While uncertainty grows about overseas markets and suppliers, borderless insurance between the United States, Canada and Mexico may provide new solutions for continental trading.

NORTH AMERICA IS LOOKING GOOD. SO IS CROSS-BORDER INSURANCE

Amid trade tensions with China, a new three-country pact holds the promise of prosperity

By Joseph S. Harrington, CPCU

Will the coronavirus ever ease its grip? We’ll believe it when we see it, but when it does, our home continent will be beckoning. U.S. insurance agents and brokers will find themselves fielding more requests for coverage that crosses our borders into Canada and Mexico.

Thanks to the disruption wrought by the pandemic and lingering trade tensions with China, North America is looking a whole lot better as a base for supply chains and distribution networks. Indeed, while uncertainty grows about overseas markets and suppliers, a cloud has been lifted from the nearly $25 trillion combined market of Canada, Mexico, and the United States.

Free trade aspirations

As of July 1, 2020, the three countries of North America are trading with each other under the U.S.-Mexico-Canada Agreement (USMCA), the new trade pact that replaces the North American Free Trade Agreement (NAFTA), which had been in effect since 1994.

Far from repudiating NAFTA, the USMCA preserves most of its principles and extends them to additional areas of commerce, including services provided online. If there’s any major new restriction in the USMCA, it’s in the tougher standards for identifying and documenting North American content in vehicles and vehicle components. While the heightened standards are significant, they are not a radical new departure.

Agents and brokers should take note of new possibilities for enterprises that may be retreating from the world but expanding in their own back yard.

Arguably the most important achievement of the USMCA is that it marks the acceptance of continental free trade, at least as an aspiration, across the political spectrum in the three countries. Fostered by center-right governments in the early 1990s, the pursuit of free trade was later ratified by centrist Democrats in the U.S. and liberals in Canada, and it has now been endorsed by populist leaders in the U.S. and Mexico, as well as the liberal speaker of the U.S House of Representatives.

No guarantees

Ratification of the USMCA is no guarantee that the arrangement will work out as hoped. The long-term success of North American free trade depends on developments outside the direct control of governments, particularly in Mexico where the USMCA seeks to boost Mexican wages and purchasing power to protect jobs in the U.S. and Canada.

For the time being, however, there appears to be consensus on trying to make free trade work in North America. Businesses large and small can plan on that for the foreseeable future.

Benefits to small businesses are seen as critical to sustaining support for continental free trade. To that end, among other things, the USMCA substantially expands the range of small shipments that can enter Canada and Mexico free of duties and other taxes.

Under the USMCA’s relaxed “de minimis” requirements for small shipments:

• Canada now allows parcels valued at up to CDN$40 to enter the country free of duties and other taxes (previously the threshold was CDN$20). Canada has also agreed to forgo duties on shipments up to CDN$150 in value, although they may be subject to other taxes.
• Mexico keeps its duty-free and tax-free threshold at US$50, as previously, but will now forgo duties on shipments up to US$117.
• The United States still allows parcels valued at up to US$800 to enter free of duties and other taxes.

The ‘third phase’

Kenneth Scott Ramos, the lead negotiator for Mexico in the USMCA deliberations, speaks of the need for a “third phase” of North American economic integration in a 2019 FreightWaves article.

Tariff elimination under NAFTA was the first phase, he says; the second phase is the latest reduction of non-tariff barriers and transaction costs under the USMCA. The impending third phase, according to Ramos, would be a move toward “harmonization of standards and regulations.”

Those “standards and regulations” apparently include insurance, as Ramos is listed among the leaders of Borderless Coverage, an insurance intermediary that provides an online portal for purchasing cargo coverage online for truck shipments to locations in Mexico.

While the USMCA reduces some trade hurdles, neither it nor NAFTA addressed the contrasting insurance systems in Canada, Mexico, and the United States. Among other things, property insurance in Mexico is structured in a manner distinctly different from that in the U.S. and Canada, and all three countries have different standards for determining compensation for loss to cargo.

Borderless Coverage was launched in 2017 with the stated aim of allowing shippers to reduce the cost of coverage and reliance on middlemen that characterizes Mexican cargo coverage.

More recently, in October 2020, Intact Financial Corporation, Canada’s largest property/casualty insurer, unveiled Intact Insurance Specialty Solutions, an integration and rebranding of U.S.-based OneBeacon Insurance Group, acquired by Intact in 2017, and The Guarantee Company of North America, acquired in 2019. The new Intact group promotes “robust solutions” for insurance producers and buyers operating in Canada, the U.S., and across the border.

These examples are among only the most recent initiatives to provide for cross-border insurance, and they won’t be the last. Agents and brokers should take note of new possibilities for enterprises that may be retreating from the world but expanding in their own back yard.

The author

Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.