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Asia seen cautious towards insurance liberalisation

SINGAPORE: Asian countries should open their insurance industries to foreign players only if they are prepared to tackle the thorny problems that come with liberalisation, a United Nations trade official said on Wednesday.

Partial deregulation is sometimes a wiser choice than throwing open the floodgates to excessive foreign competition, said Sue S C Tang, chief of the United Nations Conference on Trade and Development's (UNCTAD) insurance programme.

"The ASEAN countries are taking a very cautious view of liberalisation, and I think justly so," Tang told Reuters after speaking at an industry conference.

Though insurance liberalisation is still in its infancy in Asia, it is one of the hottest topics in the region's burgeoning markets, industry analysts and officials have said.

China, India and Thailand top the list of countries being intensely scrutinised by foreign companies for clues on how deregulation will proceed.

Japan and the United States are embroiled in a heated debate over deregulation of Japan's massive insurance industry. Smaller countries including Vietnam, Sri Lanka, Burma and the Philippines are also grappling with the issue.

Asia's insurance regulators are well aware that deregulation could bring intense competition and eroded profits to local players, one speaker at the conference said.

"It is no wonder that some indigenous companies view liberalisation as a threat," said David Chan, vice chairman (Singapore) of the ASEAN Insurance Council.

"Governments have been very protective about financial services -- insurance, banking and securities," said Tang. "It's only now that financial services are beginning to open up."

She said insurance liberalisation need not mean opening up the entire sector. "Some Asian countries are taking the view that a country can make a case for liberalising various parts of the industry by identifying niche situations."

Joint ventures or phased liberalisation can be a good temporary solution for some countries, although complete deregulation should be the ultimate aim, she said.

She cited Thailand as an example of a country that chose to proceed slowly after it was flooded with foreign licence applications when it began to liberalise in 1994.

To help ensure orderly expansion of its insurance industry, Thailand will allow an increase in foreign equity from the current 20 percent to 49 percent in the year 2000, and up to 100 percent in the year 2010, said Tang.

Malaysia has indicated it will relax the 30 percent ceiling on foreign equity participation to 49 percent in insurance operations, she said.

"For most developing countries, there is a real need for a carefully managed transitional arrangement, both to move from the existing situation to a competitive environment, and in the introduction of regulation and supervision procedures."

Statistics compiled by UNCTAD show that foreign insurers have not dramatically increased their market share around Asia in the past 10 years, Tang said.

In 1994, there were some 145 foreign insurers present in ASEAN, who accounted for 27 percent of the region's total business, she said. This compared to 118 foreign insurers who had a 27 percent share in 1986.-Reuter