The insurance industry and its consumers need to be concerned about the recent rise of protectionist policies in markets around the globe. Our industry has played an important role in building a more open, interconnected global economy resulting in measurable benefits to society, but growing barriers around the world threaten to reverse decades of progress.
Two potentially groundbreaking, market-opening trade agreements – the Trade in Services Agreement (TiSA) and the Trans-Pacific Partnership (TPP) – could reverse these isolationist trends. But they are not across the finish line yet. Letting these agreements sputter would be a blow to our industry, the communities we serve now, and the ones we one day hope to.
The TiSA and the TPP will implement essential standards in fairness and transparency across the 54 countries the agreements collectively encompass. Right now, U.S. insurers are hampered in serving millions of people around the world because of discriminatory treatment by foreign governments.
In contrast, the U.S. insurance market is open to insurers from all countries, with 21 percent of life insurance and 9 percent of the property/casualty market shares held by non-U.S. insurers. On top of that, new barriers created by Europe’s Solvency II, Brexit, and protectionist reinsurance restrictions are reducing the access we currently have in other markets.
Discriminatory regulations and other protectionist barriers prevent U.S. firms from seizing opportunities in some of the fastest-growing markets abroad, while also hindering the economic development and financial stability goals set by the G20. These barriers tend to benefit the few at the expense of of the consumer. The TiSA and the TPP both recognize the societal and economic costs of these barriers, which is why they include provisions that address them head on.
First, the TiSA and the TPP would provide market access. Through these agreements, other countries commit to allowing U.S. insurers to set up local operations in their corporate form of choice. For insurers, being close to the customer and understanding their needs is critical to successfully managing their risks. Establishing operations in fast-growing emerging markets creates additional employment opportunities for U.S. employees back at home.
Countries will also commit to allowing reinsurance to be offered across borders without mandatory domestic cessions or other barriers. Currently, at least five TiSA governments and two TPP governments restrict cross-border reinsurance or are threatening to do so. Placing restrictions on cross-border reinsurance is a growing trend that concentrates risk,
decreases market capacity and reduces efficiency. While global reinsurance capacity is abundant today, restrictive policies inhibit the use of this source of capital to address significant natural disasters and other catastrophic events that occur around the world. This leads to the use of taxpayer funds as opposed to the available private sector capital. The TiSA and TPP would break down those barriers.
Second, the TiSA and the TPP would prevent foreign governments from using discriminatory regulations or barriers to benefit domestic insurers. Even government-owned insurers, including national post offices that underwrite and sell insurance, would have to be treated on the same terms as private-sector insurance groups. Likewise, a government will be prevented from giving insurers from other countries better treatment than it gives to U.S. insurers.
Third, the TiSA and the TPP would allow U.S. insurers with operations abroad to store and process data in the location that works best for them. In a new approach to “data flows” commitments unveiled in July, the U.S. government is pushing foreign governments to refrain from requiring insurance companies to use or locate computing facilities domestically. These data flows provisions are desperately needed. Restrictions on data flows, which currently are spreading around the globe, create inefficiency, and make it more difficult to protect against cyber-attacks and disruptions from natural disasters.
The benefits of these agreements for U.S. insurers will not end with the current participating countries, which include the European Union, Australia, Vietnam, Malaysia, Canada, Israel, Japan, Mexico, Turkey and many others. They are designed to bring in other countries that decide they want to play by 21st century trade rules. As the agreements expand, each will become the global standard for market access and fair treatment – a standard created by American leadership.
Right now, TiSA is under negotiation and the TPP is awaiting consideration by the U.S. Congress and legislatures from the other TPP countries. It’s the industry’s job to do everything it can to ensure lawmakers and the public understand there’s only one choice for insurers – creating a competitive and open global economy.
Simchak is director of International Affairs for the American Insurance Association.