Globalization of Insurance

According to Vaughan and Vaughan, they mentioned in the text, “Reinsurance is the most global sector of the insurance industry. In 2011, fewer than half (42 percent) of the reinsurance premiums ceded by U.S. insurers went to U.S. reinsurers.” They also stated that there are two approaches to reinsurance regulation. Under the first approach, the reinsurer isn’t directly controlled. Ceding companies are treated as informed purchasers and regulators rely on these ceding organizations to manage their reinsurance risk properly, including securing coverage from financially reliable reinsurers.

Reinsurers are indirectly regulated, through requirements placed on the ceding company. Under the second approach, the reinsurer is directly regulated; which means the reinsurer is subject to regulatory requirements for licensing, minimum capital, and financial reporting; regulatory oversight through inspection and examination; and various forms of solvency supervision.

General Trends for the Global Insurance: Since the 1990’s, the following trends have been widely experienced by the global insurance industry: Concentration and centralization processes including formation of strategic alliances among insurance and reinsurance companies; consolidation of banks, insurance companies, and credit companies to form transnational financial groups; and mergers among small and medium insurance companies to form large international insurance companies. Transition to traditional structures and types of insurance services and new insurance products includes organizing insurance coverage through securitization; insurer participation in pension insurance and reduced role of governments in providing old-age and disability benefits; new insurances against political, military, security, and informative risks. Change of market scenarios includes internet sales of insurance and reinsurance products; insurance losses due to urbanization, climate change, and private property price increases; liberalization of state and supra-state regulation of financial and insurance markets.

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