Brokers Push To Lower Trade Barriers

To prepare for the upcoming WTO negotiations on services, which have not yet been scheduled, the CIAB has participated in the development of a proposed "Model Schedule and Best Practices," which is a wish list to reduce trade barriers.

The development of an insurance market is important, particularly in developing countries, because "you cant develop and build industry without insurance products," Ms. Kemper said, noting that the three pillars of any economy are banking, securities and insurance.

"As emerging markets develop, our members want to be able to have access to those markets and work with their clients who are coming in to do business in those countries," she said.

A lot of developing countries want to attract investment to their country, but they cant do it unless they have a financial services infrastructure in place, she continued.

A key to market entry for insurers, brokers and their clients is the elimination of trade barriers, she said. "The other part is assuring that regulations in the [foreign] country are best practices. In other words, the regulations must make sense, help the industry, help the economy grow, rather than being overly onerous with unintended consequences."

Kevin Cronin, president and chief executive officer of the International Insurance Council in Washington, said the main problems facing the insurance industry in emerging markets are market access, transparency, and some regulatory hurdles.

He said that to prepare for the WTO talks, companies and insurance providers have been collecting information about markets with barriers that are preventing entry to foreign insurance entities.

Ms. Kemper said the CIAB has been working closely with a coalition of industry representatives on the WTO services negotiations from various industry trade bodies, such as the American Insurance Association, the American Council of Life Insurers, the International Insurance Council, and the Reinsurance Association of America, all based in Washington, D.C.

"Weve all been working towards developing the model schedule, which really is a guideline for trade officials as they proceed in the negotiations," she said. "It outlines the principles that we want for the negotiations, and its been endorsed by some major insurance groups in the European insurance industry as well as in Japan."

Further, the World Federation of Insurance Intermediaries in Brussels has also signed on.

"So its a pretty broad coalition of people who are supporting some basic guidelines for opening barriers, and also implementing best practices and regulatory reforms in developing countries," she said.

"From the private sector side, the industry–both the companies and the providers–are in very good shape in terms of being able to articulate what it is they would like to have and then arming the negotiators with that information, as well as information to help them in the actual negotiations with the countries," said Mr. Cronin.

Much of what U.S. industry is focusing on in the coming WTO negotiations is the right to enter into cross-border business transactions, the elimination of mandatory reinsurance cessions to local reinsurers, and the elimination of restrictions on investments.

Mr. Cronin discussed some of the barriers to trade that are affecting four of the largest emerging markets:

Brazil: The insurance industry in developed countries seeks similar targets as listed above for Brazil, such as allowing cross-border sales in marine, aviation, transport and reinsurance for insurance-related services. Also sought is the elimination of mandatory cessions to the government-monopoly reinsurer–IRB.

"Its a huge bone of contention," he said. "No competition is permitted. So what wed like to do is eliminate mandatory cessions and permit private reinsurers to compete with the IRB in an interim period before the sale of IRB is complete."

The insurance industry in Western nations would like Brazil to permit private pension providers to participate in closed pension plans in Brazil. "Also, wed like foreign companies to be able to establish branches. Thats a bit of a [problem] in all of Latin America. They dont like branches; they prefer subsidiaries, which they see as more of a commitment."

China: "Wed like to eliminate restrictions on joint-venture partners for foreign insurance-related services and providers, which would be a broker [issue]. We would like to expand investment options that are available to foreign-funded insurers and permit non-life companies to underwrite accident and health insurance with a non-life license," he said.

Further, developed countries would like a phase-in to allow 100 percent foreign ownership for life insurers, he said.

Also, Mr. Cronin added, there is a $50,000 floor on large-scale commercial risks, "which we would like to see lowered." He explained that when China entered the WTO, there was a restriction left in place on large-scale commercial risks, which permitted foreign companies to participate over a certain threshold, which was $50,000.

India: There is a restriction on foreign equity ownership of 26 percent in India. "Everybody would like to see that removed, so that 100 percent foreign equity ownership is permitted," he said. "The brokers would like to see cross-border [activities permitted] for insurance-related services for marine, aviation and transport, and cross-border permitted for reinsurance." (He explained that "cross border" means that a company does not have to be established in the country to do business there.)

"India has a mandatory cession requirement so that youve got to cede to a government-owned reinsurer, and wed like to get rid of that," he said.

Japan: In Japan–another important market that maintains trade barriers–Mr. Cronin said the U.S. insurance industry and colleagues in other Western nations would like to see cross-border activities for insurance-related services.

Also in Japan, there is a government-owned monopoly, called Kampo, which is involved in selling and underwriting life insurance. "Wed like that subjected to the same supervision and regulatory requirements as private sector companies involved in similar insurance businesses," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.