Crossing the Border: Mexico Travel Offers Opportunities for Agents

Mexico is a country rich in cultural heritage and scenic landscapes. From colonial villages to majestic desert panoramas to pristine beaches, our bordering neighbor to the south offers something for everyone. Steeped in tradition, Mexico attracts millions of visitors from the United States every year.

With the amount of automobile traffic entering Mexico from the United States, it should come as no surprise that writing personal lines automobile insurance can be quite profitable to insurers willing to take the risk.

Since automobile accidents are criminal offenses in Mexico, failure to provide proof of financial responsibility for an accident could land the responsible party in jail. Hence, procuring proper insurance coverage before driving into Mexico is a must.

“All third-party liability insurance for tourists in Mexico must be underwritten by a Mexican underwriter,” said Floyd Woods, director of Marketing for International Insurance Group Inc. “Some U.S. policies will cover the insured’s vehicle but this is very rare. U.S. customers’ insurance rarely provides coverage in Mexico.” He noted that those U.S. companies who do offer coverage do so on a very limited basis–covering only damage to the insured’s vehicle and only travel from 25 to 75 miles inside the border.

Various types of drivers cross the U.S. border into Mexico. Most common are tour-ists crossing over the border for shopping or vacation, and drivers who work across the border and commute back and forth each day. Popular border towns such as Tijuana and Juarez handle tens of thousands of vehicles passing through immigration and customs on a daily basis.

Most insurers develop a niche around insuring drivers over the border, and with their combination of expertise and experience, produce profitable loss ratios.

“The loss ratio for tourist auto is very good,” said Juan Julio Buendia of Pasadena-based MacAfee & Edwards. “It’s maybe around between 20 and 30 percent; mostly for the annual type of policies. The main exposure continues to be total theft of the vehicle.”

Woods, who is based in Texas, added that traditionally this insurance has been sold primarily at the border, but that practice is changing. “Agents in Chicago, Memphis, At-lanta and other cities have learned to capitalize upon this market by offering this product in addition to other products addressed to Hispanics and others,” Woods said. “Large U.S. and other international underwriters have entered or are planning to become involved in the huge Mexico insurance market.”

Those insurers include ING Comercial América, Grupo Nacional Provisional (GNP), AIG Mexico, GE Capital, ACE, Zurich and GMAC. However, there are also smaller, unrated insurers that offer auto coverage in Mexico–therefore agents and brokers should exercise caution when selecting an insurer to work with, Buendia said.

“Every year 88 million USA-plated vehicles enter Mexico,” Woods said. “Many of these vehicles are owned by ‘snowbirds’ and tourists, and many more by the huge number of Hispanics visiting family members in Mexico. Some 40 million Hispanics live in this country and hundreds of thousands return home to Mexico annually.”

A seasonal activity
Interestingly enough, border crossing is actually a seasonal activity, according to Roberto Castellanos, vice president of San Ysidro, Calif.-based Border Insurance Services Inc. While the border towns for the most part see a steady flow of traffic all year round, drivers going further into Mexico’s interior are usually Mexican nationals returning to visit family.

Woods said the peak season for personal auto traffic from the United States into Mexico are the months of June and July, and the winter holiday season, along with Spring Break and Easter. He agreed that agents in close proximity to the border, where customers make frequent weekend trips to Mexico from Texas, New Mexico, Arizona, and California, may see traffic year round.

“A lot of people go for medical treatment as well,” said Gabriel Tapia, an account executive with Border Insurance. “During the weekdays [you get] a lot of people going to see the dentist or get some medical treatment, whether it be cosmetic or something more serious regarding cancer therapy, chemotherapy, that kind of thing.”

Castellano said they insure a lot of recreational vehicles, both individually, and as part of a caravan of travelers taking a road trip through Mexico, especially during the summer. “It is very hard to find an insurance company that likes to write RVs because of the loss experience,” he said. “The main reason for claims with the RVs is damage that they cause between themselves [collisions with other RVs].”

