Council of Insurance Agents & Brokers, Reinsurance Association Issue Joint Public Comment on Trade Representative Notice

WASHINGTON, Nov. 2 -- The Council of Insurance Agents and Brokers and the Reinsurance Association of America have issued a joint public comment on the Office of U.S. Trade Representative notice entitled "Request for Comments: Significant Foreign Trade Barriers for the National Trade Estimate Report". The comment was written on Oct. 25, 2021, and posted on Oct. 28, 2021:

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On behalf of the Council of Insurance Agents and Brokers (The Council), the premier industry association for leading U.S. insurance brokerages, and the Reinsurance Association of America (RAA), we appreciate the opportunity to weigh in on trade and investment barriers and practices in insurance intermediation that our members face in global markets. Specifically, we would like to stress continued limitations on foreign direct investment (FDI) and restrictions on cross-border data transfer as key barriers to U.S. companies' operations abroad. According to the World Bank, many countries have removed restrictions on foreign investment participation in both established markets of Europe and North America and emerging economies worldwide. Elimination of foreign investment caps in the insurance sector in India and China stands out as a recent example when our major trading partners embrace FDI benefits, delivered by overseas companies.

Unfortunately, we have also seen examples when FDI restrictions on foreign ownership and control of domestic companies were introduced as part of broader economic development initiatives, such as local empowerment in African markets. We support these policies and welcome solutions that encourage sustainable growth through foreign participation in the insurance sector. Foreign investment in insurance increases the local market capacity, thereby assuring broader and more affordable coverage, and secures access to technology and global expertise. It also supports healthy competition and emergence of products that meet consumers' immediate needs. In emerging markets, foreign majority-owned companies employ millions of local citizens in well-paid positions and invest in developing indigenous talent. Therefore, we would like to address the following investment policies that in our view limit the economic benefits, that could result from FDIs:

Botswana

The Government of Botswana is in the process of formulating a regulatory framework for economic empowerment policies to support previously disadvantaged citizens. In the interim, the current statutory regulation requires that financial services procurement contracts of up to U.S.$1 million be reserved for fully Botswanan-owned businesses. The Minister of Finance and Economic Development may also reserve certain contracts for local citizens or companies and may implement preferential procurement in favor of local businesses. Contracts awarded to noncitizens and foreign contractors may also allow for sub-contracting only to Botswanan businesses. By excluding foreign-owned companies from government tenders, the Botswanan government effectively limits access to global best practices. Pricing will also be impacted, as more established multinationals are known to produce highly competitive offers to benefit the local economy.

The primary objective for Botswana's Revised National Policy on Incomes, Employment and Profits is to encourage foreign-owned businesses to employ local citizens with similar qualifications and experience. Its provisions stipulate that companies with more than five foreign employees must submit a five-year development plan for training Botswanans to replace nonlocal hires. We are supportive of this, but at the same time, such requirements reduce citizens' exposure to international expertise which can benefit the market through skills transfer.

Tanzania

Under the Tanzania Investment Act of 1997, foreign investors seeking to enter the market must apply for an investment certificate. When deciding on investment certificate applications, local authorities review various effects of a specific FDI on job creation, skills transfer, tax collection and others. In addition to these cross-cutting foreign investment policies, Tanzania applies sector-specific requirements in insurance intermediation that act as trade barriers and affect brokers' operation and the level playing field.

The Insurance Act of 2009 provides that Tanzanian citizens must hold at least 66% in a licensed broker either through corporate shares, paid-up capital or voting rights. The regulation does provide for an exemption to waive the foreign ownership restrictions, however, there is no precedent of such exemptions being granted to multinational brokers.

Kenya

Similar to Tanzania's FDI regulation, foreign investors in Kenya may need to apply for a certificate to assess their investments' potential effect on local job creation, skills transfer, tax income and other factors. These requirements put additional pressures on U.S. brokers to comply with high market entry requirements and may expose investors to decisions that may impact existing investments.

Kenya's Insurance Act (CAP 487) also stipulates that local citizens or corporations must contribute at least 60% of paid-up capital in brokerages. The Act does provide for an exemption process to waive the local ownership requirement, but a more streamlined registration process, based on realistic market expectations and available local capital, would secure a more transparent and attractive investment regime and robust sectoral development.

