Visions Clear for NAFTA Insurance

The media reports have died down since the Feb. 6 ruling that the United States was in violation of the North American Free Trade Agreement by disallowing Mexican trucks free access to American roadways. The work has just begun, however, on implementing a system that will free up the border constraints that keep trade restrictions intact on the United States’ southern border.

Two of the most pressing issues have been safety and adequate insurance. While safety remains a concern, particularly for the United States, the Tri-national Insurance Working Group had one goal on its mind during its most recent meeting Feb. 15 and 16: Don’t let insurance be the thing that stops the border opening.

The group, which has been taking part in tri-lateral discussions and negotiations between Canada, Mexico and the United States for several years, could very well set the pace for opening up trade with Mexico. “Some of the things that had been issues are no longer issues [since the meeting],” according to David Golden, director of commercial lines for the National Association of Independent Insurers and a member of the working group.

According to Golden, a final solution for cross-border insurance could be just around the corner. The group nailed down a proposal that would implement cross-border insurance in phases. The final step, Golden explained, would not happen for quite a few years, but the initial steps would allow cross-border traffic that would not necessitate stopping every truck crossing the border.

The system is quite simple, Golden explained, and is based on something that is already in place. “Why we didn’t think of it sooner, I don’t know,” he said. Essentially, the concept would be similar to current brokering arrangements already in place between Mexican and U.S. insurance companies. And it can be done for full fleets of vehicles for up to 12 months. “We have now gone past the most immediate and biggest hurdle, which was making truckers stop when going north or south of the border,” Golden said.

These brokering arrangements, or joint ventures, would come about as the market demanded, Golden explained. Insurance companies in the United States would make agreements with companies in Mexico to refer truckers wishing to work in Mexico to the Mexican insurer. Likewise, the Mexican company would refer truckers wishing to work in the United States to the American insurer. As Golden explains it, these companies will develop knowledge about the other country, the foreign insurance company it has partnered with and, ultimately create more comfort for everyone in the system.

“As they start to get to know each other…they will start coming to some agreements,” Golden said. Those agreements could likely become something more permanent as the system progresses. “This is market driven and you could call it almost a joint marketing approach,” Golden said. Another bonus of such a system is it would require very few regulatory changes.

The second step in the process to opening the border would involve fronting arrangements, Golden said. In this scenario, it is possible for each insurer to reinsure the policies of the original insuring company as policy holders cross the border “so costs return to the original insurer,” Golden said. Essentially, American insurer A would insure Mexican insurer B’s trucking customers while they are traveling in the U.S., but American insurer A would be reinsured by Mexican insurer B. Likewise, American insurer A would reinsure its customers that are insured through Mexican insurer B while they are traveling in Mexico.

As Golden explains, this is a brand new arena unlike anything in place between other countries. “There’s going to be a lot of marketing opportunities for a number of insurance companies,” he said. Watching how that plays out between the 2,000 property/casualty insurers in the U.S., 400 in Canada and 66 in Mexico will be interesting.

“It’s going to require some liberalization of things like reinsurance regulations,” Golden said. “But the last thing you want to do is change the regulations so that now you’re letting in fly-by-night reinsurers.”

The third step will entail power of attorney and undertaking, which will provide for policy covers in another country. The final phase will be mutual recognition not unlike that shared between the United States and Canada. “But a big change that has to happen to pave the way for that is the law in Mexico that restricts foreign insurance in Mexico has to be changed or removed,” Golden said. While Mexico allows foreign ownership of insurance companies, the company itself must be Mexican.

“At least now we know that there is a mechanism available that, should the border open tomorrow, insurance coverage is possible,” Golden said.

Topics USA Carriers Legislation Reinsurance Canada Mexico