The positive outcome of the World Trade Organisation (WTO) talks, completed in December 1997, is good news for London's international insurance and reinsurance industry, comments Marie-Louise Rossi.
The success of the talks is a significant step toward realisation of a free market for insurance and reinsurance products which spans the globe. The world is now committed to uphold a set of sound and liberal principles of free trade in financial services.
Implementation of the rules on a nation-by-nation basis is bound to take some time - many countries have agreed liberalisation timetables - and there can be no doubt that some trade barriers will remain even after implementation. Yet the significance of the agreement lies in the achievement of a solid framework, albeit first steps, for global free trade in insurance and reinsurance.
Broadly speaking, the agreement reached in Geneva will open approximately 95% of the world's financial services market to competition by this time next year and according to the International Insurance Council, it encompasses more than 98% of the world's insurance business in 60 countries. Ninety-seven countries are signatories of the pact. The agreements reached are binding treaties under international law, and within the WTO is an infrastructure for complaints to be heard and adjudicated.
The successful implementation of the General Agreement on Tariffs and Trade (GATT) provides a clue as to how the recent agreement, the General Agreement on Trade in Services (GATS) will develop over time. The record of GATT implementation shows that most countries perceive as so valuable the advantages of having other markets open to them that they are unlikely to flout the agreements readily. Further, they tend to accept decisions which go against them.
For insurers, these treaties mean in part that several nations which have legislation limiting foreign ownership of insurance carriers (often to protect state owned interests) will now have to bring down those barriers and allow foreign ownership. For reinsurers, physical establishment is often of little interest, but open markets will allow, in the short term, smoother conduct of cross border business.
In the medium term, erosion of monopoly state insurers may strain long standing relationships with reinsurers, but as recent examples such as the ending of the monopoly of the former Czech state insurer show, such liberalisations are quickly followed by the development of a larger and more dynamic reinsurance opportunity within which more reinsurers are able to participate.
However, few of the countries' commitments are as basic as opening an insurance market formerly closed to all but a state insurer. Japan, for example, has removed a ban on cross-border transactions of insurance of Japanese aircraft and ships used for international transport and has removed a requirement to retain in yen the technical and claims reserves for yen denominated insurance policies. While it prepares for accession to the European Union, Poland has removed a requirement that not less than 20% of reinsurance and retrocession premiums must be retained in Poland, and from 1 January 1999 it will allow market access to foreign insurers and banks through licensed branches.
Israel has undertaken to make full commitments for the commercial presence of insurance intermediaries. Cyprus has agreed to extend its Uruguay round commitments to include reinsurance. China has made new commitments in the cross border supply of reinsurance and auxiliary services.
The talks have also confirmed the current European access to America. The United States is committed to keeping its markets open to Europe, and although there is more work to be done, reports about cross-Atlantic trade wars can now be discounted.
From the consumer's perspective, the GATS agreement is especially good news. It will allow buyers in the emerging economies of the Far East access to a sophisticated array of services - including those of the wholesale insurance and reinsurance industry in London - at competitive rates. Further, the agreement will stimulate the competitive environment and help to ease those countries out of their current difficulties.
The success of the talks is significant in another sense. It was achieved through agreement and co-ordination between the US and the European Union negotiators. Without the forward-looking but tough stance of the US, and the powerful committed drive from European negotiators, who worked very effectively as a bloc, to achieve an outcome, there would not have been an agreement.
In this time of globalisation of the reinsurance industry, the free flow of trade is essential for continued growth, especially for the international insurers and reinsurers in London. The companies that have urged the success of these talks, some for more than 25 years, deserve congratulation, as do the supporting bodies national governments whose efforts made it possible. All of the market will benefit.
Marie-Louise Rossi is the chief executive of LIRMA, the London International Insurance and Reinsurance Market Association, and a member of the British Invisibles International Committee. Tel: +44 (0) 171 617 4444. Fax: +44 (0) 171 617 4440.