28 June 2013

Insurance Europe's letter to OECD on trade barriers in insurance for the Services Trade Restrictiveness Index

Insurance Europe strongly supports the inclusion of insurance in the OECD services trade restrictiveness index (STRI). It believes that this will lead to a better understanding of the nature of trade barriers in (re)insurance in the OECD countries helping to reduce them.

Importance of open markets for (re)insurance

Insurance is an industry that conducts a significant amount of its business internationally and therefore benefits from open and competitive markets.

An open and robust international (re)insurance market is a key driver of economic growth and financial stability. Insurance facilitates business development by incentivising effective risk management and through pooling uncorrelated risks from different geographies it fosters an efficient allocation of capital and resources. In addition, insurers play a key social role in welfare provision by contributing to retirement income, which alleviates states’ national budgets. For this reason, barriers to trade in insurance have a negative impact on not just the insurance sector but the whole economy.

To summarise, barriers to open markets:

• limit the ability of (re)insurers to diversify risks geographically;
• limit competition and thereby reduce available capacity and increase insurance prices; and
• generate additional frictional costs which are ultimately borne by the policyholder.

Insurance Europe priorities for the OECD STRI in insurance

Insurance Europe as a member of the Global Federation of Insurance Associations (GFIA) endorses the detailed comments submitted by GFIA. However, it would like to take this opportunity to highlight its most important concerns/priorities with respect to the OECD STRI index:

Inclusion of both health insurance and pensions - Insurance Europe believes that the exclusion of these sectors in the insurance STRI is at odds with common supervisory and business practices. Insurers are providers of health insurance products (either as full comprehensive cover, replacing social health insurance, or as additional cover, supplementary to state-organized types of mandatory insurance classes) and pension products (in the “second pillars” of the respective national pension systems, both mandatory and voluntarily).

This exclusion also contradicts common practices as both health and pension products are generally supervised by the supervisory authorities dealing primarily with insurance. In addition, health is included under insurance (CPC 8121) in virtually all GATS commitments and the majority of bilateral and regional agreements.

Discriminatory requirements on foreign reinsurers regarding collateralisation - Collateral requirements do not respond to prudential needs and are applied in certain OECD countries in a discriminatory manner. This results in an inefficient allocation of capital and additional frictional costs which in turn pushes up insurers operating costs and makes the premiums for (re)insurance cover more expensive. Therefore, Insurance Europe believes that inclusion of this measure in the OECD’s STRI index is of upmost importance.

Barriers to exit - The current list of measures focuses exclusively on barriers to entry, and does not contemplate other “mobility barriers”, as defined by the OECD. In particular, Insurance Europe believes that due consideration should be given to barriers to exit, which prevent an efficient allocation of resources, generate additional costs and act as a general disincentive for future investment.

Deviation from international standards – Insurance Europe believes that paragraph 37 should be re-evaluated as it would be difficult to classify compliance with either IAIS principles or IFRS as a measure of trade restrictiveness. National supervision standards were established in line with the IAIS principles and with each jurisdiction’s circumstances and therefore may differ between jurisdictions. This is also true for accounting requirements where convergence discussions are on-going between the different standard-setters worldwide.

Nationalisation (total or partial) – Insurance Europe believes that both the full or partial nationalisation of operators or of specific services (e.g. insurance) should be included in the list of trade barriers.

Full letter

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