are responsible for developing the industry.
No information is available.
The last important law amendment took place in 2015. Since then, there have been no substantial changes to the insurance legal framework.
However, the jurisdictional field has been very proactive. The insurance contract now falls under social public law, which deems the insured as the weak party.
Human rights discussions are now influencing the quality of the services and goods that Mexicans consume and the Supreme Court is creating new precedents to improve their quality. For example, the Supreme Court has created punitive damages that nowadays are being claimed in almost every lawsuit being filed.
Courts are creating their own criteria on how punitive damages must be proved.
There are no other significant legislative or regulatory developments, other than the regulator waiting to hear the market’s proposals on insurtech.