Mandatory insurance and its positive effect on society

As a general note, most mandatory insurance is directly linked to activities that entail a high risk to the integrity of persons or assets, and it offers protection against damages caused to third parties.

Taking out such policies is a must, simply because not having the corresponding policy entails significant penalties and the possibility of substantial financial loss for the liable party, as they will have to cover the costs out of their own pocket.

In addition to a duty, responsibility, and commitment, there is another good reason for mandatory insurance. As detailed in the report Elements for insurance expansion in Latin America, prepared by MAPFRE Economics, mandatory insurance has positive effects on society. The policies protect the public interest in various scenarios, mainly those associated with third-party liability. Furthermore, by covering third-party liability across a broad spectrum of societal activities, they enhance the role of insurance in both economic and social spheres. And, finally, they are instruments to raise awareness of prevention and, to that extent, a powerful tool in the financial education process in insurance matters.

Ultimately, once subscribed, these coverages serve as a safety net, providing security and peace of mind for everyone. Next, we review the major policies required by law.

When we think about the insurance we need, car insurance is the first one that comes to mind. And rightly so, as it is a mandatory requirement for anyone wishing to drive their vehicle within the EU. The current regulations mandate third-party liability insurance, commonly known as "third-party insurance," which ensures that collision victims receive medical care and compensation.

Coverage of this type is required in almost all parts of the United States, although the requirements may vary from one place to another. In general, third-party liability insurance is required as a minimum coverage that protects third parties in the event of an accident. However, there are some exceptions and particularities that are worth mentioning. In New Hampshire, for example, this is not required if drivers demonstrate financial capacity to cover the costs of a claim.

In Latin America, in most countries it is necessary to take out Mandatory Traffic Accident Insurance (better known as SOAT – Seguro Obligatorio de Accidentes de Tránsito), a policy designed to cover the expenses arising from these incidents that affect people. They guarantee immediate medical and financial assistance for the victims. With different variants and names, it is in place in Colombia, Peru, Ecuador, Bolivia, etc. Mexico has been one of the last countries to incorporate this requirement.

Throughout the world, it is also quite common for certain professions to require third-party liability insurance to cover the consequences of potential errors or negligence. In the EU, these policies are essential for specific sectors such as financial services (consultants, insurance brokers), construction (architects, civil engineers), and health professionals.

Employee safety is also fundamental in the labor environment. In order to comply with their legal obligations, companies must take out essential insurance to guarantee the protection of workers in their workplace and ensure their financial stability in the event of unforeseen events.

In Mexico, the Mexican Institute of Social Insurance (IMSS – Instituto Mexicano del Seguro Social) administers Occupational Accident Insurance (OAI), which covers employees in the event of occupational accidents or illnesses. Another example is legal life insurance in Peru, which aims to provide stability and temporary financial relief to the relatives of a worker in the event of accidental death or total permanent disability, regardless of the economic activity carried out by the company.

Nor can we forget the importance of environmental liability insurance in the business environment. This mandatory insurance in Spain is designed to cover the environmental damages that may result from economic activities classified by law as potentially polluting. Another example is Mexico, where depending on the company's industry and activity, it may be necessary to take out insurance of this type to cover possible environmental damage caused by its operations.

In Spain, it is no surprise to hunting enthusiasts that they are required to have insurance for protection. Those who have a recreational or sports boat also need to take out a policy that covers the personal and material damages that they may cause to third parties, ports, or maritime installations. In reality, these insurance policies are mandatory worldwide due to legal liability.

As for travel, there is no universal list of countries where insurance is mandatory, as this varies over time, circumstances (think of the COVID-19 pandemic), and government policies in force at any given time. Therefore, it is always advisable to review the specific regulations of each country when planning a trip, because there may be destinations whose bureaucracy requires travel insurance when issuing the entry visa to the country. Since 2010, having such a policy is mandatory in Cuba.

This is just a small sample, but by now, you’ve likely realized that all legally mandatory insurance makes a lot of sense: they help victims navigate these situations more easily.

Now that you know about the existence of mandatory insurance, don't play around. Failing to possess mandatory insurance and operating without the necessary policy will not only result in a significant fine but also leave you liable for covering all the costs associated with the risk out of your own pocket.

Conclusion: it is better to always be insured and even more so when mandatory.

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