Insurance battle lines drawn

Last week, I dealt with the subject of the FTAA and GATS and the state of preparedness by the insurance industry in the Caribbean to cope with the liberalised trading environment. At the recently concluded 23rd Conference of the Insurance Association of the Caribbean (IAC) held in Punta Cana, Dominican Republic, the organisers felt that there was a need to place this topic on the agenda and clearly the decision makers in insurance industry in the region are now sitting up and taking an interest in the negotiations as there will be far reaching consequences in the future.

This week I am again returning to the FTAA, GATS and the CSME since many commentators in the media have been expressing views and it has reached a stage where it now appears that national awareness has been heightened and much more will be said and written in the months ahead leading up to the implementation of the FTAA. The labour movement has now added its voice to the debate where there is a great degree of concern over the strategies adopted by the government negotiators and their fear of the country’s inability to compete successfully in the FTAA and ultimately the demise of some businesses and the loss of jobs. There is a widely held view that too much will be given away without a commensurate benefit in return and in the final analysis the developed countries have more to gain in the FTAA  than the small under developed countries that simply do not have the capacity to compete.

In all these negotiations it is the government and their officials that are the key players and they sign agreements but it is the private sector that trade and have to conform to the rules. The developed countries possess skills and resources both financial and human and they know what they want out of these negotiations while the developing countries have neither the human or financial resources to negotiate on an equal footing. That is the reality and it is for this reason that enlightened commentators and labour feel that a liberalised trading regime favours the larger and more powerful countries who are able to extract terms and conditions that are likely to put smaller and less endowed countries at a disadvantage. The ultimate result is closure and consequently loss of jobs which lead to the poor countries becoming poorer.

The financial services sector has been pro-active in tracking the developments for some considerable time and therefore is better placed to press its case as far as Trinidad and Tobago interests are concerned.  That being said, the insurance industry is made up of many ancillary services e.g. insurance broking, loss adjusters, actuaries but the emphasis has been on the insurance companies since there appears to be a marked lack of interest by those suppliers of these services. The problem for the negotiators is to know what interests must be defended. Unless those businesses that can be affected understand the consequences that will flow from these new trading arrangements and make their position known then they must accept whatever is agreed without complaining.

The developed countries and the USA in particular ultimately want to negotiate trade in insurance services generally without any restrictions across the border — i.e. to remain in their home base and supply Trinidad and Tobago consumers without even having a physical presence here or having to comply with local regulations. This has been their posture for some time now but they are prepared to achieve that position over a period of time since they are fully aware that it is impossible to reach there at this early stage of liberalisation. It is difficult to dismantle structures that have been built up over several decades but the developed countries want to signal their objectives (it might take a whole decade to finally achieve their goal) in order to get developing countries to remove barriers and to open their markets.

What is certain is that these developed countries will not settle for the present status quo since at this stage of the negotiations they want us to move from the current commitments and to agree to more liberalisation. It means therefore that there cannot be any strategies to insulate the industry from more competition. The trick is to find a balance that will allow for increased liberalisation without unduly disadvantaging the domestic insurance industry. The Trinidad and Tobago insurance industry has been preparing itself for increased competition since the dismantling of the exchange control regime to the point where it has survived inspite of the suitcase trade i.e. competition from companies that are not licenced to do business here. Unlike many countries around the world where the insurance industry is protected, this is not the case of Trinidad and Tobago. The insurance industry had been localised where local capital bought out foreign interests as a matter of official policy in the past 20-30 years. In the new rules this would not have been permitted since there must be no reduction of acquired rights. Cross border trade in reinsurance has already been agreed so this is not new. There are no reinsurance monopolies and mandatory share of business to any local reinsurance company since this ended almost 10 years ago.

The issue is the pressing for cross border trade. The local insurance companies are prepared for foreign competition but these foreign must establish a commercial presence here in Trinidad and Tobago and meet all the legal requirements under our insurance legislation and therefore be part of the local market. The present entry barrier is low and this is not a prohibition for any serious player. However, the developed countries want more than that. They want to stay where they are and compete in our home market. This must be resisted and there is every indication that the developed countries will accept our position at this stage. This is what negotiations are all about.