The Steep Price of Disaster in Mexico

Rebuilding with no insurance and little government aid.

Wolf here: Don Quijones and his wife, who is from Mexico, spent part of the summer in Mexico but returned to Spain a few days before the earthquake. DQ’s in-laws live in Puebla, Mexico City, and Morelos — among the hardest hit places. They got through it unharmed and are more or less OK for now. But a lot of uncertainties remain. My thoughts are with them.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Rescue efforts in Mexico are beginning to wind down after a trepidatory (vertical) earthquake unleashed destruction and bedlam in Mexico City and the two central states of Puebla and Morelos on Tuesday. The temblor took place 32 years to the day after a horrendous quake killed at least 10,000 people in Mexico City in 1985.

Thankfully, the number of victims this time is many magnitudes lower, due largely to improved building standards and enhanced public awareness in the wake of the ’85 quake. Nonetheless, the death toll is close to 300 with thousands more injured. And for survivors the financial toll is just beginning.

Just as happened in 1985, the response of civil society to the latest disaster has been astounding. As CNN’s Mexico correspondent Susannah Rigg reports, rather than rushing away from danger in the immediate aftermath of the quake, many people ran towards it, in order to help others who may be trapped in collapsed buildings.

All over the city, people began forming human chains to help remove debris while other volunteers, including the so-called “topos” (moles), a famous volunteer group that formed after the 85 quake, burrowed into the loose wreckage in search of survivors. So far these groups have helped rescue scores of people, including eleven school children, from the debris. Social media has also played its part by helping send people to where they are most needed.

It’s this kind of solidarity that is keeping Mexico going. In fact, in some areas there are so many people helping out that willing volunteers are being told that no more help is needed. Hospitals are providing free care to the quake’s victims, architects and structural engineers are assessing the structural health of buildings free of charge, and therapists are offering free counselling.

Everybody wants to do their bit.

Even the government has tried to play a bigger role this time, after coming under scathing criticism for its inaction and corruption during the ’85 quake. But the government, both local and federal, is already deeply in debt and local administrations are being forced to make drastic cuts in their spending. Of the limited funds the government does have at its disposal, serious doubts have been raised as to how much of it will end up reaching its intended recipients.

The total amount of money in Mexico’s disaster relief fund is just 9 billion pesos (just over $500 million). That’s a tiny fraction of the amount of money Mexico’s elected officials are alleged to have plundered from state coffers in recent years. According to the Mexican newspaper El Universal, Mexican state governors are estimated to have defrauded the country of 259 billion pesos ($14.6 billion), more than enough to fund the rebuilding effort not only in Mexico City, Puebla, and Morelos but also the south eastern states of Chiapas and Oaxaca, which were rocked by a 8.2 quake over two weeks ago.

To further hamper the rebuilding effort, most of the apartment and office buildings affected in both quakes are not insured against natural disaster. This is one of the sharpest differences between disaster recovery efforts in advanced economies and emerging or developing ones. When people lose their homes or businesses in less advanced economies such as Mexico, they usually have to rebuild from scratch, with little or no financial support from the government or insurance firms.

Even among its peers in Latin America (with the notable exception of Brazil), Mexico is desperately under-insured, despite its heightened exposure to seismic activity and other forms of natural disaster. According to the Financial Inclusion Report of the National Banking and Securities Commission, the total penetration of the insurance sector in Mexico in 2015 was 2.1% of GDP, compared to an average of 3.1% for Latin America as a whole.

The Mexican Association of Insurance Institutions (AMIS) reports that only 8.6% of homes have a policy that covers damages from natural disasters. Roughly 5% of micro-enterprises insure their properties, a percentage that increases to 15% among small businesses. In other words, more than nine out of every ten homes and more than eight out of every 10 businesses affected by the earthquake have zero insurance coverage.

In Mexico City a total of 38 buildings have collapsed completely since Tuesday’s earthquake but another 3,800 are estimated to be damaged. That number is likely to rise sharply in the days and weeks to come as teams of surveyors assess the level of damage in each affected building. If the structure is deemed to be unsound, the building will have to be demolished.

Right now, thousands of people in Mexico City, Puebla, and Morelos, including close friends and family, are on tenterhooks. They know that if they lose the apartment or business they spent years (or even decades) paying off or building, they’re right back to square one. And for many, it’s probably already too late to go that far back. By Don Quijones.

So where does the money go that Mexico borrows? Answers emerge. Including offshore private accounts. Read…  Where Does the Money Go that Mexico Borrows?

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  26 comments for “The Steep Price of Disaster in Mexico

  1. Willy2 says:

    – From what I’ve heard A LOT OF biuldings are build “sub-standard” as a result of corruption. Charge the full price for a full earthquake standard build house and build a sub-standard house.

  2. Bookdoc says:

    I worked in Mexico City back in the ’80s. We had an “expeditor” to assist with government people. WE didn’t pay any bribes (Lockheed was still in the news) but I am sure he did. Inspections were rudimentary at best. The amount of corruption in the Mexican government is beyond belief.

  3. Seen it All Before, Bob says:

    I read an article from NBC News a few years ago stating that only 10% of CA houses are covered by earthquake policies. The houses are better built in CA but a large earthquake could put CA in the same situation as Mexico.

