Insurance penetration in general in Latin America is far below that of other regions. Although insurance penetration has seen a slight increase, reaching 3.1% of GDP in 2023, there is still a significant gap compared to more developed regions. Europe serves as an example, with an average penetration of 8.1%, and the United States leads with an estimated penetration of 11% of GDP.

This low performance occurs even despite the legal requirement for certain types of insurance or in cases where catastrophic risks are a frequent threat. An example of this is Mexico, where motor insurance, although mandatory, covers only 30% of vehicles, and property insurance has very low penetration.

In this context, it is striking that no more than 20% to 30%, at best, of the goods transported in our countries have adequate transportation insurance coverage. Since we are talking about land transportation, it is logical to start by asking whether carriers are required to have any type of coverage and/or what their financial liability limits are for losses and damages to shippers and/or consignees.

Regulations Governing Transportation Insurance

In most Latin American countries, cargo transportation insurance is not generally mandatory. However, there are exceptions and specific regulations in certain countries and for particular types of goods or transport conditions. Some relevant cases are detailed below:

Brazil: Carriers are required to have Carrier’s Civil Liability Insurance for Cargo (RCTR-C), which covers third-party damages during land transportation. Additionally, there is Optional Civil Liability Insurance for Road Carriers for Cargo Disappearance (RCF-DC), which, although not mandatory, is highly recommended due to the high incidence of cargo theft in the country.

Mexico: There is no law that generally requires the purchase of cargo insurance. However, the Law of Insurance and Bonding Institutions and the Insurance Contract Law regulate the insurance sector and establish the framework for obtaining insurance. Additionally, in certain circumstances, such as the transportation of hazardous or high-value goods, authorities may require the purchase of specific insurance policies.

Central America: In countries such as Guatemala, Honduras, and El Salvador, purchasing cargo insurance is not generally mandatory. However, there are specific regulations for certain types of transportation. For example, in Guatemala, the Regulation for the Mandatory Civil Liability Insurance for Third Parties for Urban Passenger and Cargo Transport establishes the requirement for civil liability insurance for certain transport vehicles.

Argentina: The legislation does not establish a general requirement to purchase cargo transportation insurance. However, the law is clear that if the shipper declares the value of the goods, it is assumed that obtaining insurance is the responsibility of the carrier; otherwise, it is assumed that the carrier has insurance with a liability exemption clause.

Colombia: The Commercial Code regulates insurance contracts, including those for land transportation. However, purchasing cargo transportation insurance is not mandatory.

Peru: There is no general obligation to purchase cargo transportation insurance.

In summary, in most Latin American countries, carriers are not required to purchase cargo transportation insurance. Unless the shipper declares the value of the cargo, they will only be entitled, in certain cases, to recover a very low amount limited by the weight of the goods. This situation is especially problematic for high-value, low-weight products, such as high-end footwear, telecommunications equipment, and many others.

Let’s take a look at how these liability limits work.

Liability Limits for Land Carriers

In Latin America, liability limits for land cargo carriers vary from country to country, but there are generally common patterns.

1. The carrier is not responsible for any value declared by the cargo owner unless a special insurance or agreement is arranged (except in Argentina).
2. Standard liability is usually limited by weight (for example, per kilogram transported) and not by the commercial value of the goods.
3. The values per kilogram are very low.
4. Exemptions in cases of force majeure, defective packaging, or inherent defects of the cargo.

In light of this background, it is clear that shippers and consignees should not assume that the land carrier will be liable for the full value of the goods in the event of potential losses.

It is therefore worth asking why the purchase of insurance for land cargo transportation is so low.

Let’s look at some hypotheses:

Lack of understanding of insurance policies: The complexity and “fine print” of insurance policies can discourage potential policyholders. SMEs usually do not have specialized staff, which makes it difficult for them to understand the terms and conditions, creating uncertainty when it comes to purchasing coverage.

Distrust of insurance companies: As a result, and often for unjustified reasons, there is distrust toward insurance companies, with the belief that they will not fulfill what they promise or that they will look for excuses not to pay in the event of a claim. This distrust may be based on personal experiences or on accounts from third parties.

Perception of high cost: There is a belief that insurance is too expensive, which leads many people to avoid it. However, this perception does not always reflect reality, as there are options tailored to different budgets.

Underestimation of risk: Believing that insurance is not needed because it is considered unlikely that adverse situations will be faced. This mistaken perception can lead to a lack of protection against unforeseen events.

Lack of financial education: Limited financial education and a lack of information about the importance and benefits of insurance contribute to low uptake, even of mandatory coverage.

Limited accessibility: Specialized sales channels are limited, and their cargo insurance offerings are geared toward medium-sized to large companies. The SME segment is not considered attractive because the premiums are very low.

Culture and habits: In Latin America, as noted at the beginning of this article, there is no strong tradition of purchasing insurance, whether due to tradition, lack of awareness, or distrust of financial institutions.

Lack of compliance and oversight: The absence of effective mechanisms to supervise and enforce mandatory insurance requirements allows many individuals and/or companies to evade this responsibility without facing immediate consequences.

Conclusions: As a first approach, it should be noted that addressing these barriers requires coordinated efforts among governments, insurance companies, intermediaries, and social organizations to promote financial education, simplify insurance products, and strengthen supervision and compliance mechanisms.

That said, with the aim of contributing to this approach, I would like to suggest some initiatives that I believe can help expand cargo insurance within the small and medium-sized enterprise segment, which is largely underserved today.

Expand the intermediary network: Currently, the insurance market is largely concentrated among large and medium-sized brokers who have specialized staff for cargo insurance but relatively limited resources, which forces them to focus on accounts with significant premiums.

That said, insurance companies active in the transportation market usually have a majority of intermediaries who do not operate in this line of business but who, with not overly intensive training, could present a commercial proposal to their current client portfolio that transports goods, with the support of the marine department.

Some ideas for implementation:

• Design a virtual course with basic concepts and some commercial tips.
• Simplify policy documents for low-premium clients. (As other companies do, a link can be provided to access more detailed information about the coverage.)
• Enable policyholders to purchase insurance online themselves to reduce operational costs.
• Allow policy payment online.
• Streamline the claims process.

In summary, facilitating access to transportation insurance and expanding commercial channels can be key factors for growth and providing coverage to a market with enormous potential.