It’s not just the stock market: insurance must be part of the London competitiveness debate

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The crisis of confidence suffered by the London stock market has raised important questions on the growth environment for UK companies.

However, the feeling of staying afloat is not limited to the stock market.

Some senior figures in London’s specialist insurance and reinsurance market, centered on Lloyd’s of London, have warned for years that slow regulators and crudely worded rules are causing it to lose ground.

While any sector in the UK risks being overhyped as a ‘global beater’ by overzealous politicians, London’s centuries-old insurance market has a credible claim.

It is recognized for insuring and reinsuring the largest and most esoteric risks, from energy infrastructure to cyber. It contributes just under a quarter of the City’s economic output, according to an industry estimate. Limiting access to the London insurance market after the Russian invasion of Ukraine last year was a key part of the UK’s moves to put pressure on Moscow, giving weight to its financial sanctions.

But there is growing concern about that supposed primacy. London’s share of the global insurance market, at just under 8 percent, has been “stagnant” in recent years, says Caroline Wagstaff, chief executive of the London Market Group, an umbrella trade body for the specialist insurance sector. from the city.

She argues that there are two general problems: a “one size fits all” regulation that treats all insurance buyers, whether they are “Aunt Floppy buying her caravan insurance” or a sophisticated corporate buyer, creating an undue administrative burden.

The other is the slow pace of signing a series of necessary regulatory clearances, a problem across the financial sector. in a report Earlier this year, trade body TheCityUK said financial regulators can “often miss statutory deadlines for processing authorization applications” and “frequently miss deadlines” for approving key executives within companies, in particular.

Some change is coming. The Bank of England’s Financial Conduct Authority and Prudential Regulation Authority are gaining new secondary objectives to facilitate competitiveness and economic growth. The government earlier this month issued a consultation on the type of performance metrics and information that the FCA and PRA are required to publish in relation to their new targets.

The London Market Group is urging regulators to publish a comparative analysis of how the UK is faring against other financial jurisdictions, including the number of new companies approved, the time it takes to greenlight applications and the rates of rejection. It is also driving new metrics, such as assigning a case manager within five days of submitting a new application, to stop schedule delays.

The concern for some is that any operational improvements will come too late for one of the fast-growing segments of the industry to take root in London: insurance-linked securities (ILS), where investors provide what is essentially a form of reinsurance that pays when a certain event has occurred, such as a damaging storm.

“It was expected that there would be more, and we have to look at that,” then-City Minister John Glen said last year, when there had been just eight ILS approvals in the five years since the enabling legislation passed. The Bank of England made some changes last year to speed up decision times.

Wagstaff argues that London’s attempt to mount an ILS challenge has “failed” given the low number of securities authorized so far. Regulators “were slow, cautious and risk averse, that doesn’t happen in Singapore or Bermuda,” she added. Last year, he told a House of Lords committee that Singapore, a newer ILS hub with a similar framework but a perceived faster regulator, had secured $700m of investment that “could have come to London.” “.

Optimists can point London bridgea new framework that allows institutional investors to put money to work within Lloyd’s, which it says is as quick to implement as ILS transactions in other markets.

Another long-standing concern will not be addressed by the competitiveness boost. Other jurisdictions have led the UK in developing tailored regulatory frameworks for captive insurance companies – entities established within a group of companies to effectively self-insure against risks. The government promised last year “more work” in this area.

A degree of caution about new structures, which introduce new risks, is understandable. And the London market is generally healthy, thanks to rising insurance costs. Lloyd’s alone expects premiums to rise from nearly £47bn in 2022 to £56bn this year.

But the stock market woes show that a longer-term view is required. London also needs a more detailed assessment of its attractiveness as a place to do insurance business.