Mexico consumer agency slams mortgage-linked insurance policies

Thursday, September 6, 2018

As Mexico reaches the one-year mark of the two massive quakes striking the country on September 7 and 19, 2017, the financial services consumer protection agency (Condusef) released a study showing serious shortcomings in the most common P&C coverage for owners of real estate.

In a report released Wednesday, Condusef detailed the findings of a comprehensive study of 20 mortgage-associated (MA) policies extended to property owners with the approval of their mortgage agreements in November 2017 - two months after the quakes.

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The agency examined official documents, including deeds and mortgage agreements, in agreements associated with 11 banks (not specified) and nine insurers - Seguros Inbursa, Zurich Compañia de Seguros, AXA, Seguros Ve por Más, Zurich Santander, Seguros BBVA Bancomer, Seguros Citibanamex, Assurant and Seguros Banorte.

It found that, were an earthquake to occur causing total losses for all 20 properties, only 13 of the MA policies would reimburse the bank for the full amount of the property, while the property owner would lose their down payment, all subsequent payments in addition to losing the property in the disaster.

Condusef had already expressed concern about the dependency on such insurance policies in a June statement reporting that as of 1Q18, there were 96,537 buildings with earthquake insurance in Mexico City. Of these, 90,606 were mandatory policies linked to mortgage loans, with only 6,031 being voluntary policies.

At an event for the release of the report, reported by local daily El Financiero, Condusef head Mario di Costanzo went so far as to say the MA policies in questions were "practically useless," stressing that their coverage meets neither the needs of the policyholder nor the mortgage lender.

"[MA] insurance works inefficiently, even if it is considered an unpaid balance insurance. In most cases, the sum [paid] is less than the loan amount, which leaves the lender uncovered," El Financiero reported di Costanzo as saying.

To address the problem, Condusef is holding meetings with Mexico's banking association (ABM), insurer association (AMIS) and the finance ministry, to discuss changes to the MA policies. At the minimum, the agency believes they should cover: the down payment, the monthly payments made up to the date of the insurance event, and the unpaid balance.