The National Assn. of Independent Insurers (NAII) recently told the California Assembly Insurance Committee that harmonization of trucking insurance between Mexico, Canada and the United States will take time, but that proper insurance is available whenever the border with Mexico fully opens.

David Golden, NAII's director of commercial lines, testified at the insurance committee's hearing on cross-border trucking concerns saying that insurance harmonization will come about as insurers and regulators from both countries build experience working with each other.

Golden explained that trucks traveling to another NAFTA country already must meet that country's insurance requirements and that U.S. law requires that the insurance for any truck traveling in the U.S. be placed with an insurance company licensed in at least one state. Mexican law requires that insurance for third-party liability of trucks traveling in Mexico be placed with an insurer domiciled in Mexico. In either case, the driver must have evidence of coverage at the time of crossing.

"In spite of the options available now, the long-term goal remains 'mutual recognition' that would allow an insurance policy that is written in any of the three NAFTA countries to be valid in all of them," Golden said. "All participants agreed that mutual recognition is also the long-term goal that best supported free trade."

NAII is part of the Trilateral Insurance Working Group, comprised of industry and regulatory representatives of all three countries, that has been working to identify a range of mechanisms to provide insurance on a cross-border basis. Some of the mechanisms the working group reviewed and agreed could be workable in the short term were:

  • Brokered Arrangements: Managing General Agents (MGAs) match U.S. and Mexican auto policies on an annual basis for fleets that routinely cross the U.S.-Mexican border. These arrangements are similar to private passenger trip policies that have been available along the borders for years.
  • Multinationals: Several insurance groups have subsidiary companies in all three countries. While still having to issue two policies, these insurance companies are already in a position to provide insurance on their own paper to their border-crossing insureds.
  • Joint Ventures: They represent an intermediate step along the path to mutual recognition. Joint ventures would be formalized arrangements between insurance companies that would allow insurers to assume the domestic trucking exposures of the partner's insurance customers. There would still need to be two insurance policies. There would not be a "reinsurance component" as with fronting arrangements.
  • Fronting: Fronting arrangements are common for Canadian insurers with risks in the U.S. To be effective, fronting would require availability of appropriate regulatory reinsurance credit for fronting arrangements involving Mexican insurers. Insurance Commissioner Jose Montemayor has taken up the issue of fronting arrangements with the National Association of Insurance Commissioners (NAIC) in the hope of speeding up the process and making fronting as practical as possible.
  • Powers of Attorney Undertaking (PAU): Modified mutual recognition between countries for insurance purposes would commit an insurer filing a PAU to handle claims in the other country as if it was a domestic insurer in that country.
Golden said that while Mexico's insurance system has undergone significant changes in the last decade, many more intermediate steps must be taken before parity with the U.S. and Canadian insurance systems will be achieved.

"NAII wants to see the NAFTA trade goals become a reality but we caution that now, more than ever, all the pieces of the puzzle must properly fit if the final picture is to be a positive one," Golden said. "Seamless insurance coverage between the three countries is a goal that can be reached, but the reality is that it will take a number of years."