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An insurable Eastern bloc is not too far off.

Some economists predict that the commercial equivalent of the Marshall Plan will soon be developed for Eastern Europe. If so, it will lead to a massive flow of investment capital to the East. The potential for insurers in the Eastern bloc that this will create is tremendous, which is why brokers have begun positioning themselves to move when the time is right. German reunification represents the greatest opportunity for Western insurers and brokers. However, it will be a difficult market for any foreign company to penetrate because of the patriotic buying habits of Germans.

We British are called bad Europeans. in our willingness to buy goods and services from the best providers, irrespective of the country of origin and the potential for damage to our economy, we have, in truth, proved to be the best Europeans. Recently, I transferred my auto insurance to a Danish insurer that operates in the London market because it provided the best coverage at the cheapest rate. How many people in Germany or France would place their auto insurance with an overseas insurer?

As Western investment helps restructure and develop Eastern economies, the greater the need for commercial insurance covers. Increasing prosperity, to come at some point in time, will lead to greater demand for personal lines, life products, pensions and other financial and insurance products.

In Hungary, the East European country which is the closest to being a democracy, perhaps the most significant development involving a Western insurer has occurred. At the end of last year, West Germany's Allianz took a 49 percent stake in the state-owned Hungarian insurer, Hungaria. In Czechoslovakia, Italy's Generali signed an agreement with the state-controlled insurer Cesks Statne, calling for the reciprocal support of clients in both countries, joint underwriting of insurance policies and technical cooperation. Can a full joint venture company be far away? Likewise, last May, Generali set up a joint venture company with the Hungarian insurer Allami Biztosito, taking a 9 percent stake in the company. in Poland, Colonia, now part of the Suez Group, signed up with the Polish insurer Westa. The West German insurer will offer health cover to Poles traveling to the West.

What about Russia? Russia's economy is a mess, but again there is clearly a huge long-term potential to be nurtured by foreign investment. The chairman of Ingosstrakh, the leading Soviet insurer, believes it will lead to a significant increase in the demand for insurance coverage by the Soviets. Pohjola, the largest Finnish insurance company, has already signed an agreement with Ingosstrakh to write insurance policies for 75 USSR-Finnish joint ventures. Industrial Mutual Insurance of Helsinki and the Trygg-Hansa Group in Stockholm have also signed an agreement with Ingosstrakh, by which they will provide insurance and risk management services for joint ventures between Russian and foreign companies in the USSR, Sweden and Finland, among other countries. The agreement covers product development, marketing and personnel training as well. Even the Japanese are involved in Russia. Tokio Marine & Fire and Taisho Marine & Fire have had talks with ingosstrakh about ways of overcoming barriers to foreign investment in joint ventures. The japanese insurers are worried that the total coverage sought by foreign companies investing in Russia for fire, accidents, property and construction cannot always be bought from ingosstrakh. A joint venture between Ingosstrakh and the japanese insurers is considered a likely way of boosting capacity. Lloyd's chairman, Murray Lawrence, is due to visit Moscow in May to leave his business card. Brokers by the dozen are establishing a toehold in the East via branch offices and joint ventures. insurers too are looking at ways of prepping themselves to take advantage when something happens. The final accolade: The Eastern bloc is now firmly established as a conference" topic. Willis Faber has run an in-house conference for invited guests on Eastern Europe; The Economist magazine will run one in Moscow; and my own employer has one scheduled for late April. Does the Western insurance community know what it is doing? One of Britain's top banks recently announced an enormous write-off of Third World debt. What guarantee is there, one might ask, that the Eastern bloc will not become another Third World-type problem for Western banks? What guarantee is there that Western insurers will not be taken to the cleaners? Skeptics might ask why there is such enthusiasm to insure the East bloc given what we know of its industrial practices. But it is a tribute to the unquenchable optimism of the insurance industry that despite the regularity of European hurricanes and the forecasts of floods and storms due to the greenhouse effect, pollution, earthquakes and asbestos, all are still eager for another venture into the unknown.
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Author:Best, Chris F.
Publication:Risk Management
Article Type:column
Date:Apr 1, 1990
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