Mexico: A Market in Flux

Mexico’s insurance market has grown and transformed significantly in recent years, driven by an influx of foreign direct investment (“nearshoring”), major events, and new government regulations.

The country’s insurance market in 2022 was valued at about $33.46 billion USD in gross written premiums, ranking 15th globally, and is expected to reach $45.67 billion in 2024. Despite this, insurance penetration was just 2.4% in 2022, compared to the 3.01% average rate in Latin America and 12.1% in the United States. This clearly demonstrates the untapped potential in Mexico’s insurance market.

The national market features a mix of players, consisting of both domestic and international carriers. Major segments include property and casualty (P&C), life, and health insurance.

Premiums are paid directly to the carriers, which then pay commissions to brokers. Bonds are handled separately by bond carriers as the law prohibits the same entity to provide both insurance and bonds.

Market Dynamics: Context

Employee Benefits > Demand for voluntary or private health insurance is growing, driven by factors including increasing health awareness and an aging population. In addition, most administrative or “white collar” workers now expect a private healthcare option for them and their dependents, forcing employers to provide robust benefit packages to attract and retain talent. Operators or “blue collar” workers don’t typically receive a private healthcare option from employers, but life insurance is commonly included in their benefits.

Property & Casualty > Due to severe losses from the COVID-19 pandemic and the damage Hurricane Otis inflicted on Acapulco in October 2023, the treaty reinsurance market significantly increased prices and made several changes regarding policies written on a co-share basis among different local insurers. Top reinsurers such as Munich Re and Swiss Re previously had treaties with many local carriers. So, when a large risk had to be covered on a co-share basis by different local carriers, the same reinsurers were assuming a large chunk of that risk.

The reinsurers have imposed a new rule that limits the number of co-share carriers each can treaty with to four. For very large risks (with values of more than $150 million USD) it can be a challenge to find four local carriers with enough capacity to cover all of that risk.

Market Dynamics: Pricing

Employee Benefits > Health insurance has been subject to significant rate increases over the last three years in Mexico. Medical inflation has risen by about 15% annually. This, along with high claims volumes, has pushed rates up 15-20% for group major medical policies and 20-35% for individual major medical policies. Some factors that affect pricing for most major medical policies are location, age, gender, hospital level, surgical fee schedule, and deductible. Life insurance rates have not changed much in recent years.

Property & Casualty > Pricing of reinsurance treaties in Mexico increased significantly, especially for cat perils. While Mexican consumers escaped the significant pricing increases that hit the U.S. and global property markets in 2022 and 2023, they were not so lucky in 2024. While property pricing around the world has stabilized, we are seeing 10-20% increases in the Mexican market. These increases are mainly felt for very large risks due to the new restrictions in co-sharing and international facultative reinsurance pricing.

Market Dynamics: Underwriting

Employee Benefits > Underwriting has not changed much for employee benefits in recent years. For group health insurance, only a census of the employees and dependents, the local entity’s tax ID, and selection of coverages are required to quote. Life insurance only requires a census, the local entity’s tax ID, and the insured employee’s salary. There may be some medical underwriting in life insurance if the employee’s salary is above the maximum insured sum without medical underwriting. For individual health and life insurance, medical underwriting is conducted before the carrier will accept the risk.

Property & Casualty > Underwriting has become very strict in Mexico over the last few years, with several local carriers requesting much more information and others wanting an acceptable loss control inspection before they release a quote. Due to the high volume of loss control inspections needed, it is now common to have “virtual” inspections of the risks.

Market Dynamics: Capacity

Employee Benefits > Capacity for employee benefits has not changed much in Mexico. The capacity per accident or illness in a major medical policy is measured in UMAMs, “Unidad de Medida y Actualización Mensual,” a unit that increases slightly each year.

This year one UMAM is worth approximately $180 USD, up from about $170 USD in 2023. That means if you had 50,000 UMAM in insured sum limit per accident or illness, the capacity automatically increased from $8.5 million USD to $9 million USD.

Any issue with capacity in high-value life insurance is almost always passed on to reinsurers.

Property & Casualty > The COVID-19 pandemic has been the most expensive claim in the history of Mexico’s insurance industry, exceeding $3.6 billon USD in payments. COVID’s disruption of global supply chains, as well as high inflation rates, drove up claims costs, impairing local capacities. Insurance carriers are starting to recover, stabilizing medical inflation and yearly rate increases in the process.

