The Promise of NAFTA Not Quite Fulfilled

By | February 24, 2008

It’s been a long, frustrating process for most participants

In February 2002, Insurance Journal reported that Congress and the Bush Administration had reached a deal whereby the trucking provisions of the North American Free Trade Agreement could finally be implemented. (“Before & NAFTA: Open Borders, Long Term Effects on Long-Haul Trucking,” by Stewart Eisenhart.) At that time it was expected that within a matter of months U.S. and Mexican trucks for the first time since 1982 would be allowed to cross their respective borders and ship goods anywhere in NAFTA territories. Since then, however, the promise and the process has largely been a matter of — hurry up and wait.

In September, the U.S. and Mexico began a year-long demonstration program that would allow 100 authorized trucks from each side of the border to carry goods into the neighboring countries farther than the current 25-mile trade zone restriction. For trucking companies on both sides of the border and the insuring entities interested in providing coverage for a new long-haul market it’s been a long, frustrating wait.

The trucking provisions under NAFTA specify that a truck coming into the U.S. from Mexico, or vice versa, can travel across the border carrying goods from one country to the other but they can’t pick up and deliver goods within the country that is not the truck’s country of origin. Trucks from Mexico “can make stops to drop off cargo but they can’t pick up cargo in the U.S. and take it to another location in the U.S.,” said Alan Kohl, a consultant and a contract broker for Lovitt and Touché Inc., a large regional broker based in Phoenix. “They can only bring in cargo from Mexico and leave it off in the U.S. … The same thing on the way back. They can pick up a load in the U.S. destined to Mexico but they can’t make deliveries in the U.S. on their way home.”

Kohl said trucking companies not only have become frustrated with the on-again, off-again process of implementing the NAFTA provisions, they also are hampered by the limitations. “A trucking company that runs empty is not making money. So if a truck that leaves Mexico, drives to Chicago and leaves off a load and doesn’t have a return load going to Mexico, it’s going to lose money.”

However, Jim Labelle, president of Arizona-based International Insurance Group Inc., said “it’s a tremendous opportunity” for insurers. He said his company plans to step in when the regulatory hurdles are clear. Right now, though, “the U.S. isn’t allowing that to happen,” says Labelle.

“Mexico is not letting U.S. truckers in until the U.S. lets Mexican truckers in.”

There is a Market

Still, there is a market for Mexico-U.S. cross over business, a specialized, niche market loosely divided into three general segments — long haul carriers, short haul carriers and trailers.

As with auto insurance for Mexico-bound travelers, U.S. insurers providing coverage for commercial vehicles entering Mexico must partner with Mexico-domiciled insurance companies in order to write the policies. “The limits of liability in general are lower than they are in U.S.,” said Juan Buendia, vice president and partner at California-based MacAfee and Edwards Inc. “More or less, the standard limit is $100,000 … then you can go up from there but that’s the basic limit.”

MacAfee & Edwards mainly markets its policies “to commercial manufacturing operations in which the parent company is located on the U.S. side of the border and they have their manufacturing facilities on the Mexican side,” Buendia explained. “So we cover a lot of the trucks that are going back and forth with raw materials and finished product.”

He said his firm provides coverage for companies “shipping goods all the way down to Mexico City or something like that, but in that case, really, what we’re doing there is insuring mostly the trailers because the tractors, up to the opening of this new NAFTA agreement, have been limited to just the 25 miles.”

Kohl said his cross-border accounts mainly consist of trucks or buses coming into the U.S. from Mexico and trailers that are exchanged across the border. He also covers “off the wall kinds of things. For example, NASCAR, the racing venue, they do a race once a year in Mexico City. And they get a special authorization and I arrange the insurance for them. And we insure about two-thirds of the NASCAR teams plus all the NASCAR owned race vehicles.” He said he works with IIG’s Labelle on the NASCAR and trailer exchange accounts.

Kohl has an agricultural account from the Mexican state of Chihuahua whose commercial vehicles are authorized to travel 100 miles inland into the U.S. He also writes coverage for a Mexican bus company authorized to go to Phoenix, Los Angeles and Las Vegas. Kohl said rates for risks coming from Mexico are often charged more than similar risks that are garaged and operate solely in the U.S. But his agriculture company client does not pay extra “because they’ve had good experience for years.” He said if it’s difficult for the U.S. insurance company to validate driving and claim histories, “they’re going to price the business more expensively to start with and as time goes by if the experience proves to warrant it, then they’ll start reducing coverage. That’s what they’ve done, for example, on the biggest bus company we’ve got. … The first year they were paying around $23,000 per bus and now it’s down to less than $9,000. They’ve had very, very good experience.”

Brian Schoonover, underwriting manager for Valencia, Calif.-based Pacific Gateway Insurance Agency (PGIA), a general agency owned by the National Indemnity group of insurance companies, said his company will insure trucking risks that cross into the U.S. from Mexico, but not the other way around.

“We’ve seen companies that only have trucks registered in the United States and then go back and forth between the U.S. and Mexico,” Schoonover said. “We’ve seen them where they have some in Mexico, some in the U.S., and we’ve also looked at risks where they have all of them registered in Mexico but because they cross into the border here they need coverage here. We’ve seen all different types.”

Schoonover said the problem his firm has had with international trucking “risks is often times they don’t feel they need to disclose to us the vehicles they have registered in Mexico, even though those vehicles cross into the United States. As soon as they cross into the United States, they’re going to be subject to the filing that we make with the federal government requiring us to cover them. So the hardest thing in those types of accounts is to make sure that everyone understands that we need [information on] all vehicles owned or operated or leased by this insured, and that includes vehicles that may be registered in Mexico.”

One of the giants in the cross-border non-resident auto insurance business is Houston-based Commercial Alliance Insurance Co. (CAIC). The company sold more than 650,000 policies last year — both personal auto and commercial — for vehicles coming into the U.S. from Mexico. It has a large share of the market in the 25-mile commercial zone and is an active participant in the U.S. Department of Transportation demonstration program. Currently CAIC insures 10 out of the 13 Mexican transport companies in the program approved to travel beyond the established commercial zone.

More than 100 carriers from Mexico applied for the program three years ago, said CAIC Vice President Joussef Jerade. “It was very well accepted by many Mexican carriers. However, since it took that long to be implemented, most of the companies that applied back then are no longer interested,” he said. Now, “most of the carriers that are applying have very few units. We see companies that have three, four, five units, whereas the larger ones are no longer doing anything on this.”

CAIC has a network of some 250 independent agents and more than 800 points of purchase in Mexican cities along the border. But Jerade said CAIC works with agents on the U.S. side, as well. He said there are opportunities for U.S. agents who are sophisticated in the commercial market and that agents should ask their commercial accounts whether they have partnerships with companies in Mexico. “We are always telling [U.S. agents], ‘ask your customers if they have a subsidiary in Mexico that is applying for this program so you also can have some of this business,'” Jerade said.

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