Insuring Global Markets
Insurance Privatization in the Age of Globalization, 1980-2008
Derek Hattemer
Beginning in the 1980s, a wave of privatizations swept the world of finance. In insurance these initiatives undid the legacy of a century of public company foundations and nationalizations – more than one hundred cases since the first such interventions in Italy and Uruguay in 1912. This transformation was by no means confined to the developing or post-Soviet world: between 1986 and 1995, public monopoly insurers in France, Italy, Ireland, and Portugal were broken up and privatized in preparation for their countries to join the European common currency. In the United States, in the 1980s, precocious experiments in direct state provision of disaster insurance were abandoned in favor of a public-private partnership.
As the state seemingly withdrew from the financial sector, political theorists increasingly adopted the language of risk management to describe the state’s role as “insurer of last resort.” In fact, while the state withdrew from the direct investment of insurance funds and direct management of the business, it did not leave insurance behind. Through the spread and transformation of institutions such as the modern export credit agency, disaster underwriting schemes, mortgage insurance, and deposit insurance, the state lightened its financial footprint in favor of backstopping arrangements in which the private sector holds the assets, while the state assumes the excess risk.
The private insurance sector was no passive observer to this transformation, but rather exercised a decisive influence through direct lobbying and influence campaigns in the transnational epistemic community of insurance. Beginning in the 1970s, American International Group spearheaded a campaign to open up foreign insurance sectors through American government pressure by reclassifying “services” as subject to all American trade legislation in the Trade Act of 1974. Ronald Shelp, head of the AIG government relations team, penned a manifesto entitled “Beyond Industrialization: Ascendancy of the Global Service Economy,” in which he made the case for the centrality of services for economic development and American power. In Europe, the Geneva Association of insurance CEOs began to meet in 1973, with future French prime minister Raymond Barre assuming the office of president. While initially playing defense against the ongoing tide of nationalizations and exclusionary legislation, both the American and European sides of the business soon saw huge victories in the European Community’s initiative to integrate insurance markets through the abolition of public monopolies and the Uruguay Round of GATT’s strictures against barriers to trade in financial services.
This project examines these transnational networks, reconstructing the history of lobbying and epistemic change behind the privatization of insurance and the assumption of rump risks through state agencies. Beginning with the entangled history of insurers in the European and American centers of financial globalization, the study will then move to a set of periphery cases, examining the impact of this paradigm on the use of insurance as a tool of social and economic policy in a comparative perspective.