Namibia

Once implemented, the Namibian Investment Promotion Act of 2016 (NIPA) will require that foreign investment participation over a prescribed threshold, changes in investment and license transfers be approved by a sectoral ministry ahead of time. The Competition Act of 2003 also mandates the Namibian Competition Commission can impose conditions when reviewing corporate mergers applications. In the past, the Commission applied local empowerment conditions to U.S. companies' mergers with Namibian partners which effectively increased the local ownership share and transaction costs.

In addition, the New Equitable Economic Empowerment Framework Bill (NEEF) is expected to set previously disadvantaged nationals' ownership stakes in private companies. As we understand, this regulation is yet to come into force, but U.S. companies may be forced to disinvest within a set period, determined by the Ministry of Industrialization, Trade and SME Development, and ensure that at least 50% of their management has Namibian citizenship. The Bill also contains strict penalty provisions for non-compliance, including a fine or imprisonment for up to 10 years.

Zambia

Zambia's Insurance Bill of 2021 contradicts the fundamental objective to advance the country's development and foreign investment and may require disruptive and costly adjustments by existing foreign investors to secure compliance. Although interested parties had an opportunity to comment on prior drafts, the government has rejected the private sector's critical input and kept a 49% investment cap on foreign participation in insurance intermediation and separate caps for insurance and reinsurance companies. In addition to restrictions on foreign equity in insurance, the regulation directs the Ministry of Finance to set local reinsurance cession requirements and introduce mandatory cessions to the National Reinsurance Company. Such practices have been phased out by many global markets, and we are disappointed to see them resurrected in the Bill. Finally, the legislation gives the Ministry significant power over the corporate governance decisions of insurers in Zambia.

Foreign investment barriers in Asia

We would also like to call attention to the following key trading partners in Asia maintain market entry restrictions on foreign investment in insurance intermediation:

- Malaysia and Thailand. Full foreign ownership of insurance broking businesses is prohibited in both markets, thus insurance brokers must be majority locally-owned.

- Indonesia requires 20% of shares in insurance brokerage businesses be held by local shareholders.

- India. Despite India's significant progress in liberalizing its investment regime and opening the market to fully foreign-owned insurance brokerages, insurance intermediaries are still subject to restrictions on earnings repatriation. For example, brokers' dividends are capped at 75% of profits, and intra-group payments are capped at 10% of Indian brokers' annual expenses.

Data transfer and data localization requirements

China has recently introduced a series of interrelated regulations, affecting cross border data flows and resulting in data localization and certification requirements that the brokerage community and their clients must comply with:

- Data localization. Cyber and data security laws restrict cross border data flows and lead to data localization for certain types of data of importance to China's economic development, national security, public interest and individuals' and entities' legitimate rights and interests in select sectors. These rules concern businesses involved in communications, information services, energy, transport, water, financial services, public services and electronic government services. Although the regulations do not directly impact insurance brokers, their clients would be subject to new requirements which means intermediaries would need to comply while servicing their clients. China has also introduced regulations in the insurance intermediation space that require brokers to localize systems for business, finance and human resources.

- Certification for online services. Brokers' delivery of insurance services online requires a registration. As a result, a network platform must obtain a security certification, which mandates that associated data be localized.

- The Personal Information Protection Law will come into force on November 1 and will further restrict cross-border transfer of personal data. Although this regulation appears in line with international norms and similar rules, insurance brokers are concerned that its implementation will require a regulatory overhaul, which creates opportunities for uneven and discriminatory application and higher compliance and litigation costs.

In addition to China's barriers, our members also stress substantial restrictions on cross border data transfer and data localization in Vietnam and India. Under Vietnam's 2018 Cyber Security Law, enterprises that provide services on telecommunication networks or the internet and collect, analyze or process personal information data from service users in Vietnam must store such data in Vietnam. India's regulations require that all insurance e-commerce platforms be hosted on servers located in India and insurers are required to store all policyholder related data in India.

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The Council and RAA are committed to securing a more level global playing field for U.S. trade and investment globally, and our members want to continue supporting governments' efforts to promote economic development, to advance local workforces, and to protect data. However, the investment, trade and data policy initiatives discussed above are unfortunate examples of regulations that local authorities are considering or have recently implemented, and these regulations appear likely to adversely impact the host country's investment climate and overlook U.S. investors' substantial contributions in the sector.

We would welcome discussing our members' trade, investment and data transfer concerns with U.S. trade negotiators in greater detail.

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The notice can be viewed at: https://www.regulations.gov/document/USTR-2021-0016-0001

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