RISK MANAGERS’ FORUM
Environmental exposures call for risk management program development
Located in a valley surrounded by mountains, at an elevation of 7,760 feet, Mexico City is well-poised for unique pollution and climate conditions. The greatest challenges include air contamination, water supply and leak control, hazardous/non-hazardous waste management, and noise pollution.
The primary cause of these environmental problems is overpopulation; more than 21 million inhabitants occupy an area with insufficient and inefficient urban planning. Excessive and uncontrolled expansion has forced the city to grow vertically, and directly correlates to a decline in environmental health and greater pollution consequences.
Any type of risk management solution not only requires the coordination of the state, but also the identification and inventory of the environmental consequences at hand. So far, data on air quality is unreliable, and the parties interested in environmental care believe they are alone in their efforts.
But there’s good news. Consciousness surrounding environmental issues in Mexico City has improved over the last 10 years. Citizens are beginning to participate in solutions to environmental problems and the government is actively engaged.
At federal and local levels, there are standards, norms, and regulations surrounding the environmental and pollution improvements. And the city is putting serious effort into resolving air contamination issues—specifically through transportation-related programs, initiatives, and regulations, such as:
- Ban on leaded gasoline: Mexican oil has sulfur impurities, and in-country refineries aren’t sufficient, so the majority of gasoline that cars use in Mexico City is imported. That way it’s sulfur-free and high-quality, and it produces less contamination.
- “Hoy No Circula”: A government program introduced in 1989 prohibits vehicle circulation (no-drive days), depending on the last digit on license plates and a corresponding day of the week.
- Better public transportation: Mexico City installed a new metro rapid transit line in 2015, bringing the number of electric-powered routes to 12. Metrobuses travel in dedicated lanes, similar to systems in Brazil and Colombia, which helps with large-scale movement and pollution reduction.
- Taxi requirements: As of late 2016, taxis must be electric or have two motors—one that is electric and one that is gas.
The city also took action several years ago to move large companies with high contamination rates outside of the city and shut down those that don’t fulfill the requirements of caring for the environment. While the majority of companies meet these requirements, it’s inevitable that there are some small and mid-sized companies that worry more about income than the atmosphere.
A national system called “Civil Protection” requires companies, especially those with more than 100 employees, to implement a preventative program to prepare for emergencies and environmental crises. This program emerged after the devastating 1985 earthquake. Since then, the government inspects public places like movie theaters, malls, and large factories.
All of these efforts are contributing to a lower environmental impact—and are attracting attention from other cities and countries with similar air-contamination issues.
Controlling the uncertainty
But how is this high risk being managed? New technology-based solutions to control environmental effects are improving. For example, factories use filters and equipment to measure air contamination and the government is demanding that if companies want to be authorized, they must prove that they are treating water before it goes down the drain. It’s similar to the way that solids are handled: Companies must separate and classify certain types of waste.
Consciousness surrounding environmental issues in Mexico City has improved over the last 10 years. Citizens are beginning to participate in solutions to environmental problems and the government is actively engaged.
When it comes to insurance, most policies being sold and distributed in Mexico City are coverages for cars and major medical expenses. Cancer-specific policies are emerging, but are offered by only some carriers.
Property insurance has very little impact in the local market. This is worrisome, considering that Mexico City is prone to experiencing earthquake and hydro-meteorological events that cause extensive damage, such as flooding throughout the rainy season.
In some very specific cases, companies are required to have environmental insurance if there could be damages to the environment. Nevertheless, agents have difficulty selling this kind of coverage.
Mexico’s health social security insurance system is very efficient. Unlike the United States, Mexico has at least three institutions that offer everyone healthcare at little to no cost through a network of hospitals. But there are some limitations: A large influx of patients can lead to insufficient or low-quality hospital services. That is why people purchase medical insurance—to have private medical care of a higher quality.
Epidemiological studies are not conclusive that poor air quality has caused deaths by itself, or that there has been a relationship between hospital admissions and daily contaminant level changes. However, there has been a slight increase in patients with asthma, emphysema, chronic bronchitis, and cardiovascular problems. More common, though, are increases in eye discomfort, headaches, and fatigue.
So what happens if someone is affected by an environmental disaster? In many cases, the citizen ends up getting compensated by the government. Or factories end up paying for damages. But this isn’t easy to make them do, since they must demonstrate a cause-and-effect relationship.
For example, if a factory dumps something in the river and it affects you personally, you must demonstrate how you were affected. It isn’t easy. And if you can’t prove it, the business doesn’t have to pay. If someone goes to the media, they put pressure on the factories to make the payments. But very few insurance companies cover these types of environmental damages.
Another significant problem lies in expansion: Many businesses have resources to open new ventures in other cities, like Monterrey or Guadalajara, but this simply extends the same environmental issues to other populations.
There are very few risk managers in the country and virtually none within governmental agencies. Most large commercial companies—with corporate headquarters in Mexico City and industrial facilities outside of city limits—don’t have risk management administrators. Nor do they have complete policies in place to cover environmental risks.
Education for agents and brokers in Mexico is limited. In Mexico City, there are only a few schools where agents can learn about insurance. A limited number of carriers have their own training programs, and only one university offers any insurance-related program. As a result, agents must learn a lot through practice—not necessarily through formal education—and must study however they can for their final authorization exam.
Insurance agents are taught about the various types of policies, including personal and property, but some insurers use training as a means of dissemination of products, in addition to professionally preparing their agents. For the first 18 months after receiving their license, agents can sell only for the company that trained them. After that, any company is fair game. Mexican licenses are federal; you don’t need a license for each of the 32 states in the Republic.
Unfortunately, a result of insurance affordability in Mexico is that when an agent sells a policy, the commission is very small—especially for coverages against environmental damages.
The myriad environmental risks in Mexico City require risk management program development—not just vigorous law enforcement measures. There are countless applicable technological capabilities to better care for the environment, but the challenge for any risk manager lies in the presentation of investment projects and the return on the investments that companies receive to capture attention from partners or investors. Plus, there are insufficient tax benefits offered to entrepreneurs for environmental care solutions.
There is no one-size-fits-all solution. For now, we must celebrate the growing awareness within the population around environmental care. For some, it’s because they suffer the inevitable consequences of Mexico City’s contamination. But to maintain focus—and responsiveness—we must continue to monitor and control what we know.
Iván Palomares Hofmann, CRM, MIA, is director general at SIP Asesores en Riesgos, SA, DE, CV. He is a chemical engineer, has a law degree, is a risk management specialist, and has a diploma in international environmental law, all earned through the Universidad Nacional Autónoma de México (UNAM). He also holds a diploma in insurance and in environmental legislation from the Instituto Tecnológico Autónomo de México (ITAM), where he has been a professor for more than 20 years. Hofmann obtained his Certified Risk Managers (CRM) designation in 2008 from The National Alliance for Insurance Education and Research. He has been an instructor and educational consultant for the CRM programs in Mexico ever since and, in 2016, he was named a member of the CRM National Faculty of The National Alliance.