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A. Theis, M. Wolgast, Globalisierung der Erstversicherungsmrkte: Stand und Entwicklungstendenzen am deutschen Markt, GDV Volkswirtschaftliche Themen und Analysen Nr. 6, 30 pp, Berlin,
October 2010. Printed copies can be obtained free of charge from the GDV (economics@gdv.de). In
addition, the study is available on the Internet pages of the GDV (www.gdv.de) for free download.
for the foreseeable future, and cross-border supply of insurance services will presumably
continue to take place mainly in the form of subsidiaries or within insurance groups. However, in order to facilitate European and worldwide integration in primary insurance, consistent further development of the regulatory framework for cross-border activities in the primary insurance market is of particular importance. A further opening-up of national markets
to foreign providers and appropriate adjustments to the legal environment in Europe as well
as on a global scale could make an important contribution to removing still existing legal
obstacles to integration, thus strengthening the efficiency and effectiveness of the private
insurance industry worldwide.
Driving forces and motives for foreign activities of primary insurers
After World War II, the increasing integration of the global economy was initially mainly
based on trade in industrial goods, and it was not before the 1970s that internationalization
became a major trend in the financial sector as well. The reduction of legal barriers to
cross-border activities of financial services companies, the opening-up of new markets to foreign providers (e.g. Eastern Europe, China, India) and a deregulation of many
national markets played a key role in this context. For the European insurance industry, the
creation of the European Single Market for insurance in 1994, in particular, was an important milestone. Since then, due to the introduction of a single passport, it has been possible for insurers in the European Economic Area to set up branches in other EEA countries
or to offer insurance cover within the EEA across borders directly from their home country
by way of freedom to provide services with the authorization granted by their home countrys
supervisory authority only. Moreover, in Germany and in many other European countries,
the creation of the European Single Market was combined with an extensive deregulation of
insurance markets, which has improved market opportunities for foreign insurers as well.
Other important driving forces of financial globalization are the revolutionary changes in
the area of information and communication technology, which have created completely
new possibilities of transaction via the worldwide data and communication networks.
Insurance companies have quite different motives for extending their foreign activities.
For a long time, the increasing need of domestic customers for insurance cover for
foreign risks has been an important driver. For instance, insurers frequently accompany
their industrial and commercial customers to foreign markets. Another motive for engaging
in business abroad lies in the specific know-how many insurers have acquired from their
home market in specific lines of business, for instance, because insurance products are
particularly highly developed there, which they then want to use in other countries as a
competitive advantage. More generally, by offering products in several countries, undertakings may benefit from economies of scale und scope, e.g. with regard to the development
of new product variants or within the scope of risk management or company organization,
and risk diversification becomes possible with regard to both business volume and profits.
Also, given the modest scope for growth in insurance markets of industrialized countries
with high rates of insurance penetration, an increasingly important motive for insurers of
industrialized countries to engage in foreign activities is their wish to participate in insurance markets with higher growth prospects, particularly in emerging markets (e.g. Eastern Europe, Latin America, China, and India).
barriers to a complete integration of primary insurance markets. First of all, national particularities with regard to culture, language, society, mentality, but also with regard to the risk
situation (e.g. mortality, road safety) continue to have a significant impact, for instance, on
the attitude of the public towards risk and preferences with regard to a protection against
risks, as well as on actuarial calculations of insurers. Furthermore, from the point of view of
an individual insurer, activities abroad will always involve special risks and additional costs.
Thus, for many primary insurers, it may still by all means be a viable strategy to focus on the
home market rather than to engage in foreign business.
Importance of adequate regulatory framework
Even complete removal of the existing legal or regulatory barriers to an enhanced integration of insurance markets combined with complete harmonization of tax policy or social policy would not result in full integration of primary insurance markets in Europe, let alone on a
global scale in the foreseeable future. However, progress in the field of insurance regulation
in Europe could still contribute to the integration of markets. In Europe, an important step
towards the harmonization of insurance supervision has already been made with Solvency II. What is crucial now is an adequate design of the new supervisory framework
and an appropriate further development of the regulatory framework for cross-border
activities. In addition, on a global level, continued efforts to facilitate market access for
foreign insurance providers, supported by further development of global cooperation in
the area of insurance supervision, is of great importance.
Evidence: Foreign insurance companies in the German market
With premiums totalling euro 171 billion (2009), the German insurance market, the fifth largest market worldwide, is one of the most important targets for foreign insurers. Foreign insurers have operated in Germany for many decades. Still, over the last two decades, their
share in the German market has markedly increased. In 2008, about one quarter of premium income in German primary insurance was collected by foreign insurance companies, as compared to only 12 percent back in 1984. The major part of premium income
of foreign insurers (approx. 80 %) is earned through German subsidiaries of foreign insurance groups. According to data collected by the Federal Financial Supervisory Authority
(BaFin), they had an overall market share of about 21 % (life: 27 %, health: 13 %, property &
casualty: 17 %) in 2008. With AXA, Generali and Zurich, three foreign insurance groups out
of the group of the ten largest European insurers are among the ten largest insurers in Germany as well. Increasing activities of foreign companies in the German insurance market
become also apparent from the growing foreign direct investments into German insurance
companies, the portfolio of which has more than doubled over the last 10 years and now
amounts to euro 16 billion. The importance of foreign insurance groups in the German market is also reflected in the composition of the newly established European Colleges of Supervisors, through which national supervisory authorities coordinate their supervisory activities with regard to European insurance groups operating across borders. Within this framework, BaFin participates in Colleges of Supervisors for 17 European primary insurance
groups with head offices in other European countries meaning that those have significant
business activities in the German market.
