The European insurance federation, Insurance Europe, highlighted the dangers protectionist policies – widespread across a range of African, South American and Asian countries – pose to the jurisdictions they aim to protect in a recent briefing on protectionism.
Regions with protectionist measures in insurance and reinsurance can concentrate risk in the very jurisdictions they seek to remove risk from; rampant compulsory cessions, or “rights of first refusal” require local insurers to cede their risks to local, often state-owned, reinsurers.
Cristina Mihai, head of prudential regulation and international affairs at Insurance Europe, commented; “these kinds of protectionist measures remain a major risk for the jurisdictions that implement them.
“This is because they concentrate risk in the jurisdiction’s economy, rather than allowing it to be spread throughout the global reinsurance market, which is only possible if markets are open.”
Insurance Europe said European re/insurers have been working with the federation to identify and address protectionist policies on an international level, which are contradictory to the free trade agreements that various jurisdictions have in place.
Mihai said; “It is hoped that these kinds of issues will be addressed by EU policymakers in forthcoming discussions on possible trade agreements, as well as in regulatory dialogues with other jurisdictions.”
Some countries are reversing the protectionist trend by opening up their markets, as seen in Argentina, where reforms were recently introduced to gradually re-open the reinsurance market – but a complete liberalisation is not yet on the cards.
The insurance federation said such liberalisation measures are often still fairly limited in terms of scope and ambition.
“By opening their markets to foreign re/insurers, jurisdictions can benefit their domestic markets in several ways,” Mihai continued; “these include wider access to operational expertise, skills and discipline in underwriting, access to a wider range of products, a strong risk management culture, technological developments and training.
“All these elements can benefit other companies and sectors, and hence the economy.”
Regions attempting to grow their fledgling re/insurance industries with protectionist policies appear to be treading a tightrope between developing and hindering the development of re/insurance penetration and market growth in their jurisdictions.
These governments are tasked with ensuring regulatory policies fill the dual demands of allowing for the industry’s sophisticated risk diversification needs, while assisting the development of local re/insurance industries and economies: successfully closing the protection gap will take striking the right balance in the regulatory environment through international collaboration.