Adopted by Board of Directors May 3, 1999
It has long been recognized that liberalization of trade generally, and trade in financial services in particular, is critical to economic growth. Within the financial sector, a freer market in insurance can play a key role in enhancing such growth. The lowering of trade barriers to the operation of foreign-based insurance agents and brokers is integral to this process.
As history has shown, whenever barriers to foreign professional insurance intermediaries are lowered, benefits flow to all concerned.
In the 1950’s, as the manufacturing and service industries of the Western industrialized economies began to globalize, their insurance service providers globalized alongside. Initially, the geographic expansion of insurance carriers and intermediaries was undertaken to ensure that the new risks associated with their clients’ geographic expansion were identified and managed effectively. This first stage of globalization not only improved the lot of those engaged in cross-border undertakings, it also conferred upon host countries the economic benefits of goods and services now made locally, opportunities for local vendors to partner with foreign-based concerns, and the creation of new jobs to staff a modernizing economy.
The second stage in this process, from which much of the world is already deriving benefits, involves the provision of insurance and risk management services to indigenous or local business, i.e., enterprises poised for growth and, following the evolution of their predecessors in the industrialized world, for expansion beyond the borders of their home countries.
This step, in which international intermediaries cultivate the business of indigenous companies, is a crucial one. If unimpeded, this step transforms the relationship between first- and third-world countries from one of producer-to-market to the more egalitarian one of competing producers. As regional trade partnerships form and expand, and as a worldwide network of interdependent, growth-oriented economies takes shape (made possible by GATT, GATS, and other accords), openness to foreign insurance intermediaries can make the difference between inclusion and exclusion. Full inclusion and the full benefits that flow from it are not possible without liberalized trade in both insurance underwriting and brokerage.
The need for insurance is obvious, and becomes more obvious with the increasing complexity of modern life. Without protection against the risks of expanding into unfamiliar territory – as respects geography, products, services, or some combination thereof – there would be few risk-takers and correspondingly little economic growth. Insurance earns its place in the business world as a means of making certain risks worth taking, i.e., by transferring some of it to a third party formed expressly to assume a portion of a company’s overall risk burden.The contribution of insurance intermediaries may be less widely recognized but is no less great. The indispensable function of agents and brokers is to guide companies in this search for the most cost-effective way of managing risk. Agents and brokers help companies find as much protection as they need, at the lowest price possible, and at the best terms available.
Their contribution includes not just transferring risk to insurers, but evaluating and implementing other means of funding for potential losses (such as captive insurance companies and other forms of self-insurance), providing services aimed at preventing losses in the first place (safety and other loss control programs), and providing services that minimize the cost of losses that do occur (claims management and litigation cost containment).
Moreover, international intermediaries are not merely procurers of such products and services. Coupling their insurance and financial expertise with their expertise in client industries, they are as much innovators as intermediaries. Because of their close relationship with clients, they can often identify the need for a new product, and may even create a suitable product before the underwriter can do so.
The natural evolution from pure insurance intermediaries to partners in “enterprise risk-management” – an increasingly popular phrase describing the capabilities and aspirations of today’s intermediaries-consultants – has taken centuries. The process in countries with newly privatized economies, or newly liberalized financial sectors, is bound to be much faster, as the lessons learned over centuries can be applied straightaway, as they are needed.
The foreign outposts of multi-national intermediaries are often headed, and largely staffed, by local inhabitants, whose knowledge of local legal and economic conditions, as well as social and cultural mores, is indispensable. Indeed, viewing the geographic spread of intermediary networks, along with the make-up of their professional service teams, should be convincing enough to show that insurance brokerage as a service has become a worldwide commodity – a staple of modern economic development, transcending the borders of all countries and serving the interests of all.
What benefits the client is the combination of local service and international access offered. Through an international network, intermediaries can get the best deal possible for clients because they can tap into the worldwide insurance marketplace. The more markets they can access for risk capital, the better it is for the buyer. When client companies set growth targets, the investments needed to reach such targets and constrained by limited budgets: international intermediaries can “shop around” widely and wisely to get clients the most protection at the least cost.
In addition, their vast experience and analytic capabilities put them into a prime position to help clients in selecting markets that are financially strong, well-hedged by a good spread of risk, willing to make a long-term commitment to the client, and, of course, able to pay claims should the need arise. Since the object is not just growth, but safe growth, the ability to draw on information about markets around the globe cannot be overstated. Partnerships between local and foreign insurers, or local and foreign intermediaries, can instantly give the domestic insurance community critical international links.
When the operations of insurance intermediaries are sufficiently liberalized, those producing goods and services can take advantage of the more competitive financial atmosphere, making the most of their risk management budgets. The effect of such a combination is to further propel economic growth in all quarters.
Finally, liberalization for insurance intermediaries is a necessary complement to similar action in the insurance and reinsurance arenas, and to the rights and obligations established through GATT. Insurance intermediaries provide services that facilitate not only economic growth, but trade in all sectors.
To date, the pivotal role of professional insurance intermediaries has not received the attention it deserves, often being placed low on trade liberalization agendas. The Council of Insurance Agents and Brokers (CIAB), which represents the largest commercial insurance agents and brokers in the US and around the globe, strongly urges WTO members to place trade in insurance intermediary services high on the agenda of the WTO services negotiations to begin in 2000.
CIAB believes that these negotiations should adopt the following goals:
- To remove unnecessary restrictions on the right of establishment of foreign insurance intermediaries. Foreign insurance intermediaries should have the right to establish either through a wholly owned operation or some other business ownership vehicle.
- Foreign insurance intermediaries should be allowed to compete on a level playing field with local intermediaries, with the same access to domestic and international markets. Foreign and local intermediaries should be treated as equals for regulatory and other purposes.
- To remove unnecessary restrictions on cross-border insurance placements. All professional insurance intermediaries should be permitted to place business in the most suitable market for each risk and to render related services without being required to establish in the country where such services are delivered. This is of particular importance for marine, aviation, and transport placements., and for clients facing international risks, large undertakings, or the need for reinsurance support.
- To remove unnecessary restrictions on the purchase of services from insurance intermediaries. Because insurance intermediaries facilitate trade in all sectors, exporters and importers of goods and services, along with parties to multinational or large undertakings, should have the right to choose an insurance intermediary based on professionalism, access, insurance expertise, and the commitment to long-term service. This marketplace should ideally be global in scope. Unnecessary restrictions on monetary transfers should be removed, as well as restrictions on the exchange of information and technical services required by professional insurance intermediaries in the service of their clients. Discriminatory fiscal or tax treatment of foreign intermediaries should be eliminated.
- A system of easily obtainable and renewable permits should be established to facilitate the temporary posting of key business personnel so host countries can begin to enjoy the benefits of foreign agent/broker investment without undue delay.
- Countries wishing to accede membership in the WTO should do so on the basis of commitments to substantial liberalization of the insurance intermediaries market, resulting commercially meaningful access.
- Promote efficient and effective licensing of insurance intermediaries.