The pandemic was finally beginning to end when Hurricane Otis hit Mexico’s Pacific coast last October, causing one of the largest insurance payouts in Mexico’s history. This means two of the nation’s costliest insurance payouts happened within a three-year span. Damage from the Category 5 hurricane exceeds $16 billion USD to date, with only about $2 billion being insured losses. The property market for beachfront locations has hardened, with some carriers refusing to participate in those risks at all. Despite the tragedy, the hurricane helped raise awareness to the risk of natural disasters and may encourage more people to seek out insurance in the future, prompting long-term market growth.

Market Dynamics: Deductibles

Employee Benefits > A competitive group major medical program will require a deductible for illness of 1-2 UMAMs while a more standard program might go for 3-4 UMAMs. Most group plans don’t have accident deductibles. Individual health plans offer fixed deductibles that are typically much higher than those in group plans—anywhere from $500 to $2,000 USD.

Property & Casualty > In general, property deductibles on Mexican P&C policies have remained steady. The “All Risk” deductible has always been a fixed amount ($$) and the deductible for cat perils has always been a percentage (normally 1-2%) of the policy limit. For cat perils, there is also a co-pay (over the amount of the loss) that the insured must retain (normally 10%).

Notable Offerings and Consumer Demand

Employee Benefits > Certain industries, such as tech or professional services, have begun to use top-of-the-line benefits packages to attract and retain talent in a post-pandemic competitive labor market.

Non-insurance fringe benefits are also on the rise. Employers are looking for options to complement benefits packages with electronic purses or vouchers, telemedicine, and wellness programs.

Property & Casualty > Certain industries and businesses that handle hazardous materials or perform activities with potential environmental risks are required by law to carry environmental insurance. Businesses that may fall into this category include but are not limited to those that work with plastics, petrochemicals, textiles, pharmaceuticals, or even food processing. Local authorities conduct audits to ensure these businesses have proper coverage and penalize those that don’t. Recently, local authorities have increased the frequency of these audits, prompting higher demand for these policies in the market than in previous years.

Regulatory Update

Numerous labor reforms enacted on the federal level in the past year are having and will continue to have a substantial impact on the economy. Mandatory increases in minimum wages, Christmas bonuses (“aguinaldos”), and paid vacation days have driven up many employers’ costs. This dramatic increase in the cost of labor has made companies more sensitive to pricing in other areas. Most of these changes have been spearheaded by Morena, the left-wing government that has been in power for the last six years. Claudia Sheinbaum, the presidential candidate from Morena, was elected in June. She is scheduled to take office on Oct. 1.

Anti-money laundering laws require that all insurance companies conduct due diligence on customers. The primary aims of this effort are to combat money laundering and financing of terrorism. This includes collecting various documents pertaining to the insured entity and its ownership structure, such as articles of incorporation, power of attorney, tax ID, and proof of address. Some carriers will not issue a policy without having all antimoney-laundering documents in order.

Auto insurance law is mandatory in Mexico. All moving vehicles, including aircraft, must have liability insurance. Despite this, only one in every four cars are insured in the country. Auto insurance premiums rose by 15% in the first quarter of 2023.

Notable Differences From U.S.

Workers comp is not a private offering in Mexico. It is handled by the Mexican Institute for Social Security (IMSS). The only private offering that may have some similarities would be the long-term disability coverage on a life insurance policy.

Individuals with preexisting conditions may be denied coverage for individual private health plans if they do not meet the medical underwriting’s requirements.

The public health system and the private health system are separate but parallel. The public health system is controlled and operated by the IMSS, with its own hospitals, doctors, and pharmacies. All employees must be registered with the IMSS by law and therefore have coverage in the public system. Private insurance options do not include coverage in the IMSS network, and vice versa.

3 Tips for Doing Business in Mexico

Brokers in the United States, Europe, or Asia can create controlled master programs (CMPs) for their risks in Mexico. It is more common to see CMPs in property and casualty, but they can be found in employee benefits as well.

Non-admitted insurance is illegal in Mexico. Local policies must be issued for there to be coverage without any penalization.

To buy insurance in Mexico a foreign company must have an established Mexican legal entity and tax ID documentation.