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Stricter environmental regulations in Mexico have not yet translated into increased sales of environmental liability insurance in the country.

While some multinational policyholders buy environmental coverage for their Mexican operations as part of their global insurance programs, most local companies buy minimal or no coverage, insurers and brokers say.

Civil damages in Mexico are nowhere near the levels of those in the United States, so polluters have little stimulus from the legal system to buy liability insurance protection for pollution damage. And although strict new environmental regulations were put in place as part the of 1993 North American Free Trade Agreement, those regulations are not effectively enforced.

Insurers offering environmental impairment liability coverage in Mexico are more often supplying educational facilities and engineering services than insurance coverage. However, the mood is changing, and enforcement of the regulations is gradually increasing. That, say observers, should lead to more demand for pollution liability protection.

Strict environmental regulations were imposed in Mexico through a series of existing laws that were amended with the signing of NAFTA. The laws were designed to bring regulations in Mexico, whose capital city has a huge pollution problem, into line with those in the United States and Canada, the other two signatories to the agreement. The amendments included requirements such as environmental audits.

The NAFTA agreement has combined with Mexico City's woes to bring the issue sharply into focus over the past few years, said Roman Iglesias, a New York-based vp in the international division of Seguros Comercial America, the large Mexican insurer.

Concern over the pollution in Mexico City has led to the formation of several environmental protection and lobbying groups in the country, and that has put pressure on companies to clean up the environment, he said.

While the laws compelling industry to keep the environment clean are in place, the mechanisms to enforce the laws seem to be ineffective, said Rose Gershon, a manager at Aon Risk Services in Mexico City. "The laws are strict, but the monitoring is not, and because of the poor implementation of the law, there is no pressure to buy insurance," she said.

Several insurers in Mexico offer EIL products that are very similar to EIL products available in the United States, but there is not the same demand for the coverage, Ms. Gershon said. "It exists, but people don't have the mentality to buy it yet, and until they see some significant fines or plants closing down, they won't buy it," she said.

Bruce Cohen, a vp at J&H Marsh & McLennan in Miami, concurred.

Mexican companies are increasingly trying to compete in world markets and are reluctant to spend money on anything not deemed necessary, he said.

And because the enforcement of the environmental laws is limited, there is little impetus to spend money on environmental issues, Mr. Cohen said. "People want to know: Is it really a new game, and are they really going to come after me?" he said.

Many industrial companies do not yet see any need for the coverage, agreed Didier Serrano, commercial lines director at American International Underwriters in Mexico. "In the current legal environment, people do not perceive a need to buy high levels of liability insurance," he said.

In Mexico there are no punitive damages or jury awards and, in general, the society is less litigious than is the United States. That legal environment affects demand for both traditional liability insurance and EIL insurance, Mr. Serrano said.

And while there is some increasing demand for insurance coverages, such as owner spill liability insurance for transporters of hazardous waste who are complying with the new laws, the limits bought are often very low, he said. "We think the fundamentals are there with the new laws, but it will take a few years for the market to develop," Mr. Serrano said.

AIU offers a wide range of pollution products in Mexico, including pollution legal liability, owners spill liability, and a comprehensive EIL policy that includes third- and first-party coverage, he said.

The whole liability insurance market in Mexico is much smaller than the U.S. market, both in terms of premiums and its percentage of the total insurance market, said Mr. Iglesias of Seguros Comercial America. And environmental insurance makes up only a tiny part of that liability market, he said.

"But the line of business that has the least market share is going to be the line of business that has the potential to grow the most," Mr. Iglesias added.

Zurich Mexico also offers EIL coverage, said Rolf Gafner, chief executive officer of the Mexico unit of Zurich Insurance Group. Many of the current customers

of Zurich that buy EIL coverage in Mexico are units of multinational companies that buy the coverage for all of their units, he said.

"Local companies are interested in the products, but so far we have only sold some risk engineering services and very few policies," Mr. Gafner said. Of the companies that have had Zurich conduct environmental analyses, about 50% go on to take corrective action, though only 10% of those companies that take corrective action go on to buy insurance, he said.

"But we don't mind, because the important thing is to analyze the problem and prevent it," Mr. Gafner said. Zurich also sets up seminars for risk managers to inform them about environmental issues, he said.

Seguros Comercial America also has environmental engineers within its loss prevention department to assist policyholders in environmental assessments, said Mr. Iglesias. The service is provided free to the insurer's policyholders, he said.

"The market is so soft that we cannot charge for the additional service, but we do not mind too much, because if we go in and do the environmental assessments, we also get a lot of underwriting information," Mr. Iglesias said.