15 May 2012

Speech by the Financial Secretary to the Treasury, Mark Hoban MP, at the Insurance Day Summit

The Summit provided the ideal forum to analyse and debate the future of the insurance sector. London benefits from being the home of a diverse insurance sector meeting every day insurance needs of UK businesses and households but also being a global centre of excellence.

The ongoing sovereign debt crisis continues to undermine confidence across all our economies, the UK included.  This loss of confidence in Europe dents the prospects for economic growth, but insurers should remember that as economic power shifts from Europe they must shift their focus if they are to tap into new opportunities in the Far East and Latin America.

For the insurance market, the shift in global economic power is not a threat to its success - rather a tremendous opportunity for the UK insurance sector to build on its world leading strengths. Many UK firms already have a global footprint, and importantly have a strong presence in some of the fastest growing world economies. That brings opportunities for UK firms to expand to new markets, to innovate and provide new products, and help lead a UK recovery by exporting our insurance expertise and services.

Lloyds’s Vision 2025 provides an example of how the London Market can rise to the challenge…the headquarters for a network of hubs in overseas markets. The Government is also here to support insurers ambition… be it through UKTI support here or our embassies abroad, or through high-level access alongside ministerial delegations.

These opportunities emerge at the same time as there is increased regulatory focus on financial services through developments in Europe and at home. It is vital that across the financial system, as markets, products and services evolve, regulation changes to keep pace. Regulatory reform is essential to ensure that the financial sector does not jeopardise the stability of the rest of the economy.

For the insurance industry, Solvency II is the big ticket item. The UK has been a strong supporter of Solvency II. The timetable for agreeing the Directive and the subsequent Level 2 implementing measures creates a significant implementation challenge, so it is critical that everyone continues to work closely together as the final shape of Solvency II develops.

There are concerns about the cost of Solvency II, but the sophistication of the London market does mean that a number of firms have opted for the internal model to ensure the most efficient use of capital. This of course implies additional costs on firms as they develop or formalise their model and require the FSA to approve these models. In the longer term, the creation of a single solvency regime across Europe will help and not hinder London maintain and strengthen its reputation as one of the world’s leading insurance centres.

These regulatory changes of course pose substantial challenges for the industry, but also for European regulatory institutions, in particular for EIOPA as it grows into its role and builds its reputation. Critical to its success is ensuring that it delivers high and consistent standards of supervision across the EU. That means implementing Solvency II consistently across Europe to ensure a level playing field across Europe.

Looking at the insurance sector in particular….together with branch exemption introduced in the Finance Act 2011, the UK is ensuring it attracts the most innovative, successful and ambitious insurers to the UK. Solvency II and a globally competitive tax system, added to London’s strengths on time zone, legal system and depth of skills, make the UK an increasingly attractive place to do business.

Full speech

© HM Treasury