Singapore, Qatar, Dubai and Bermuda. Forget worrying about British-based businesses moving to EU capitals – these are the jurisdictions with which we must compete if our vital insurance industry is to thrive.
Over the next two years, there is a risk that so much energy will be expended on Brexit negotiations that we will neglect to plan for the expansion of our key industries. Nonetheless, action now will ensure we 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 we are in the EU, the UK will be covered by that deal, but we should be working to ensure it can be replicated on a UK-only basis after 2019.
We then need to get “match fit” to take advantage of new opportunities, ensuring that our 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. Our 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 our regulators should start routinely benchmarking the UK against the very best practice of our 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 our 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.
Bilateral negotiations offer us the chance to identify barriers to trade in both existing markets, such as the US, and rapidly emerging markets in Latin America and India. We are all alive to the concern that the Trump administration may introduce an import tax which, if it were to include financial services transactions from non-US insurance carriers, could have a negative impact on the competitiveness of our offering. These kinds of issues must be raised at ministerial level if we are to persuade US counterparts that it is in nobody’s interest to damage the competitiveness of the products that UK insurers and reinsurers are able to offer US customers.
Many emerging economies have in place local restrictions on the amount of reinsurance that can be bought from overseas providers, and some prevent the sale of primary insurance by the London insurance market entirely. Overcoming these barriers often does not require a comprehensive trade agreement, but relies on our building an understanding of how our markets can be more aligned in terms of access rights, regulation and governance.
Ministers from the Department for International Trade are committed to working with the domestic industry to identify and overcome such barriers. However it is vital that we work equally closely with counterparts in target emerging markets to showcase our insurance and other industries in a way that demonstrates the significant benefits to them of being able to access London capital and its expertise.
By keeping London competitive, retaining talent and relentlessly promoting our 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.
Our responsiveness will be taken as a key indicator of our desire to make the UK a business-friendly jurisdiction. While firms broadly accept that there is much the government cannot know about the outcome of our Brexit negotiations, how we deal with the things that are within our control will tell the world much about the type of Britain we are seeking to build.