Managerial Barriers to the Internationalization of U.S. Property and Liability Insurers: Theory and Perspectives

Abstract

Managerial Barriers to Internationalization of U.S. Property and Liability Insurers: Theory and Perspectives Trade Barriers to International Property and Liability Operations Government Trade Barriers Numerous articles in insurance trade literature document instances where governmentally imposed trade barriers may have prevented entry into specific foreign markets [National Underwriter (1985), Risk Management (1980), McIntyre (1984), Nutter (1981)]. Academic attention has also been given to documenting existence of trade barriers and their economic consequences [Organization for Economic Cooperation and Development (1983), Carter and Dickinson (1977), Detwiler (1983), Pfeffer (1976), Skipper (1987)]. However, importance of foreign trade barriers as an explanation for lack of international involvement of U.S. property and liability insurers is not known [Fisher (1982), Ripol (1983), Skipper (1987)]. The purpose of this article is to examine, in a theoretical context, foreign market entry patterns of U.S. property and liability insurers. The results of a survey of industry executives' attitudes toward foreign operations are analyzed. An explanation for that behavior which is consistent with theory is also proposed. An Information Gap One of most serious obstacles to foreign operations of U.S. insurers is lack of market information. That information gap may actually be a greater barrier to entry into foreign markets than are governmental trade barriers. According to Skipper (1987, p. 63), the most impotant practical problems relating to [trade in] services revolve around data inadequacy. Pfeffer (1978) also speaks to problem of obtaining data necessary for foreign market operations. Despite trade barriers and lack of information, a few U.S. property and liability companies have entered foreign markets. CIGNA Corp., American International Group, continental Insurance, Allendate Mutual and others have been exceptionally active abroad. However, majority of U.S. insurers have made no attempt to enter foreign markets. With so many insurers in United States, why have so few chosen to engage in international operations? Why have those who have chosen to do so become so active? The answer to these questions may, in part, lie in nature and cost of foreign market information available in United States. In turn, source of this information barrier may be result of historical pattern of international operations of U.S. companies. The Modern History of International Activities of U.S. Property and Liability Companies By beginning of World War II, number of U.S. property and liability insurers operating in Europe had declined from a high of 21 immediately following World War I to only a dozen [Glass (1960)]. During World War II, industry responded by providing international coverages, especially war risk coverage. But post-war era of domestic prosperity again saw industry turn it back on international operations. The European business of U.S. companies immediately following war was, at best, negligible. Writing in late 1950s, Glass notes that only seven U.S. companies, excluding American and Foreign Insurance Association (AFIA) and American International Underwriters (AIU), had substantially rebuilt their European business after World War II [Glass (1960)]. They were: The Insurance Company of North America of Philadelphia, American Home Insurance Company of New York, Glens Falls Insurance Company of Hartford, Great American Insurance Company of New York, Hanover Fire Insurance Company of New York, Home Insurance Company of New York, and National Union Fire Insurance Company of Pittsburgh. In addition, Allstate Insurance Company had entered European market on a broad scale after World War II. …