|
|
Over the next two years, there is a risk that so much energy will be expended on Brexit negotiations that UK will neglect to plan for the expansion of its key industries. Nonetheless, action now will ensure UK can hit the ground running in March 2019. In a global market that does not stand still, the UK must play to its strengths, supporting the industries that are successfully exporting across the world and bringing significant investment back to London.
The government’s Brexit White Paper recognised the significant economic contribution played by London’s insurance industry, centred on Lloyd’s of London. This export-driven business contributes over £60bn to the economy and its future success will likely be determined by its ability to expand into new markets and attract new business from its biggest customer, the US, where £13.9bn worth of London insurance market premiums currently originate.
With the appetite for multilateral trade deals snuffed out by President Trump, financial services might stand to benefit from a more focused and sector-specific bilateral US-UK deal that could aim to give UK reinsurers the same advantages given eligible EU reinsurers under the US-EU Covered Agreement. That agreement encourages the exchange of information between jurisdictions and removes local reinsurance statutory collateral and local requirements for EU and US reinsurers operating in one another’s markets. For the remaining two years that UK is in the EU, the UK will be covered by that deal, but UK should be working to ensure it can be replicated on a UK-only basis after 2019.
UK then needs to get “match fit” to take advantage of new opportunities, ensuring that its finance industries are as competitive as possible, while upholding the highest standards. Insurance is a very mobile industry and customers can often move at a moment’s notice on the advice of their broker. A significant proportion of the London market’s premium relies on a small number of global brokers, with 16 controlling approximately 82 per cent of London’s premium. Brokers will steer clients towards the market that best meets their needs, so London can prevent flight of business if it continues to offer the best solutions in the most competitive environment.
The London Market Group’s Brexit Roadmap deems regulation crucial to creating the right environment for innovation and investment. UK‘s fiercest competitors have regulators with statutory duties to support the promotion of their local insurance markets. In contrast, neither the Financial Conduct Authority (FCA) nor the Prudential Regulation Authority (PRA) have such objectives, and do not even need to have regard to the impact of their actions on the competitiveness of UK financial services relative to other markets.
Using Brexit as a catalyst, many competitor jurisdictions are now actively courting UK financial services. The UK has taken the leading role in developing insurance regulations that are fast becoming the global standard, so it would be a miscalculation to engage in a regulatory race to the bottom in response. But Uk’s regulators should start routinely benchmarking the UK against the very best practice of its competitors, particularly on the speed of the authorisation process, and the PRA might also consider creating a dedicated inward investment unit to encourage new entrants to the UK.
Brexit could also prove an opportunity for Uk’s regulators to fine-tune the solvency regime while maintaining equivalence with EU regulations – even very minor changes to solvency margins and capital requirements could attract customers and firms back to classes of businesses they have found challenging in recent years.
By keeping London competitive, retaining talent and relentlessly promoting its high quality services, the insurance sector can continue to be one of the major powerhouses of the City. Nonetheless, customers and firms will be watching closely to see how quickly UK authorities work to minimise disruption to the UK’s insurance markets as we extricate ourselves from the EU.