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Does Organizational Heritage Matter in the Development of Offshore Markets? The Case of Australian Life Insurers


The globalization of financial markets over the past decade has focused the spotlight on the responsiveness of financial firms to international pressures. Insurance markets have traditionally relied on global networks not only to expand the insurers' sphere of influence but also to support domestic business. Until relatively recently, Australian insurance companies have not played a significant role in the development of international markets. However, in the last decade of the twentieth century Australian insurers ventured overseas on a scale without precedence. This article presents an historical perspective on the internationalization of the Australian life-insurance market with a view to understanding why these firms have been classified “late starters” in the internationalization stakes. In a broader capacity it provides insights into the impediments to overseas expansion and the forces encouraging or discouraging the development of cross border networks.

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1 Recent publications highlight the extent of research undertaken in this respect: Borscheid Peter and Pearson Robin, eds., Internationalization and Globalization of the Insurance Industry in the Nineteenth and Twentieth Centuries (Zurich, 2007); Pearson Robin, ed., The Development of International Insurance (London, 2010); and Borscheid Peter and Haueter Niels Viggo, eds., World Insurance: The Evolution of a Global Risk Network (Oxford, 2012).

2 Wilkins Mira, “Multinational Enterprise in Insurance: An Historical Overview,” Business History 51, no. 3 (2009): 334–63.

3 Pearson Robin, Insuring the Industrial Revolution: Fire Insurance in Great Britain, 1700–1850 (Aldershot, 2004).

4 Supple Barry, “Corporate Growth and Structural Change in a Service Industry: Insurance, 1870-1914,” in Essays in British Business History, ed. Supple Barry (Oxford, 1977), 71.

5 Pearson Robin and Lönnborg Mikael, “Regulatory Regimes and Multinational Insurers before 1914,” Business History Review 82 (Spring 2008): 67.

6 Ibid., 61.

7 Pearson , ed., The Development of International Insurance, 1112.

8 These companies were the Equitable, New York Life, and Mutual Life; Pearson , ed., The Development of International Insurance, 15.

9 Pons Jeronia Pons, “Multinational Enterprises and Institutional Regulation in the Life Insurance Market in Spain, 1880-1934,” Business History Review 82 (Spring 2008): 113.

10 Verhoef Grietjie, “Life Offices to the Rescue! A History of the Role of Life Insurance in the South African Economy during the Twentieth Century,” in The Development of International Insurance, ed. Pearson Robin (London, 2010), 145–66.

11 Borscheid Peter, “A Globalization Backlash in the Interwar Years,” in Internationalization and Globalization of the Insurance Industry in the Nineteenth and Twentieth Centuries, ed. Borscheid Peter and Pearson Robin (Zurich, 2007).

12 Merrett David, “Australian Multinationals in Historical Perspective,” in The Internationalization Strategies of Small-Country Firms: The Australian Experience of Globalization, ed. Dick Howard and Merrett David T. (Cheltenham, UK, 2007).

13 Merrett David, “Australian Firms Abroad before 1970: Why So Few, Why Those, and Why There?Business History 44, no. 2 (2002): 6587.

14 Maitland Elizabeth and Nicholas Stephen, “The Internationalization of Australian Firms in Asia,” International Studies of Management and Organization 32, no. 1 (2002): 79108.

15 Keneley Monica, “Organizational Capabilities and the Role of Routines in the Emergence of a Modern Life Insurer: The Story of the AMP,” Business History 51, no. 2 (2009): 248–67 and Keneley Monica, “Adaptation and Change in the Australian Life Insurance Industry: An Historical Perspective,” Accounting Business and Financial History 14, no. 1 (2004): 91109.

16 Dunning John, “The Eclectic Paradigm of International Business: Past, Present, and Future,” International Journal of the Economics of Business 8, no. 2 (2001): 173–90.

17 Collis David, “A Resource-Based Analysis of Global Competition: The Case of the Bearings Industry,” Strategic Management Journal 12 (Summer 1991): 51.

18 Ibid., 65.

19 Johanson Jan and Vahlne Jan-Erik, “The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments,” Journal of International Business Studies 8, no. 1 (1977): 2332 and Johanson Jan and Vahlne Jan-Erik, “The Mechanism of Internationalization,” International Marketing Review 7, no. 4 (1990): 1124.

