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Trans-Pacific Partnership opens underserved insurance markets

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Years in the making, the 12-nation Trans-Pacific Partnership free-trade pact reached Monday promises to provide wide opportunities to U.S. insurers in formerly closed markets. Leigh Ann Pusey, president and CEO of the American Insurance Association, discusses the possibilities.

When most Americans think about trade agreements such as the pending Trans-Pacific Partnership, provisions that open overseas markets to U.S. manufacturers and their goods usually come to mind. But TPP will be just as much of a boon to American service providers, especially insurers.

The reason is simple: When countries' economies grow, creating a solid middle class, businesses spring up to provide residents with goods and services, all of which need to be insured. But many of these potential markets have been closed to American multiline insurers or have been too unpredictable for them to thrive.

More than that, multiline insurers are crucial to American multinational companies that seek to reach into the world's emerging economies.

The TPP, a regional trade pact between Asia-Pacific countries that the U.S. began negotiating in 2009, will change this.

It will open or improve conditions in the 11 other TPP nations — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — for American insurers.

The opportunities for American insurers are almost limitless with TPP. Micro-, small- and medium-size businesses are leading growth and development throughout Asia. Their success is well known. American companies that specialize in insuring these often single-person operations will be able to provide them with coverage and peace of mind.

For business insurers, the benefits of TPP would be manifold. U.S. insurers would no longer be subject to discriminatory regulations in TPP countries that have hampered their ability to operate in those markets. The right to sell, offer and utilize reinsurance and some other types of business insurance across the borders of TPP countries — even without a local presence — would be guaranteed. U.S. insurers would be able to establish local operations in TPP countries as a branch, subsidiary or joint venture.

And business insurance products from U.S. companies would be approved with more ease and transparency in TPP markets.

Because of trade barriers and unfavorable regulations in most developing economies, American insurers' presence overseas has been concentrated in the European Union and Japan. Taken together, the U.S., the E.U. and Japan comprise 71% of the world's insurance market, but account for only 13% of the world's population. TPP will open a notable portion of the remaining 87% of the world's potential customers to American insurers.

These new frontiers represent enormous growth potential for insurers, their stakeholders and investors. Insurance premium growth rates are nominal in the U.S., E.U. and Japan. But in Africa, Latin America and other Asian nations, premiums are growing at a more robust 9%-10% annually.

Further, unlike in long-developed nations, insurance penetration in these markets is low. Compared to the Organization for Economic Cooperation and Development average of 8.4%, Malay-sia, for example, has an insurance penetration rate of 5%; Mexico's is 2.1%; in Vietnam, Brunei and Peru, it is less than 2%.

Though these countries offer tremendous opportunities, many have challenging political, legal and regulatory environments. Insurers need fair and predictable legal and regulatory systems to make it possible and worthwhile to enter the markets.

Trade agreements such as TPP alter this equation. In addition to bringing down barriers that have blocked U.S. companies, these pacts promote regulatory transparency and fairness agreed upon by all participants. This means that an American insurer can enter a new market with confidence, able to understand its regulations and assured that the rule of law applies.

TPP will protect insurance investments from government seizure, reduce the home-field advantage of many government-owned insurers, guarantee companies the ability to offer reinsurance across national borders and let insurers structure their overseas operations efficiently.

The U.S. International Trade Commission has said that eliminating trade barriers will result not only in U.S. insurers investing overseas, but it also will mean new jobs in the U.S. as insurers expand to handle the extra business.

The AIA welcomes the agreement and looks forward to reviewing the details once the text is released.

As the debate moves from the negotiating table to Capitol Hill, it is essential that the insurance industry speak loudly about the importance of this deal to our industry's growth.  Our insurance market is already open to foreign insurers. It is time for markets in this important region to be more open to U.S. insurers.

Leigh Ann Pusey is president and CEO of the American Insurance Association. Contact her at 202-828-7100 or lpusey@aiadc.org.