No borders for fraud
Automobile insurance fraud is one of the most prevalent forms of fraud, and it doesn’t stop at the U.S.-Mexico border. And it presents challenges to insurers who write personal lines policies for foreign drivers in Mexico.
“High value vehicles are hard to insure in Mexico, like Porsche or Lamborghini,” Buendia said. “There’s not enough premium you can charge. If they steal that vehicle in Mexico, then the insurance companies have to pay out $70, $80 thousand dollars.

“The main exposures are along the border states of Mexico,” Buendia added, “[but] Mexico City, it’s a hotspot for auto theft.”

SUVs are a popular target for car thieves in Mexico, as are Volkswagen Jettas. “Between January and May of 1999, there was about $200,000 in claims on SUVs,” Castellanos said. “That particular year, the insurance carrier stopped us from covering total theft risk on our 2-3 day policies. We were not able to provide that for our customers because of the high risk of this type of situation.”

Jettas, Tapia said, are targeted for their parts, as Volkswagen manufactures the vehicle in Mexico.

“There are a lot of people who cannot afford to make payments on their vehicles here in California or here in the States and they buy a two-day policy and they just leave it there,” Tapia added. “They just want to get rid of payments or they just want to report their vehicle as stolen. We really need to be aware of that situation and nowadays to write a two-day policy we require the customer to provide us with a current registration, their insurance card and their driver’s license. If they report a claim to the insurance carrier, they do investigate those types of situations. They do a background check on them with their insurance policy to see what types of claims they’ve had in the past.”

Another form of fraud, albeit one that is becoming less prevalent with the use of automation in issuing policies, is that committed by agents themselves, Woods said. In the past Mexican underwriters routinely issued pre-printed policies on which agents were required to manually enter the insured’s information. The pre-printed forms and hand written policies that were sometimes used were hard to control, fraud-wise, Woods said. Pre-printed forms were sometimes duplicated by unscrupulous agents who used them to sell insurance to unsuspecting customers and then pocketed the proceeds from the sale, leaving both the insurer and the insured in the lurch. Now, most underwriters use a computerized system that captures, and saves, all the policy information before an official policy can be printed by the agent.

To combat fraud, agents adhere to strict underwriting guidelines. Customers are required to provide proof of insurance in the United States (or from their country of residence), a valid driver’s license and vehicle registration. Sometimes, Buendia added, a physical inspection of the vehicle is necessary.

Castellanos noted that any claims must be made while the driver is still in Mexico, not when they return over the border.

Online convenience
The Web is making the sale of border policies easier for both agents and consumers. Consumers can log on, fill out an application, and in most cases, have a policy issued to them within minutes. This eliminates the need to pull off at that last exit before reaching the border to purchase a policy at one of the several insurance agencies located there.

International Insurance Group is one firm that specializes in online sales of insurance for Mexico travel. In addition to personal auto, the group offers coverage for commercial auto fleets and tractor-trailers, recreational vehicles, travel trailers and motorcycles, as well as homeowners coverage.

Consumers can buy coverage online from the company at www.mexpro.com, but IIG’s Woods can also provide agents with a user name and password that would enable them to issue a policy to their customers in house. In addition, a banner can be installed on an agent’s Web site through which the agent’s customers may purchase Mexico insurance, with the agent receiving a commission for the sale.

“The biggest risk to an agent is not understanding the available coverages, or making a rating or underwriting mistake,” Woods said. He added that IIG’s system has built-in underwriting guidelines “so there is very little risk to the agent from an E&O standpoint.”

Macafee & Edwards allows consumers to fill out applications on the company’s Web site, www.macafeeandedwards.com, and fax or e-mail the application in. Agents can access special software to input clients’ information online.

Border Insurance also issues policies via their Web site, www.mexborder.com. The site allows customers from across the country to purchase Mexico automobile coverage online. Web site sales surge during the peak season, with policies being issued to vacationers from the East Coast, Canada, and even Europe.

“Many agents see Mexican insurance as ‘little potatoes’ with small revenues,” Woods said. He views it as an “un-tapped market” that “agents would be well-served to enter.” He noted that it takes about five minutes to issue a policy that could generate $50 to $100 of revenue for the agency. “Agents too often concentrate on higher-priced premium policies and neglect to realize the potential of this very lucrative market,” Woods added.

Topics Carriers USA Auto Fraud Agencies Underwriting Mexico