Key statistics:
With a population of almost 130 million, a rich cultural history and diversity, and an abundance of natural resources, Mexico is among the 15 largest economies in the world and the second largest economy in Latin America.
It is classified as an upper middle-income country focused on manufacturing goods and free trade agreements with around 50 countries but it is highly dependent on the United States, its largest trading partner and the destination for around three-quarters of its exports. The median age of the population is relatively young at 29 years and around one-fifth of Mexicans live in rural areas.
Mexico's geographic characteristics make it highly vulnerable to the adverse impacts of climate change – including an increase in the intensity of droughts, rain and tropical cyclones – which have exacerbated inequities in employment, health, food security, water supply, property security and economic prosperity.
Socio-economic challenges
Over the last two decades, Mexico has underperformed in terms of growth, inclusion and poverty reduction. The global pandemic had deep economic and social impacts on the country and compounded long-standing weaknesses including high levels of informality (over 50% of Mexicans depend on informal jobs) and underemployment; increased marginalisation of the female labour force; a significant impact on young people, many of whom have migrated to other countries and send remittances to support their families; and large segments of low productivity, low-wage employment.
Despite the government’s efforts, poverty rates and regional inequalities remain high – in 2020, the country had a Gini index of 45.4 points showing that inequality in Mexico is still among the highest in OECD countries – and financial exclusion, high crime rates, corruption and weakening infrastructure have all hampered development and growth.
While the economy grew 4.8% in 2021 – after contracting by 8.2% in 2020 – medium-term growth prospects remain fragile. The labour market is gradually recovering following the impacts of the pandemic – the unemployment rate decreased slightly to just over 4% in 2021 and is expected to remain broadly flat in 2022.
The main sectors of the Mexican economy are services, manufacturing, commerce, agriculture, mining, energy production, and financial services. According to data from the World Bank, agriculture accounted for 3.8% of the country’s GDP in 2020 and employs approximately 13% of the country’s active population. Industry employs a quarter of the workforce and represents just under one-third of GDP and the services sector contributes around 60% of GDP and employs over 60% of the workforce.
While the pandemic had a negative impact on already-high poverty rates and social exclusion, an increase in social programme spending has helped lessen to a degree the impacts on employment, retail sales, and poverty. The government has introduced important changes to social assistance and active labour market programmes in recent years, focusing on universal coverage and social (non-contributory) pensions, as well as support to households on low incomes, young people, the elderly and people with disabilities.
Inclusive insurance upside potential
The development of Mexico's insurance market has been hampered by disappointing economic growth and for many, continued poverty has meant that they are effectively excluded from the market for formal financial products. In 2020, for example, life and non-life insurance penetration stood at around 2.6%.
There is clearly a need to develop insurance coverage focused on meeting the needs of the marginalised and most vulnerable segments of the population and this is why both the public sector, through the National Insurance and Bonding Commission, and the private sector, through the Mexican Association of Insurance Institutions, are working in tandem to address the challenges faced by the industry. Since 2018, these efforts have been framed under the National Financial Inclusion Strategy which aims to strengthen the financial health of all Mexicans, and acts as a vehicle to promote financial services, including microinsurance.
Mexico is one of the four initial priority countries identified by the Insurance Development Forum’s (IDF) Inclusive Insurance Working Group (IIWG) which is coordinated by the Microinsurance Network Secretariat. The IIWG aims to contribute to the inclusive growth of emerging economies and to the resilience of their vulnerable communities by developing tailored risk transfer solutions.
In addition, the Government of Mexico, through the Ministry of Finance & Public Credit, the IDF, the United Nations Development Programme and the German Government, announced the launch in March 2022 of a Tripartite project in Mexico to develop a sovereign parametric insurance solution for climate-vulnerable smallholder farmers, supported by investments in long-term risk finance and insurance market development.
With insurance penetration in Mexico still poor, it is absolutely vital for public-private partnerships and development partners to continue working in tandem to drive forward meaningful change to close the people protection gap.
For further insights on the inclusive insurance landscape in Mexico, dig into our latest country briefing note.
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