20 Bartlett Christopher and Ghoshal Sumantra, Managing across Borders: The Transnational Solution, 2nd ed. (Boston, 1998), 3940.

21 Collis , “Resource Based Analysis,” 52.

22 Buckley Peter and Casson Mark, “Models of International Enterprise,” Journal of International Business Studies 29, no. 1 (1998): 2144.

23 Johanson and Vahlne , “The Mechanism of Internationalization,” 15.

24 Javalgi Rakshekar, Griffith David, and White Steven, “An Empirical Examination of Factors Influencing the Internationalization of Service Firms,” Journal of Services Marketing 17, no. 2 (2003): 185201.

25 Benjamin Rodney and Merrett David, “Financial Services: Banking and Insurance,” in The Internationalization Strategies of Small-Country Firms: The Australian Experience of Globalization, ed. Dick Howard and Merrett David T. (Cheltenham, UK, 2007).

26 Hansmann Henry, The Ownership of Enterprise (Cambridge, Mass., 1996), 266–68.

27 Hansmann Henry, “The Organization of Insurance Companies: Mutual versus Stock,” Journal of Law, Economics and Organization 1, no. 1 (1985): 134.

28 Gray Arthur C., Life Insurance in Australia (Melbourne, 1977), 1217.

29 Ibid., 23.

30 Maddock Rodney and McLean Ian, eds., The Australian Economy in the Long Run (Cambridge, UK, 1987), 14.

31 Gray , Life Insurance in Australia, 2223.

32 Few records of life-insurance companies have survived. Gray's review of post office directories lists several others, which were of a transitory nature, not surviving for more than a year or two at the most. Ibid.

33 Gray , Life Insurance in Australia, 2428.

34 Calculated from the returns of Australasian life insurers as listed in the Australasian Insurance and Banking Record (Melbourne, 1881).

35 Previously a policy holder who defaulted on a premium payment forfeited the total value of his policy. Under the non-forfeiture provision a policy could not lapse as long as there were sufficient funds from the surrender value to pay the premium.

36 Tontine policies represented a pooling of funds among a group of life insurance policy holders for a specific period of time from between ten to twenty years. The policy benefits of those who died during this period were redistributed to surviving policy holders.

37 Pons Jeronia Pons, “Large American Corporations in the Spanish Life Insurance Market (1880–1922),” Journal of European Economic History 34, no. 2 (2005): 470.

38 Blainey Geoffrey, A History of the AMP (Sydney, 1999), 98100; AMP Guard Books (1885–1907), AMP Archives, Sydney.

39 Keller Morton, Life Insurance Enterprise, 1885–1910 (Cambridge Mass., 1963), 8182.

40 Moss Michael, The Building of Europe's Largest Mutual Life Company: Standard Life, 1825–2000 (Edinburgh, 2000), 102 and 134.

41 Whole life policies were insurance contracts which paid an agreed sum on the death of the policy holder. An endowment insurance contract paid a lump sum either on death or the maturity of a contract which specified that contributions be made for a certain number of years.

42 Supple Barry, The Royal Exchange: A History of British Insurance, 1720–1970 (Cambridge, UK, 1970), 221; Gray , Life Insurance, 6061.

43 Industrial insurance was first introduced in Britain in the 1850s. Industrial insurance policies were small-value policies paid by weekly or monthly premiums and targeted at lower income groups.

44 Gray , Life Insurance, 49.

45 Blainey , History of the AMP, 149–50.

46 Australasian Insurance and Banking Record, 13 May 1886.

47 For example, the leading banking and insurance journal was the Australasian Insurance and Banking Record, which reported in depth on financial conditions in both countries.

48 An example of the link in insurance circles can be seen in the formation of the New Zealand tariff system in the 1890s. The meetings of New Zealand insurers responsible for forming the tariff association took place in Melbourne rather than a New Zealand city. At this point Melbourne was the recognized center of the Australasian insurance market.

