Natural Disasters Cuntry Profile Series

Mexico
Population:98,552776 (1998)
Area:761,603 Square Miles
GDP:$694.3 Billion
Insurance Department:Deregulated
Political:Federal Republic
Monetary Unit:Peso 1 to .10306 U.S. (02/01)
Regulatory Environment:  Requires local insurance carrier

Mexico is the third largest Latin market with respect to insurance premium, nevertheless insurance penetration remains remarkably low.

Prior to NAFTA (the North American Free Trade Agreement), an Insurance Commissioner regulated the insurance market in Mexico. In mid-1990 the insurance market was completely deregulated, bringing freedom of policy design and pricing. Since joining NAFTA, foreign companies can participate in Mexico as long as they use a Mexican partner, joint venture, or a subsidiary. Key players in the market include Commercial America and Asemex, Grupo National Provincial, Monterrey-Aetna, and Imbursa.

To many insurers, their exposures in Mexico are second only to those in the United States. NAFTA encouraged more commerce between the United States and Mexico and today over 85% of Mexico's trade is with the United States. Manufacturing, warehousing, transit, and other forms of shared commerce are becoming more commonplace.

A number of geographic areas in Mexico, especially those along the Pacific coast and the around the Gulf of Mexico rim, are highly exposed to natural disasters such as tropical storms, hurricanes and, to a lesser extent, volcanoes. Secondary effects caused by some of these hazards include flooding, mass earth/mud movements, ocean surges and desertification. Each hazard is capable of inhibiting social and economic development in Mexico, as well as impacting transportation and commerce.

Map depicting historical natural hazards in Mexico

Since 1980, Mexico has suffered from 79 major natural disaster events. Over half of these were weather related. One fourth were geology related events that include volcanic eruptions, landslides, and earthquakes. Direct damage from natural disasters totaled US $6.5 Billion for the period 1980 through 1998.

The major single-event loss threat to Mexico is earthquake. In June of 1999, there was an M6.7 earthquake located near Tehuachan (SE of Mexico City). Flooding and hurricanes also pose a significant threat. In 1998, Chiapas was hit by catastrophic flooding. Likewise in 1997, Hurricane Pauline hit three of Mexico's Pacific Coast states, and the combined wind and flood losses were well over $100 MM.

The geographic location of Mexico exposes it to tropical storms originating in the Caribbean-Gulf of Mexico. The high wind speeds cause tremendous amounts of structural damage especially in those areas with substandard construction practice and suspect building codes. These violent natural phenomena often induce and accelerate other related phenomena including flooding, coastal erosion, and mass earth movements.

The Pacific coast of the country is vulnerable to many of the same types of natural hazards that occur in the Gulf area. Tropical cyclone activity, such as Hurricane's Rick, Nora, and Pauline, can be frequent. The high wind speeds and flooding caused associated with these storms affect superior constructed risks in the area (i.e. hotels) as well as more vulnerable structures.

Flooding, due to swollen rivers and general run-off, threaten many areas throughout the country. In the aftermath of tropical cyclones these areas typically flood. Seasonal rain activity can also causes extensive flooding. Presently there is no or very little flood mapping available for Mexico.

Seismic hazards pose a very great threat to Mexico. Earthquakes similar to the one (1995) centered north of Manzillo, have occurred with frequency and severity. In 1985, Mexico City was seriously damaged by an event occurring, not under Mexico City, but hundreds of miles west of the city along the western coastline.

Building codes are not on par with those encountered in the United States. Local zoning practices are not as restrictive as in the US, thereby allowing risks to be situated in greatly hazardous areas.

Seismictiy in Mexico's Western border follows a 2000-km long zone where the oceanic Cocos Plate (Pacific) dives underneath the continental Northamerican Plate (Mexico). This puts Mexico in close vicinity to one of the most reliable seismogenic engines: a subduction zone. This engine is driven/fueled by plate tectonics which puts its life span into a time frame of 102 million years.

Over the last 100 years there have been about 180 earthquakes in Mexico with a Magnitude greater than or equal to 6.5. Most of them are associated with the subduction zone. The regularity of earthquakes along this zone prompted seismologists to identify zones of seismic quiescence (seismic gaps). These seismic gaps are more likely to produce an earthquake than on surrounding areas. This concept has been proven to be a very useful one in Mexico, although it failed in other regions like California. Prior to 1985, there were six seismic gaps identified along the Western coast of Mexico. As of today, five of those have been closed by earthquakes. The last gap was closed on 01/09/2000.

Despite the rather large distance of the subduction zone earthquakes to the most densely populated area of Mexico City, this metropolis is in one of the major damage areas. That became dramatically obvious after the earthquakes of 1957 (M7.8) and 1985 (M8.1), where the distance to the epicenters was 360 km and 400 km, respectively. The damage pattern in Mexico City showed that:

Mainly tall buildings were affected.
Damage was generally restricted to the site of the former Texoco Lake, which is now a fully developed part of Mexico City.

Two effects contribute to this damage pattern:

1.The earth functions as a low-pass filter and attenuates the high frequency seismic waves much faster than low frequency seismic waves. As a result, the spectrum of waves that reach Mexico City is dominated by low frequencies, which coincide with the resonance frequency of the tall buildings.
2.The geotechnical properties of the lake sediments (seismic velocity, thickness), on which parts of Mexico City are built, cause major amplification for waves of the frequency of 0.5 Hz (Schneider, 1992). That frequency again coincides with the resonance frequency of tall buildings (above 20 stories).

Experiences of the last 20 years show that seismic hazard in Mexico decreases with distance to the Western coast, but at the same time wave propagation effects and site effects in Mexico City expose this area to substantial seismic hazards as well.

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