Insuring homeowners in Mexico City against earthquakes

In addition to our involvement in the World Bank’s earthquake catastrophe bond for the Pacific Alliance (see above), we also supported a local insurance solution addressing earthquake risks in Mexico City. When the large earthquake of September 2017 occurred, almost 6 000 houses in the city were affected – 61% of which were partially damaged and 39% totally destroyed. This in turn led to social unrest, as most of those affected were low-income homeowners, with neither private insurance nor financial resources to rebuild their homes.

In response, the city government sought ways to leverage its existing natural disaster fund and to provide homeowners with better financial protection against potential losses from earthquakes. In cooperation with a local cedent, Swiss Re has helped develop an innovative programme that offers the city government insurance protection against losses in excess of its own disaster fund, from earthquakes with a magnitude of 8.5 or more.

This insurance scheme automatically covers homeowners who meet a number of requirements. One of them is that they have fully paid their property taxes at the time of an event, which creates a strong incentive for tax compliance and increases the city’s revenues. In combination, the insurance solution and the additional revenue will help Mexico City reduce the protection gap connected with major earthquakes.