49 See note 48 above.

50 Australasian Insurance and Banking Record, 14 July 1885.

51 Ibid., Jan. 1885.

52 For example, the New York Life did almost one-third of its business overseas in 1885. Wilkins , “Multinational Enterprise in Insurance,” 338.

53 Like many British companies, the Legal and General first entered the Australian market in 1948 selling general insurance before moving across into the life-insurance market. One motivation for this shift was the growth in pensions insurance after World War II. The Legal and General was a leader in the provision of this type of insurance in the United Kingdom and was so successful that it moved from the tenth to the second largest insurer between the 1930s and 1950. Hannah Leslie, Inventing Retirement: The Development of Occupational Pensions in Britain (Cambridge, UK, 1986), 3738.

54 Life Insurance Commission, Annual Report (Canberra, 1962).

55 Gray , Life Insurance, 257.

56 Swiss Re, Australian Reinsurance Company, General Manager's Report 1967, Ms 10.169577.5, Swiss Re Archives, Zurich.

57 Swiss Re, Australian Reinsurance Company, General Manager's Report 1968, Ms 10.169577.6, Swiss Re Archives, Zurich.

58 Keneley , “Adaptation and Change,” 99100.

59 The Review, 24 Sept. 1954, 925.

60 Davis Kevin, “Financial Restructuring in Australia,” Economic Papers 16 (1997): 12.

61 Previously, bank-owned subsidiaries had operated in insurance markets, but they were restricted from fully utilizing banking networks.

62 AMP, Principal Board Minutes, Appendix E, 26 June 1996, AMP Archives, Sydney.

63 Compulsory superannuation, where all employers were required to deposit a proportion (a minimum of 9 percent) of salaries into their employees' pension fund, was introduced in 1992. Most superannuation policies had a life-insurance component, reducing the need to take out separate life insurance.

64 AMP, Memorandum for Principal Board, 19 Feb. 1987, AMP Archives, Sydney.

65 The major life insurers in this context are defined as those whose core business is derived from the sale of life-insurance products and are listed in the top twenty life insurers in terms of assets in 1990. The firms identified were the three mutuals, AMP, National Mutual Life, and Colonial Mutual. The remainder of the top twenty consisted of nine overseas, four general insurers, three bank-owned, and one other (owned by a property management company).

66 AMP, Principal Board Minutes, Appendix, 1 Mar. 1989, AMP Archives, Sydney.

67 AMP, Annual Reports (Sydney, 19982000).

68 The Australian, 21 Aug. and 15 Oct. 2003. Progressive losses due to falling demand for AMP products in the UK and management problems led the AMP to divest itself of much of its UK business when it demerged from its British funds management arm Henderson Global Investors.

69 AMP, Memorandum, 24 Oct. 1997, AMP Archives, Sydney.

70 The Age, 14 Nov. 2009.

71 Bain Elisa and Harper Ian, “Integration of Financial Services: Evidence from Australia,” North American Actuarial Journal 4, no. 3 (2000): 119.

72 Blainey , A History of the AMP, 71.

73 Maddock Rodney and McLean Ian, eds., The Australian Economy in the Long Run (Cambridge, UK, 1987).

74 Unlike the British market and the Australian general insurance market, there was no tariff system in place governing market conduct. There is also no evidence to suggest that other price-fixing arrangements were in place.

75 Australasian Insurance and Banking Record (1960); Life Insurance Commission, Annual Report (Canberra, 1980).

76 Insurance and Superannuation Commission, Half-Yearly Financial Bulletin on Life Insurance (Canberra, 1990).

77 A further six were subsidiaries of general insurers, and an additional six were bank owned. The remaining six were either subsidiaries of other life insurers or other financial service providers. Of the seven life insurers listed in 1990, four were mutuals and three, small providers.

78 Insurance and Superannuation Commission (Canberra, 1990).

79 Centre of Organization Research Design and Strategy (CORDS), Report to the AMP, Aug. 1987, AMP Archives, Sydney.

80 Kriegler Roy, Dawkins Peter, Ryan Jane, and Wooden Mark, Achieving Organizational Effectiveness: Case Studies in the Australian Service Sector (Melbourne, 1988).

81 AMP, Annual Report (Sydney, 1995).

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