Criminal Capitalism: Cartels Reinvent Themselves With Life Insurance Policies 

Every 30th of the month, Rogelio C. performs a painful ritual. He sits in the dining room of his home in Tuxpan, Veracruz, and scatters the bills left over after paying his two employees. Then, he makes stacks that fill him with anguish: one for gas, another for groceries, transportation, credit cards. They’re never the same. Sometimes they come out higher, sometimes lower.

Only two stacks of bills are ever the same because paying in full and on time is a priority: the rent for the premises and “business insurance.” “Which company do you have your insurance with?” I ask Rogelio, the heir to a small hardware store in town. I sense the answer. “Everyone’s insurance company around here: my insurance company is called the Northeast Cartel,” he replies with a gesture of obviousness.

He prefers to call the monthly payment he sends to the rival cartel, the Jalisco New Generation Cartel (CJNG). It gives him more peace of mind than saying “derecho de piso” (floor fee). That way, he feels like he’s not participating in a criminal chain that could end in a murder with bullets the cartel bought with his money. Calling those 5,000 pesos a month “business insurance” makes him feel less responsible for financing his executioners.

Criminal organizations capitalize on the protection of business owners.

“Well, yes, it is insurance,” he says, convincing himself, and lists the similarities he finds. Like a legal insurance company, the Cartel’s Insurance Department, or DESEC, we’ll call it, has policy providers who work for a commission. They are usually young people—some even teenagers—who are paid to take a piece of paper with a phone number to the business owner; They immediately indicate that they must speak to the plaza manager, who then closes the sale: pay an illegal insurance premium or be exposed to damages.

This extortion is the illegal version of a premium: it involves a fixed fee that is paid over a specific period of time—the first or last days of the month, says Rogelio—with a deadline and penalties for noncompliance that escalate as the moratorium progresses: from interest to the loss of business protection in the event of a “fortuitous” fire or robbery.

The amount is usually set by DESEC based on the criterion of payment capacity: it will depend on the size, number of employees, and location of the business.

“The first few times, they would send me a kid to pick up an envelope with money and then leave. But once they wanted to charge me twice in the same month, and I spoke to the boss. Since then, they send the kid with a notebook. I pay it, he writes it down, and that way we avoid the ‘you owe me’ argument. They have their own accounting,” Rogelio, a Coparmex member from Veracruz, tells me. His real name he has asked to be withheld for fear of the DESEC (Department of Social Security).

In the book CJNG: Mexico’s Most Dangerous Cartel, Dutch journalist Chris Dalby describes how the “peño de piso” (floor tax) has become more sophisticated in recent years: it has evolved from an arbitrary charge to one that has a business logic. According to the analyst, the CJNG requires the mayors of its strongholds to show their tax payment records to the municipal treasury; this way, they know the income of each business and calculate how much they should charge to double it without going bankrupt.

This almost mathematical model has begun to be replicated by other cartels under the logic that no one benefits from a closed business that doesn’t bring in money.

“No bank will back me up if they shoot me or throw a Molotov cocktail at me. They send me to hell with their clauses. On the other hand, the boss [of the plaza] backs me up. No one steals from me, and whoever dares will have to deal with my insurance,” he says with the calm of someone backed by a contract written in stone—only his is verbal—with the Northeast Cartel, made up of former members of Los Zetas.

“Narco-insurance” without guarantees

The raw material with which organized crime insurance works is terror. In a way, the same thing happens with legal insurers. Those extorted and those not extorted pay out of fear of losing their assets, so they turn the down payment or the insurance premium into a fixed expense that generates certainty: this payment guarantees the family’s livelihood.

With the war on drug trafficking, Rogelio C. says that in Tuxpan, he was already paying an illegal insurance premium that was paid to Los Zetas between 2010 and 2014; then, for a brief time, CJNG insurance agents arrived. And since 2020, the market has fallen into the hands of the Northeast Cartel, thanks to specialized groups like the Veracruz Mafia.

These three criminal groups generated what financial specialists call the demonstration effect: one business adopts a practice or service, and others copy it because they perceive advantages for their growth. In this case, all the extorted businesses in Tuxpan pay the Northeast Cartel because there’s an obvious benefit for the business owners: protection not only against violence, but also against early-morning robberies, daytime robberies, or extortion by the authorities.

