You can be sure critics are already getting ready to pounce on a preliminary draft of the financial services section of the Trade in Services Agreement (TiSA), invoking the usual rhetoric about the evils of global trade liberalization.
TiSA is not the caricature opponents present of a flawed agreement created by a secret cabal of greedy bankers who have disregarded lessons learned from the 2008 global financial crisis. In fact, facilitating the international flow of financial services such as insurance would have vast economic benefits for U.S. companies and promote financial stability and economic growth that would benefit people in countries around the world.
TiSA arose from the impasse in comprehensive multilateral talks under the World Trade Organization’s Doha Round. With some 50 countries engaged in negotiations, TiSA would cover about 70 percent of the world’s services sector and represent the most comprehensive agreement in 20 years.
Property/casualty insurers regard TiSA as an opportunity to expand the benefits of a healthy insurance sector, long an integral part of the economies of the United States and other countries, and to establish more certainty and openness in the services sector worldwide.
Most people understand that insurance enables families, businesses and entire communities to rebuild following natural disasters and other calamities. It is less well known that insurers are on the cutting edge of preventing losses—from promoting building safety to discouraging risky behavior such as drunk driving. In addition, the money insurers collect in premiums, when not paid out in claims, is invested in government securities and has helped spur economic development and create jobs.
The benefits of a strong insurance sector are summed up best in a 2007 United Nations document:
“Insurance underpins key aspects of society by providing security and protection to individuals, communities and businesses. An efficient and competitive insurance market is also important to developing countries and countries with economies in transition as they integrate into the world economy. The insurance industry encourages greater efficiency in the economy, facilitates commercial transactions, mobilizes domestic savings and provides many other important benefits such as: coverage against accidents, floods, earthquakes and other catastrophes and natural disasters, and health and life insurance. Insurance also substitutes for and complements government welfare programs, generates employment, encourages innovation and helps build a country’s financial market.”
Despite the well-documented benefits of insurance, trade barriers abound—and this is of particular concern to the United States. The U.S. International Trade Commission found that U.S. P/C insurers lose $40 billion in trade annually due to barriers, according to the 2009 report “U.S. Property and Casualty Insurance Services: Competitive Conditions in Foreign Markets.”
Barriers to trade and the growth of insurance markets include:
- Foreign direct investment caps.
- Limitations on foreign reinsurance.
- Restrictions on establishment, politicized price or product supervision.
- Unfair competition from state-operated enterprises.
- Unnecessary restrictions on cross-border data flows and cross-border commercial insurance.
- Prohibitions on foreign insurers writing compulsory lines of insurance.
These barriers not only harm insurers but also restrict the broader economic benefits of a vibrant insurance sector for the people in countries that erect them.
TiSA would actually improve the regulatory/supervisory process rather than weaken it as opponents often contend. TiSA would advance the transparency and efficiency of the regulatory system with better ways to issue notices, receive comments, and establish less costly but still effective review and adoption of regulatory and supervisory policies.
Insurers recognize the importance of effective and efficient regulation/supervision and support it. Existing insurance regulation and the insurance business model performed well during the financial crisis, and we are working to close any gaps. In addition, under our state guaranty fund system, other insurers are called upon to provide funds to protect customers of failed insurers.
In the wake of the 2008 financial crisis, many jurisdictions—including the U.S.—are examining their insurance regulation and are implementing improvements. TiSA would reinforce and enhance the effectiveness of these efforts, not diminish them.
In short, open and well-regulated insurance markets provide substantial benefits to everyone—a real win/win. On the other hand, heeding the criticisms of anti-trade voices will result in fewer jobs and less economic activity here and fewer countries where the societal benefits of insurance will be enjoyed—a real lose/lose.