International liberalisation of (re)insurance through the General Agreement on Trade and Services reinforces the need for common supervisory standards. Marie-Louise Rossi explains.
The stalling of the World Trade Organisation (WTO) talks may have caught the headlines at the end of last year, but I believe the movement towards the liberalisation of insurance and reinsurance has an unstoppable momentum. Whatever short-term setbacks there may be, the General Agreement on Trade and Services (GATS) is set to proceed internationally, and this has enormous implications for our industry.
Insurers and reinsurers are global players in a global business, and the end of the last century saw considerable development in further liberalisation across the world. Whatever the shortcomings of the WTO process, it is partly thanks to the first round of the GATS - in encouraging market access and binding insurers to certain regulatory principles - that we have opening up to foreign competition in countries such as Singapore and South Korea, among several others.Yet there are still many countries of the world where markets remain partially closed, where the benefits of economic liberalisation have not been grasped. It is for the financial overseas industries in general - and insurers and reinsurers in particular - to demonstrate that they can make a positive and lasting contribution to the places in which they invest.
Emerging economies need investment. Investors and entrepreneurs need to be able to insure their risks. Expensive factories will not be built if they cannot be insured.
Free trade will enhance competition. It will draw in capital and capacity from outside. International companies will provide insurance and financial services at lower cost. Investment and growth will be spurred.
Personal savings will also be mobilised by the opportunities for investment and the access to life assurance. The matching principle that applies to life business also ensures that capital remains in the communities providing it.
If a future WTO-led agreement can lay the foundations for a long-term, secure regulatory environment, then foreign companies will be able to make solid, long-term commitments and investments. Without the security provided by the WTO, companies will hesitate to venture into emerging markets.
The International Underwriting Association (IUA) consulted UK ministers in advance of last December's discussions of the WTO, and will, when the GATS talks proceed, continue to make the case for international (re)insurers to be able to trade more extensively.
Access to markets remains unequal in all areas of the world. US trust fund requirements are just one example of domestic regulations effectively discriminating against foreign operators.
Indeed, hand in hand with further liberalisation come new challenges inregulation and supervision. At the IUA, we have campaigned for minimum supervision of companies. We believe that a company that can demonstrate it is financially secure should be able to operate unbound by strict rules and procedures. On a European level, we were delighted when the advent of the single market meant that we could accept business from all over Europe, provided the company held a licence from an EU country.
But our interest spreads far beyond Europe - our members write business across the world and are internationally owned. This is why the IUA has recently applied to join the International Association of Insurance Supervisors (IAIS) with observer status as a non-regulator. The move demonstrates our belief in the value of this worldwide body.
Going forward in a world of global competition and growing interdependence, the only way that we can usefully supervise companies will be by working together across national borders. The IAIS has a crucial role in bringing together regulators from around the globe to try to build common supervisory standards. There are, of course, no quick fixes in this process, but the promotion of transparency, not only of communication but also of the procedures and infrastructure, gives us a good starting point.
The pace of change, especially on the internet, means that we do not have much time to co-ordinate our actions. Like no other issue, commerce crosses international boundaries at incomparable speed and turns around traditional ways of doing business. Mergers and acquisitions are creating global companies that have no fixed base and know no frontiers.
The challenges for regulators are enormous. But it is an exciting time to be in this truly global business. Only by working together can we rise to meet the hurdles and opportunities the new era brings.
Marie-Louise Rossi is ceo of the International Underwriting Association.