(Expansión) – Everyone talks about the emblematic works of this government: the Mayan Train, the Dos Bocas refinery, the Felipe Ángeles International Airport (AIFA) and the comments are some in favor, others against, but this time not I seek to delve into the works themselves, but rather, into what this type of infrastructure projects represent for the reinsurance industry.
The objective is not only to secure a construction or a government project, but it means to guarantee that all the government works and has a coverage that supports it at all times.
But let’s start at the beginning, to participate in the process of insuring a work of this magnitude or a historical monument or any infrastructure work, it is required that a group of insurance and reinsurance companies meet and evaluate the project from the beginning until the end, as well as its subsequent performance.
Likewise, the government must look for the best offer that guarantees peace of mind and can concentrate on construction and proper operation.
To carry out the insurance of any government work, whether they are flagship works, roads, the construction of a hospital, a branch of a dependency or just guarantee the proper functioning of a dependency – in addition to insuring the possible contingencies that may cause a loss or problem to insurance (its negative effects)-, the insurance and reinsurance companies share the risk among themselves and in this way no one or nothing is exposed in a unique way to the dangers that these infrastructure works may generate that the federal government plans to do. That is, all insurance companies share the risk in different proportions to be able to assume the cost of this insurance.
If reinsurance did not exist, this activity would be much more expensive and difficult to assume by a single company. And it is that, if we talk about costs, the truth is that insuring a work of such magnitude as Dos Bocas, the Mayan Train or even the AIFA, is not something simple. For example, insuring some historical monuments, archaeological remains or popular traditions is not the task of a single company, especially in those monuments or places considered Cultural Heritage of Humanity.
Hence the importance of reinsurance, which could be in words more, words less: the insurance of insurance, since this contract allows to distribute the risks and limit the responsibilities in the event of an accident.
An example that can help us understand this issue a little more is Hurricane Vilma. Perhaps some people, especially young people, do not have a history of what this event represented for the insurance industry, but in 2005 this meteorological phenomenon was considered “the most intense hurricane in the last 50 years”, it was classified as category 5 and its winds reached a maximum intensity of 342 kilometers per hour (km/h).
This natural disaster is perhaps one of the most important in the insurance industry because it marked a before and after in the insurance industry.
This hurricane is the fifth most costly natural disaster at the international level and insurers still remember it, since for five years or more they dragged a series of claims that insurance companies did not want to remember again.
This incident was also a watershed for the industry because it reflected on the importance of putting together a group of insurance and reinsurance companies that can offer coverage not only for one place, but also for certain works of global or local importance, or of buildings or monuments that do not have a specific value because it goes beyond the tangible, but that need to have a coverage that supports them.
At another time we will talk about the coverage of works of art, an insurance that is also interesting and whose value is difficult to assess, which has given rise to many interesting talks.
The important thing is to know that governments always need to insure all their construction works or development plans, no matter what, because that’s the only way a country works.
Editor’s note: Octavio Careaga is an actuary graduated from the Autonomous Technological Institute of Mexico and has more than 30 years of experience in the insurance and reinsurance sector in Mexico. He is passionate about American football and currently serves as Director of THB Mexico and the Latin America region. Follow him on . The opinions published in this column belong exclusively to the author.