“If someone robs you, you tell the boss, and he’ll take care of it. If someone from the municipality comes and tells you they’re going to shut you down because you don’t have a permit, you tell the boss. If they’re going to raise your rent and you can’t pay, you tell the boss. But it’s also the other way around: if you hire someone new, you tell the boss, and the premium goes up; if you’re going to expand, you tell the boss, and they adjust it upwards,” says Rogelio C.

In addition, another financial phenomenon is generated: “the permanence effect,” that is, the insured doesn’t cancel their policy due to the penalties for interrupting the contract. In the case of insurance companies, there are penalty clauses for early cancellation or the loss of money already paid as “unreturned premiums.” If the business owner wants to renew the insurance, the company can penalize them with higher premiums for canceling past coverage.

DESEC imposes sanctions of its own kind: the most common is exemplary punishment, which is usually public—burning down the business, kidnapping employees in broad daylight, beating the owner during working hours—and which can lead to partial or total loss of the business. Furthermore, the possibility of re-contracting services in a market monopolized by the cartel is permanently suspended: the only way out is to close the business or leave the market. With such high penalties, the percentage of canceled policies is very low.

The model works because it is scalable. Today, the Northeast Cartel is at odds with criminal groups like Los Piñas, who are seeking to take over northern Veracruz. Thus, the right of way becomes a business model for sustainable growth: the more insurance the cartel has, the lower the risk of bankruptcy and the stronger the company becomes to face its competitors who are equally or more bloodthirsty than it.

“Let’s not be naive either,” Rogelio interrupts, clicking his lips. “You pay often, and the policy’s fulfillment depends on the boss. If he likes you, he’ll honor it; if he’s high or pissed off, he’ll leave you hanging. But that happens with all insurance policies. You never know if they’ll honor it.”

Two weeks after the conversation, a mechanic’s shop two blocks behind his hardware store burned down. The official version is that a short circuit accidentally hit a gas can. The story everyone knows, and tells, is that the owner refused to pay the increased insurance because the cartel didn’t help him when several spare parts were stolen one morning.

Without payment, there’s no coverage. And without coverage, all kinds of “accidents” can happen.

The “moral hazard” of the black policy

The cartels charge a fee as if it were life insurance.

“You see our reality through the eyes of a chilango (a local resident) and you’re outraged, but you have to understand the reality of a poor area like northern Veracruz,” says Rogelio, while serving a cup of café jarocho. “As a businessman, you have everything in Mexico City, but many here aren’t banking services. They have a business but no credit card or access to a loan.”

Some insurers include the possibility of taking out a loan or obtaining discounts on new types of policies, for example, for auto insurance or unemployment insurance, with the payment. DESEC also diversifies its products: by being a cartel payer, you can obtain loans similar to those offered by a traditional bank with fixed installments, benefits for early repayment, and the possibility of increasing the loan amount the next time you pay off your loan. Organized crime becomes an opaque and unregulated financial institution, but one that is necessary for many.

You can also access other services at an extra cost, such as private security guards, street vending permits, or access to black markets. This means you have the right to add spiked alcohol, contraband tobacco, vapes, slot machines, and more to your business.

This is also an economic and financial phenomenon that insurers are well aware of. It’s called moral hazard and refers to the change in behavior of a person or company protected by insurance: when they feel protected, they take more risks.

In legal businesses, for example, someone with car insurance can drive faster knowing that any dents will be covered by the insurer. With the cartel, a bar owner who pays a premium to the Cartel del Noreste will more readily agree to sell drugs in their establishment. They will accept this risk because they know they are protected from the authorities. They might even think that they can finance the business’s insurance with the profits from drug dealing.

If other business owners follow suit, the people are condemned to live among dirty dealings, which attract violence and disputes over the plaza. Then come the rise in disappearances and murders.

“The small banking terminals, the ones that look like calculators and are used for customers to pay by credit or debit card, are also a benefit that the bosses give you. You know a business is paying because it has a small banking terminal. It’s that simple,” the Veracruz businessman admits.

And, of course, there are also rewards for long-standing “customers” or those who pay on time. DESEC doesn’t offer promotions, seasonal discounts, or raffles; instead, it may promise loyalty benefits that supposedly include funeral expenses, widow’s pensions, or free medicine for the elderly in the family. These rewards are almost never fulfilled; they only function as a hook.

“These bastards aren’t the criminals they used to be, stupid, savage, who couldn’t add or subtract,” says Rogelio, who’s already finished his second cup of coffee. “This is pure, hard capitalism. That’s why I’m telling you I don’t call it a floor plan. I pay business insurance, you understand?”

Sources: Cartel Insider, Milenio