Protectionism in the insurance industry

Nature

In many countries, legislation prohibits the insuring abroad of certain risks. Frequently, only locally incorporated companies may do business in the domestic market, thus excluding the provision of insurance directly by the parent company overseas. Placing insurance abroad may, however, be permitted when the local market does not have the necessary insurance capacity. Insurance with companies located abroad may be discouraged through fiscal measures. A number of countries tax premiums paid locally for imported insurance, for instance marine insurance, whereas premiums paid for insurance effected domestically are tax deductible. In the reinsurance sector, the placement of reinsurance directly with an institution located abroad is prohibited or limited in some developing countries. All reinsurance, or a fixed percentage thereof, has to be placed with a local reinsurance entity, normally a public or semi-public institution. As regards freight insurance, another measure is the requirement that imports have to be insured in the domestic market of the importing country. In some countries, a similar regulation exists for exports, requiring insurance in the exporting. Many governments limit direct foreign investment in their domestic insurance sectors. Some require that locally-established companies must be owned and managed entirely by nationals. Frequently, prohibitions are directed against a further expansion of established foreign insurance companies.

Limitations on foreign equity in insurance firms are also a common feature of many national insurance markets. The establishment of foreign reinsurers is excluded in some countries, where all reinsurance must be place with a designated indigenous institution. Foreign insurance companies may, like banking institutions, be required to meet higher capital and reserve requirements than national insurance firms. A number of developing and developed countries do not allow foreign insurance firms to offer certain types of insurance, such as life insurance. Foreign companies may also be subject to higher taxation of premium income. In some countries, requirements and regulations affect the operations of foreign insurance companies by influencing consumer choice in favour of national companies. Thus, it may be obligatory for a person who enjoys any government incentive or subsidy to insure with a national company.

Background

Protectionism in the insurance industry emerged as a significant global concern in the late 20th century, when multinational insurers began encountering regulatory barriers and market entry restrictions, particularly in developing economies. The issue gained prominence during international trade negotiations, such as those under the General Agreement on Trade in Services (GATS), as stakeholders recognized how protectionist policies impeded competition, limited consumer choice, and hindered the growth of cross-border insurance services.

Incidence

Protectionism in the insurance industry is a persistent issue affecting both developed and developing economies, with governments imposing restrictions on foreign insurers through licensing barriers, ownership limits, and discriminatory regulations. Such measures hinder market competition, limit consumer choice, and can stifle innovation, impacting the global insurance market’s efficiency and integration. The problem is particularly acute in emerging markets, where domestic insurers are often shielded from international competition, affecting the sector’s growth and resilience.
In 2022, India reinforced its protectionist stance by maintaining a 49% cap on foreign direct investment in insurance companies, despite calls for liberalization. This policy continued to restrict foreign insurers’ operational control and market access, drawing criticism from international trade partners and industry stakeholders.

Claim

Protectionism in the insurance industry is a critical problem that stifles competition, drives up costs, and limits consumer choice. By shielding domestic insurers from global competition, protectionist policies breed inefficiency and complacency, ultimately harming policyholders. In an interconnected world, such barriers are not only outdated but actively detrimental to innovation and economic growth. Urgent reform is needed to dismantle these harmful practices and ensure a fair, dynamic insurance market for all.

Counter-claim

Protectionism in the insurance industry is hardly a pressing concern. In reality, most consumers benefit from local regulations that ensure stability and reliability. The supposed dangers of protectionism are vastly overstated; global competition is not always beneficial in such a sensitive sector. There are far more urgent issues—like affordability and accessibility—that deserve our attention. Worrying about protectionism in insurance is simply a distraction from what truly matters.