Mexico renews catastrophe insurance for 2023

Mexico renews catastrophe insurance for 2023

Andres Manuel Lopez Obrador’s government has renewed, once again, the catastrophic insurance for the following year, which is one of the shields of public finances and is intended to deal with the possibilities that harm the population, especially those with fewer resources.

In its General Standards for Economic Policy (CGPE) 2023, the Ministry of Finance and Public Credit (SHCP) states that catastrophe insurance will cover 5,000 million pesos valid from July 5 of this year to December 5, 2023.

The details provided by the Treasury are that this coverage has an adjusted damage diagnosis operating deduction of 275 million pesos and a total annual deductible of 750 million pesos.

In addition, there is still a catastrophic reward of $485 million for losses caused by earthquakes and tropical cyclones, valid through March 2024.

Mexico has experience and a strong institutional structure in terms of risk transfer to national and foreign niche markets. Public finances in fiscal year 2023 will have a robust protection strategy in terms of catastrophic risks: insurance to deal with damage caused by natural phenomena (catastrophe insurance) and catastrophic reward, the agency explained.

In 2006, Fonden issued the first catastrophic bond, which was designed by the Ministry of Finance with the support of the World Bank.

Mexico is a country where year after year different accidents occur due to nature. Although this is common, both insurance and catastrophic reward do not activate on every event, since they have specific operating rules, where a catastrophe must meet certain requirements to be activated.

For example, a catastrophic bonus can be activated by declaring a disaster if an earthquake occurs that meets a certain level of criteria: the magnitude, intensity, and epicenter located in specific areas.

Various schemes and strategies are analyzed to enhance coverage in terms of risk transfer, as well as to reduce the impact on public finances in the face of catastrophic events. By 2023, catastrophic risk analysis and modeling tools are scheduled to be updated to enhance comprehensive disaster risk management. To do this, we will work with international organizations, governments of other countries, and actors from the national and international insurance sector in preparing studies, projects and public policies to make national risk analysis tools more efficient,” the Mental Health Program said.

Increase resources for disasters

Although the Natural Disaster Fund (Fonden) was abolished in 2021, the government still allocates resources to states in case of emergencies such as floods, storms or earthquakes.

The draft Budget for Union Expenditures (PPEF) for the following year in Section 23 of Salaries and Economic Provisions, provides for an expenditure of 17,156 million pesos for the said disasters.

This represents a significant growth of 80.4% over what was approved for this year.

vulnerable

Even with tools like catastrophic insurance and bonds, along with budgetary resources for natural disasters, Jorge Cano, a researcher at MΓ©xico EvalΓΊa, notes that the country is still vulnerable.

He pointed out that the foregoing is primarily due to the fact that the tools contracted by the government are not always activated, while the budgeted tools are transferred to other dependencies.

The problem is that we no longer have Fonden, so we have to resort to budget expenditures. This year, at a cost of about 9,000 million pesos for natural disasters, what we see in the first semester is that it hasn’t been fully implemented. In fact, resources from this provision have been transferred to other ministries to implement programs to deal with natural disasters.

Less than 7% of homes have insurance

According to data from the Mexican Association of Insurance Institutions (AMIS), less than 7% of all homes in the country have insurance, a fact that was reversed in 2017, with the September 19 earthquake where only some families obtained such protection.

β€œThe number of insured risks in the housing sector is 7.8 million, however, of this number just under 7% have optional insurance, and the rest is related to a mortgage,” he said.

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