Industry analysts have proclaimed that the Free Trade Agreement (“FTA”) between the United States and South Korea represents one of the most commercially significant expansions of the U.S. insurance market in recent history . The FTA was executed on June 30, 2007 and is presently awaiting congressional approval. David Snyder, vice president and assistance general counsel to the American Insurance Association (“AIA”) has praised the potential benefits of the FTA to U.S. insurers. Earlier this year, he noted that the South Korean insurance market “for regulatory reasons, has been largely closed to” U.S. insurers. Mr. Snyder further noted that “we believe this to be the strongest outcome for financial services ever achieved in trade negotiations.”
South Korea is the world’s seventh largest insurance market, with an estimated $14 billion non-life and $34 billion life insurance market, second only to China in Asia. If the FTA is ratified, domestic insurers can expect a considerable increase in their previously minor stake in the South Korean market. Of the $6.8 billion U.S. insurance exports in 2005, only $74 million reached the South Korean market. In light of the FTA, however, the U.S. International Trade Commission (“ITC”) reports that U.S. insurance exports to South Korea in the non-life market alone could reach $5 billion. Up to now, South Korean insurers held 90% of the country’s life insurance market, and approximately 99% of the non-life insurance market.
The FTA seeks to establish a strong foundation upon which there will be regulatory transparency. It also requires a commitment from the South Korean government that US investors will be given either the same rights as domestic investors or the same rights those given to investors from the most favored foreign nation, whichever is better. Finally, the FTA requires that South Korea repeal restrictions on data processing, which the drafters of the treaty believe will result in $50 million in savings to U.S. life insurers. The FTA further provides that state-owned Korea Post, a government sponsored insurance provider, and cooperative insurance providers would be held to the same regulatory standard as private insurers. Moreover, Mr. Snyder noted that he had been advised that South Korea “agreed not to expand the government-owned Korea Post into property-casualty insurance.” The agreement would also establish an insurance committee and a dispute-resolution mechanism tailored specifically to the insurance market.
The non-life insurance market (which covers marine, aviation, and transit insurance; reinsurance and retrocession; services auxiliary to insurance services such as risk assessment, actuarial services and claims adjustment; and brokers and other intermediaries) can expect similar benefits. As noted by the ITC in its analysis of the deal, “[f]inancial services firms in general, and the insurance industry in particular, would likely be strong beneficiaries of the proposed new investment rules…. Financial services companies have faced restrictions in Korea on their ability to invest their operating funds and to offer new products and services, and foreign firms have been treated differently from Korean-based firms, with local companies permitted to provide certain services that foreign-owned companies could not provide.”
