12 October 2016 Insurance

Regulatory environments among the biggest challenges

For global insurers and reinsurers operating in Asia, a significant challenge is the wide disparity between regulatory environments in which they are required to operate, Aaron Le Marquer, partner with law firm Tilleke & Gibbins, told EAIC Today.

“Asia is probably the most diverse region in the world, in terms of culture, economic development, and legal and regulatory systems,” he said. “This means that the hurdles to selling products in one country may be entirely different even between neighbouring countries, so there is never a ‘one size fits all’ solution.”

Thailand has for a long time been a relatively closed market from a regulatory perspective, with strict controls on foreign ownership, as well as an absolute requirement for all policy wordings to be approved by the local regulator before being offered for sale.

“We are often asked to assist international insurers to localise their policy wordings and assist with the regulatory approval process,” said Le Marquer. “In recent years there has been a growing awareness that liberalisation of the market is required so it can develop at an adequate pace.”

Limits on foreign ownership are therefore being gradually relaxed, and proposals have been put forward to dispense with the requirement for regulatory approval of policy wordings in relation to commercial business.

“This would enable international players much greater freedom to work with local partners in introducing innovative and bespoke specialty lines of business to the market,” he said.

Tilleke & Gibbins is seeing some interesting conflicts arising in reinsurance disputes at present. In Thailand for example, significant portions of risk are reinsured to the international markets.

“Reinsurance contracts may be subject to local Thai laws, but drafted based on common law principles which conflict with the laws applicable to the underlying contract and the reinsurance contract itself. So we find that frequently the risk transfer process is not realised in the way intended by the local cedant.

“On the local claims side, new class actions legislation in Thailand means that we can expect to see increasing numbers of third party consumer claims, including environmental liability, product liability and securities class actions. These will be new to the local insurance market (as well as the local legal community), and insurers will need to draw on experience from affiliates or parent companies in other jurisdictions in order to manage them effectively.”

Le Marquer said that in Thailand the anticipated liberalisation of the market means that there will be increased opportunities for insurers to enter the market to do locally licensed business without being subject to such strict restrictions on foreign ownership.

“The regulator has also clarified that it is open to the possibility of granting new licences in the near future. Likewise, if the product approval process can be eased, there will be more immediate opportunities for insurers and brokers to introduce more sophisticated specialty products to the market, to address the risks faced by local businesses.”

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