China, India Loom Large For U.S. Insurers

Increasing political and currency stability have increased the attractiveness of that market, she added.

Meanwhile, emerging markets such as India and China present challenges in that good distribution is lacking. "In many of those markets, brokers are just beginning to develop, so distribution is just developing as well," according to Ms. Tomlinson.

While Chubb has had a license in China for the past six years, it has only been in the past two years that foreign companies could insure both foreign and Chinese enterprises, she noted.

The total Chinese p-c market today is $4 billion–and 94 percent of that is auto, she said, noting that "businesses have been insured by state-owned companies, and it is only now that the market is starting to open to foreign carriers."

Many of the giant plants in the country are foreign-owned and insured as part of the parent's global program, she pointed out.

"We are comfortable with what they are trying to do–build a regulatory system that will make sense over the long term," she said. "But the sense that it is going to open totally is up for discussion."

China's recent announcement that it will mandate third-party auto liability coverage won't benefit U.S. companies for the time being, since it will be limited to Chinese carriers.

In India, foreign companies are limited to 26 percent of any venture, so reliable domestic partners are a part of any successful program.

However, in any foreign market, companies such as Chubb compete not only with domestic companies, but other global firms seeking entry, local partners and marketshare.

"When it comes to foreign carriers, what companies are particularly looking for is the product expertise and a sophisticated product," according to Ms. Tomlinson.

In addition, when foreign companies plan on exporting to the United States, U.S. carriers such as Chubb bring a critical knowledge of the unique liability threats in a country with an active plaintiffs bar.

"If a company, say, is only doing business in its home country, it probably does not have the same liability needs," she explained. "But as the markets change, then you see more and more of a need for liability products."

Chubb is also eyeing Eastern Europe (Hungary, The Czech Republic and Poland), "but there is no huge plan to expand in a lot of new, additional markets," she said–noting, for example, that the company has no plans to move into the still volatile Russian market.

American International Group Executive Vice President Robert Thomas, who heads the company's foreign p-c operations, does not see too many new worlds to conquer. "Having been the pioneer, we are just about in every country that has a relevant general insurance market," he said.

Indeed, last December AIG received its general commercial insurance license to operate in Vietnam.

But that doesn't mean AIG fails to see any further growth potential abroad. While domestic carriers might serve small-commercial owners in a given emerging market, Mr. Thomas said the country's larger companies would prefer the "cache" of a large global brand.

"There is generally less liability consciousness in China, so 'slip and fall' is not really an issue and workers' compensation is not as dramatic, and product liability has a different shape to it," he said.

Mr. Thomas spends a great deal of his effort in developing new products, facing a different set of regulatory challenges than his domestic counterparts. "When we develop a product, it is not just for one country. We would like to migrate it to other countries"–a goal made more problematic by differing national regulatory systems, he explained.

With more than two decades of experience in the Asian market, Mr. Thomas has seen the number of his potential clients grow exponentially–and along with it AIG's understanding of the need for complex insurance protections. "A plant that has been worth $250,000 is now a couple of million because it has grown so much," he said.

Much of the success of U.S.-based insurers operating abroad will depend on trade barriers coming down, and here the picture seems pretty bleak.

The Doha Round of international trade negotiations has been a serious failure for the insurance sector, according to one leading property-casualty industry representative.

"Instead of increasing the consensus for free trade, the Round has served to divide the developed countries, especially the U.S. and [European Union]," said David Snyder, assistant vice president at the Washington-based American Insurance Association, speaking at a seminar in London sponsored by the British Institute of International Comparative Law.

The Doha Round of international talks started four years ago with the aim of liberalizing global trade rules and picking up where the Uruguay Round left off when the World Trade Organization was created.

However, deadlines have come and gone and successive strategies have been unsuccessful at getting negotiations going, according to Mr. Snyder. "Most importantly, the packages that have been tabled to date are disappointing and wholly inadequate both as to quantity and quality," he said.

Companies that were once invested heavily in the WTO process have now pulled back, believing that the organization is increasingly irrelevant. "The sense of weakness and lack of commitment will also embolden the adversaries, making progress even that much more difficult to obtain," Mr. Snyder added.

Services–such as insurance–constitute the lion's share of the global economy, yet progress on global services negotiations has been relegated to a position for all practical purposes behind agriculture and manufacturing, he noted.

Mr. Snyder said the emotional connection with agriculture and manufacturing is understandable because most nations have not traditionally been comfortable with becoming totally dependent on others for food and basic manufactured goods.

"It is also understandable that there is the desire not to re-establish a mercantile system, but the significant damage resulting from a lack of progress on services, and particularly insurance, is shared by both developed and developing countries," said Mr. Snyder.

However, there has been some progress–most notably in China, where restrictions limiting foreign insurers to 15 cities and prohibiting the sale of group policies were lifted in late-2004 to meet WTO obligations, according to a report put out this year by KPMG International.

Still, don't expect U.S. companies to go on an acquisition binge in China. "The lack of a boom in insurance-sector acquisitions in China during 2005 may be due to continuing opaque regulations, pricing pressures and artificially low interest rates," the report said.

Thus, joint ventures might be the preferred mode of business for the time being, in which local knowledge can be leveraged for a smoother transition later to a wholly owned business, the report said.