Under Article 71 of the Mexican Insurance Contract Law (Ley Sobre El Contrato De Seguro), claims monies are due to the insured by the insurer within 30 calendar days from the date on which the insurer receives the documents and information that allow it to determine the grounds of the claim.
As a result:
- If a Mexican insurer fails to decline a claim or request additional information to assess the claim [on reasonable grounds] within 30 calendar days, the claimant is entitled to take legal action against that insurer to recover the claims money; and
- Any delays by a Mexican insurer in paying a claim within 30 calendar days may result in interest charges, fines and/or sanctions for that insurer.
In light of this requirement, and its potential impact on Mexican insurance companies, Mexico’s insurers’ association, AMIS, believes there is a need for Lloyd’s underwriters to enhance their alignment with local claims settlement timelines and obligations.
Low levels of risk retention by local insurers can result in Lloyd’s underwriters requiring control of the claims process in reinsurance contracts. The view from Mexico is that there is not always a timely delivery of instructions and decisions by Lloyd’s underwriters, resulting in Mexican insurance companies breaching Article 71 or taking actions that may potentially violate their Claims Control clauses. AMIS believes there is a need for Lloyd’s underwriters to be fully aware of local obligations and for both markets to improve the claims control/cooperation process. Improving this process can help Mexican insurers with the following:
- Avoid interest payments, fines and sanctions resulting from delayed settlement/payment of claims.
- Increase the chances of fair and favourable court rulings when claims end in court.
- Reduce the risk of unscrupulous claimants exploiting delays in order to fabricate accusations of bad faith or even fraud, which in some high profile cases have led to actions under criminal law against directors of insurance companies as a pressure mechanism.
- In general, improving co-operation with Mexican insurers on this issue will enhance Lloyd’s image as a market that is easy to do business with.
After a number of discussions with AMIS, Lloyd’s brokers, underwriters, the Lloyd’s Claims team as well as loss adjusters, we have identified a number of guiding principles and suggested practices which could lead to better claims service levels in Mexico, without undermining our interests.
These principles and practices are:
- Timely instructions, appointments and decisions that will enable Mexican reinsurance clients to settle or reject claims in compliance with article 71, ie within 30 calendar days of receiving from the claimant documents and information required for a decision. This means the insurer will have to be prompt in passing this information to the reinsurer and the broker. In turn, the broker and reinsurer will be prompt in providing instructions and / or decisions. In the meantime, under article 113, the insured has to do everything in its power to mitigate and/or reduce the claim.
- Specific instructions as to what supporting documentation would constitute evidencing of a claim.
- Agreed adequate timelines for the provision and review of the documentation by both the insurer and the reinsurer; e.g. documentation ought to be sent as soon as available and not on the last day possible for submission. This need for timeliness is reinforced by Article 66 which states that the insured has 5 days to provide written notice of any claims, unless otherwise specified in the contract.
- Transparency and, where appropriate, explicit prior agreement on the responsibilities and timelines for the different parties (insurers, brokers, Lloyd’s underwriters and loss adjusters) and the cooperation between them. Often time can be gained by having prior agreement on loss adjusters and other third party advisors, where appropriate. Note - a number of large Mexican risks include very detailed claims protocols and procedures in their contracts. Also, AMIS is currently promoting a model claims protocol for more standard risks which some of its members may wish to include in their reinsurance contracts.
- Prior agreement with the reinsured on the response times for paying reinsurance monies – particularly important if Lloyd’s underwriters expect the insurer to fund the claims before receiving reinsurance money.
- In exceptional circumstances, ensuring Lloyd’s underwriters participating on large facultative reinsurance risks are fully aware of the implications, particularly where there is risk of insolvency and the insurer has a limited chance of meeting its obligations without prior release of reinsurance funds.