In contrast to the important role of German subsidiaries of foreign insurers, the business
volume of EEA insurers through German branches or by way of freedom to provide services is still of minor importance in the German market, even though it has markedly increased over the last few years. According to the latest available data (2007), the market
share of companies from other countries operating in Germany through branches or by way
of freedom to provide services has reached 5 percent of the market, whereas it accounted
for less than one percent only back in 1998. Business by way of freedom to provide services in life insurance is most important in this context. In many cases life insurers make
use of the opportunity to offer life insurance products from other European countries, which
would not be legally possible for insurers subject to German insurance supervision.
Even if these figures seem to provide evidence to the contrary, the German insurance market can by no means be considered easy for foreign providers. Entrants into the German
insurance market face a mature market with only very moderate growth rates, characterized by intense competition and a strict and complex legal and tax system, which, moreover,
is subject to frequent changes. The experience gathered in recent years shows that foreign
insurers sometimes seem to have overestimated the opportunities for market entry in the
German market. Compared to primary insurance markets in other countries the market
share of foreign providers does not seem particularly high.
Evidence: German insurance companies abroad
While foreign insurance undertakings have entered the German market, many German insurers have expanded abroad. Not only do German insurers traditionally rank among the
global market leaders in reinsurance, they have also achieved an important market position
in primary insurance. Insurance groups headquartered in Germany are among the large
participants in primary insurance markets in many European countries and all over
the world. Today, the three largest German primary insurance groups earn a considerable
part of their turnover abroad (Allianz almost 70 %, ERGO 27 % and Talanx 30 % of premium
income in 2009). Many other German primary insurers, including numerous small and medium-sized companies, operate successfully in foreign markets as well. Important motives of
German insurers for their foreign activities are, for example, to make use of their specific
expertise with respect to insurance lines which are particularly highly developed in Germany, e.g. health insurance, engineering insurance or legal expenses insurance, or to participate in the higher growth opportunities of emerging markets, such as in Eastern Europe
or Asia. However, in general, the strategic approaches of German insurers with respect
to their international activities vary significantly. There are globally operating groups but
there are also undertakings which completely refrain from foreign activities in view of the
risks and the complexity involved. Many German insurers also focus their foreign activities
on certain regions (such as certain European neighbouring countries) or individual lines of
business (e.g. legal expenses insurance).
Like foreign insurers in the German market, German insurers also predominantly rely on
foreign subsidiaries with respect to their foreign business. In many cases similarly to
a market entry of foreign insurers in Germany local insurers were acquired to gain access
to local know-how as well as customer relationships and distribution channels. The increase
in the foreign activities of German insurers is reflected in the growing portfolio of direct investments of German companies into foreign insurance companies, which amounted to euro
5
3,500
travel
billions USD
3,000
transportation
2,500
2,000
1,500
1,000
500
0
1980
1984
1988
1992
1996
2000
2004
2008
*measured by exports
Source: WTO
billions USD
60
50
40
30
20
10
0
1985
1987 1989
1991
1993
1995 1997
1999
2001
2003 2005
2007
*measured by exports
Source: WTO, own calculations
1,000
financial services
companies as acquirer
billions USD
800
600
400
200
Source: UNCTAD
total
life
non-life
in %
15
10
5
0
1998
2007
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
billions Euro
14
12
10
8
6
4
2
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Chartis / AIG
Aviva
AXA
Berkshire Hathaway
Coface
Fortis
Generali
Halifax
Helvetia
IMA
Bloise
Nationale Suisse
Royal Bank of Scotland
Scor
Skandia
Swisslife
Swiss Re
Uniqa
Vienna Insurance Group
Zurich Financial Services
2.5
life
in %
2
1.5
1
0.5
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
in %
2.0
non-life
1.5
1.0
0.5
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0.0
10
non-life
in %
4
3
2
1
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
billions Euro
35
30
25
20
15
10
5
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
11
ADAC
Allianz
ARAG
Concordia Gruppe
Continentale Krankenversicherung
DEVK
HDI
Inter Krankenversicherung
Mnchener Rckversicherungs-Gesellschaft
Nrnberger
Rheinland Gruppe
R+V
Signal
VHV
Wertgarantie
Wstenrot und Wrttembergische AG
*insurance groups with subsidiaries in at least one other European country, supervised by
European College of Supervisors, BaFin acting as lead supervisor
Source: CEIOPS
1,200
non-life
millions Euro
1,000
800
600
400
200
0
2001
2002
2003
2004
2005
2006
2007
2008
Source: BaFin
12
300
non-life
millions Euro
250
200
150
100
50
0
2001
2002
2003
2004
2005
2006
2007
2008
Source: BaFin
life
1.6
non-life
1.4
in %
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2001
2002
2003
2004
2005
2006
2007
2008
13
Share of foreign business in premium income of the insurance companies under German supervision*
3.0
life
property & casualty
2.5
in %
2.0
1.5
1.0
0.5
0.0
2001
2002
2003
2004
2005
2006
2007
2008
14