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World's insurance leaders offer their views.

World's Insurance Leaders Offer Their Views

The International Insurance Society Inc. (IIS), which brings together the academic and business sectors of the insurance industry, held its annual seminar in Paris in July. More than 430 delegates from 50 countries mulled over future survival strategies for insurance companies in the face of changing markets.

Gentaro Kawase, chairman of Nippon Life Insurance Co. in Tokyo, pointed out that 90 percent of Japan's population has purchased life insurance. "The amount of life insurance in force is about four times greater than Japan's GNP," he noted. But needs are shifting from death or survivor benefits to protection for life, including savings-type policies such as annuities. He attributed the shift to an aging population and erosion of the lifetime employment system.

According to Mr. Kawase, the life-insurance industry should develop new products, such as credit-card access, that offer instant liquidity and accessibility. This in turn will require costly restructuring of current systems, he added.

European Perspective

Jacques-Henri Gougenheim, chief executive officer of Union des Assurances de Paris (UAP), noted that the European market is fragmented and diversified. He said several thousand insurers operate within the 12 countries of the European Community. Yet the five largest insurer groups in Europe have a total market share of 20 percent; in the United States the corresponding figure is 50 percent, in Japan it is 65 percent.

The single market is causing insurers to re-evaluate their positions, and various strategies are emerging, including forging links with banks through marketing agreements, geographical expansion through acquisitions and increasing market share, according to Mr. Gougenheim.

Some European insurance groups have invested in North America rather than within the EC, preferring "to confront today's reality over there, rather than wait here for the end of the process leading to the single market," said Mr. Gougenheim. UAP is hoping to double its European market share outside of France, which is about 3 percent, he said. The EC, he noted, is working hard to harmonize insurance regulations, which will ultimately apply to foreign companies as well. He also urged the reduction of protectionist regulations that still exist, "explicitly or insidiously," in other markets, including the United States and Japan.

"In more than half the states discriminatory rules are applied to certain foreign insurers, owing to the structure of their share capital," said Mr. Gougenheim, referring to the U.S. prohibition of admitting government-owned companies. He believes EC-based insurers will invest in the formation of Eastern European companies, but views the Allianz purchase of the East German insurer as perpetuating a monopoly.

U.S. Perspective

Maurice R. Greenberg, chief executive officer of American International Group Inc. based in New York, offered a U.S. perspective. "If the marketplace is to drive change in the 1990s, there needs to be a recognition that successful companies cannot be responsible for paying for the mistakes of the unsuccessful ones. ... The safety nets and protections that have been built into our system for inefficient and failing companies should not be regarded as being in the public interest." He said they are "a distortion of the free-market mechanism."

Predicting that trade will replace security as the primary international concern in the coming decade, he stressed the importance to insurers of a successful conclusion to the Uruguay Round of GATT negotiations. "The agreement that comes out of the Uruguay Round will determine how and under what conditions insurers can enter new markets or expand in existing ones," said Mr. Greenberg. An agreement that assures national treatment and market access to all will benefit all, he stressed. In a later session, Linda Powers of the U.S. Department of Commerce and a member of the U.S. GATT negotiating team, provided a briefing on the process and encouraged insurers to communicate their needs to their governments.

Cyclical Solutions

Painting a picture of the U.S. insurance industry's poor image and associated problems, John J. Byrne, chief executive officer of Fund American Cos. Inc. in Novato, CA, said insurance cycles were the root cause of the problem. His solutions called for upgrading insurance accounting rules and creating a self-regulatory body to monitor solvency and work with government regulators.

"Solvency and credibility are one," said James P. Corcoran, a partner with Wilson, Elser, Moskowitz, Edelman & Dicker in New York. "To have a global financial insurance system, it is necessary to put in place an efficient and effective regulatory system." He urged dialogue to determine solvency criteria on an international basis.

Clemente Cabello Pinchetti, president of Grupo National Provincial in Mexico City, said, "Latin American governments have created obstacles to the full development of the insurance markets." Fortunately, the rules are changing, he noted, particularly in Mexico. Regulatory modification are required throughout the region, including liberalization of the insurance sector to permit the entry of foreign investment. La Federacion Interamericana de Empresas de Seguros, the Latin American insurers' association of which Mr. Cabello is immediate past president, has been actively pursuing change in many countries, he said.

In addition to presentations, the seminar had discussion groups and a roundtable for academics to highlight their insurance research.
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Title Annotation:International Insurance Society Inc. seminar
Author:Epstein, Rita
Publication:Risk Management
Date:Sep 1, 1990
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