Evolution of Insurance Sector: A Global Perspective

INTRODUCTIONThe World insurance markets are described having various key economic indicators like annual premiums, the relative importance of life and non life products, insurance concentration, and insurance density. World insurance premiums represent US$ 3,723 billion in 2006 (Swissre). International insurance markets can also be differentiated by their insurance penetration. Some insurance markets are characterized by high levels of insurance penetration.The world's Insurance market have some important global similarities such as deregulation, intensification of competition generally rapid growth in insurance sales, the emergence of new distribution channels and the convergence of Insurance banking and other formerly separate segments of the financial services industry. However, there remain many important "local" differences among insurance markets across the world. The first, known insurance product in history was hull and cargo insurance, which was created in Mesopotamia. The idea was to insure the vessels and their contents for their national and international travels. Still today, hull and cargo insurance is mainly underwritten under international rules, i.e. with international contract specifications largely shared by the international competition. Other types of insurance are also structurally global. Space satellite insurance, aircraft insurance, and insurance of large risks are shared by international insurers. Furthermore, the high insurance concentration in which the top five countries, the United States, Japan, The United Kingdom, France, and Germany, represent 67.3 per cent of the world insurance premiums, leads to the phenomenon of risk concentration. The insurance sector is also structurally global through the mechanism of reinsurance and insurance financing. The reinsurance market is quite concentrated, with eight countries (Germany, the United States, Switzerland, the United Kingdom, Bermuda, France, Japan, and Ireland) representing 89 per cent of the global reinsurance premiums (Standard and poor's, 2006). Other emerging countries such as India and China are experiencing increased foreign participation in their insurance markets. Indeed insurer internalization has been facilitated by the world wide process of deregulation. Starting in the 1980s, two countries, the United Kingdom and the United States, were pioneers in the deregulation process. Following their example, significant deregulation at the national and regional levels has occurred elsewhere, e.g., in Europe and in Japan. This deregulation has facihtated the integration of previously fragmented segments of the financial services market, primarily insurance, banking, and securities dealing and underwriting. The European Union's banking and insurance directives, implemented during the 1980s and 1990s, had the objective of creating a single European financial services market. The directives have led to widespread consolidation in the financial services markets in Europe, with large number of intra sector and cross sector mergers and acquisitions (Cummins and Weiss, 2004). The EU directives also deregulated insurance markets, with the expectation of solvency regulation, which is carried out by each insurer's home country. This led to the introduction of true price competition in European insurance markets, where prices were previously strictly regulated at the nationally.For example in Germany, since the deregulation of the Insurance Supervision Law in 1994, the products offered by licensed insurance companies are no longer subject to prior approval by the supervisory authority. There is no direct price regulation for any line in the German insurance market, and the supphers of insurance coverage are, in general, free to compete on premiums as well. The EU member states have experienced an increase in cross border insurance competition. In France, the market share of foreign insurers has doubled between 1990 and 2006. The European directives could have some significant influence on other non European members. …