    I never had an earthquake policy on my houses in CA and my relatives don’t either. Mostly due to the extremely large yearly premiums and high deductible. We always figured with a big earthquake their would be damage but likely not enough to exceed the 15% deductible. We’ve been lucky for the last 25 years. What could go wrong?

    • Seen it All Before, Bob says:

      there not their

    • Wolf Richter says:

      Cali is a non-recourse state. That means that in the event of default, banks can only foreclose on the property and not go after the homeowner for the deficiency. That puts banks on the hook to a very large extent. Because if someone buys a house 3 years earlier with next to nothing down on a 30-year mortgage, and then sees the house collapse in an earthquake, he climbs across the rubble to the nearest branch and hands them the keys. He won’t have a house, but he won’t have any debt either. And the bank takes the loss.

      • Tom Stone says:

        Wolf, CA is nonrecourse for purchase money loans ONLY.
        Refi and it’s a different game.
        Got HELOC?

    • Frederick says:

      I’m presently building two houses on the Med coast in Marmaris Turkey Earthquake insurance is mandatory for all apartments and houses The premium is therefore very low as the cost is spread over the entire housing market

    • Scot says:

      Premiums are actually very reasonable with deductibles as low as 10%.
      As we learn more about the struggles of folks who were not insured both in the carribian and the United States perhaps more home and business owners will re-evaluate the risks of natural disasters versus the costs of insurance premiums.
      I live in Southern California and have earthquake insurance because in my case the cost far outways the possible losses.
      Additionally, not only are earthquake losses possible many of said earthquake areas are in a 100 year flood plain…

  4. nick kelly says:

    Sounds like the government should announce that anyone caught pilfering the relief funds will go to jail. It also shouldn’t be too late to prosecute the governors over the missing 14 billion.
    Italy had a largely successful crackdown on the mafia,with special trials.
    It remains a force but it was weakened, with hundreds getting long sentences.

    (Excuse the trivial remark in such a serious topic but a retired English teacher can’t help but point out that ‘tender hooks’ should be ‘tenterhooks’, one word. I think has the same root as ‘tentative’ meaning you don’t know what will happen next)

    • Carlada says:

      I don’t think you’re right on the history.
      Tentative means uncertain; tendere [tenter, tender] means to stretch.

      • Wolf Richter says:

        In terms of spelling, Nick Kelly is correct. And I fixed the thing :-]

        • Carlada says:

          I wasn’t talking about the spelling—I said he was wrong on the history (they’re not derived from the same root words).

          When one speaks multiple languages beyond English, the spelling isn’t extremely important per se (they all congeal and you wonder what language you’re even speaking). I’m sure you’ve experienced that :)

        • Carlada says:

          Edit: “spelling isn’t extremely important” because of language convergence. Forgot to add my reason. Mind has turned to mush.

        • mean chicken says:

          Carlada, FWIW you neglected to account for the tendencies of English teachers. ;)

    • JR says:

      The Wikipedia article “tenterhook” provides a good description. Quote: By the mid-18th century, the phrase “on tenterhooks” came to mean being in a state of tension, uneasiness, anxiety, or suspense, i.e. figuratively stretched like the cloth on the tenter. End Quote. A very apt description of resident’s feelings after an earthquake.

  5. michael says:

    Bravo for the Mexican people coming together in this time of need.

  6. Jim Graham says:

    As shown by their actions, the rank and file of Mexico are good hard working and helpfull people.

    “”Just as happened in 1985, the response of civil society to the latest disaster has been astounding. As CNN’s Mexico correspondent Susannah Rigg reports, rather than rushing away from danger in the immediate aftermath of the quake, many people ran towards it, in order to help others who may be trapped in collapsed buildings.””

    EVERY Mexican that I know here in the US is a hard worker and are at least as honest as anyone else. Many of them send money “home” to take care of family.

    Pity there is so much corruption in the government and there are so many crooks in the cartels working against the regular folks.

    • John says:

      !00% agree Jim. I know several Mexican people and have visited their land for extensive periods also. As here in the US, most all are great hard working and caring individuals, but again as here, those who rise towards the top of the economic and political spectrum become greedy and uncaring. Very corrupt.

  7. Tom Stone says:

    Thanks for the coverage, my local papers have been covering more important stories such as a hitch hiking raccoon.

  8. HB Guy says:

    Mexico is a cleptocracy whose people and government should be ashamed of its condition. It should be a wealthy country – abundant resources, great climate in most of the country, energetic and ambitious people – but instead, it’s a sh*t hole.

    It can’t and won’t be fixed by a dictat from Washington, nor are we doing MX any favors by siphoning off their skilled and educated migrants. The kindest act IOUSA could do for MX would be to insist that it clean up its house, refuse entry to illegals and enforce a strict no drug zone within several miles of the border. If the latter meant occupying MX territory in order to secure a stable border, so be it.

  9. Petunia says:

    Mr. & Mrs. DQ,

    There are no words that can console those who have faced the loss of a home or a loved one. But I wish your family in Mexico the best and you also because these events are family affairs.

  10. Don Quijones says:

    Than Q very much, Petunia. We appreciate it.

  11. Marc says:

    I would be surprised if more than 8% of homes in the U.S. have earthquake insurance.

Comments are closed.