27 Jul 2016
Threats and opportunities for the London insurance market
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Ben Reid, Chief Executive Officer, London Market Group, explores the challenges and possibilities facing the world's largest insurance market
London is the centre of insurance excellence. The London Market is the world’s biggest, employing 48,000 people and generating £60bn in revenue – a substantial figure, equating to around 20% of the City of London’s annual income.
As a sector, we deliver emphatically on our purpose. Over the past five years, £140bn has been paid in claims.
While these figures are impressive there is no room for complacency. Although the £500bn global market is growing, London – depending on which class of business one takes as a measure – is either static or shrinking. Clearly, this is a matter of concern.
Our London Matters report published in November 2014 identified the key challenges we face in making our market more attractive, responsive and competitive. These have been distilled into four interdependent workstreams which the LMG is addressing: Building a diverse, dynamic workforce; making London an easier, more cost effective place to do business; telling the London Market story; and creating a better business environment for innovation.
Additionally, there are the not inconsiderable implications of the UK’s decision to leave the EU. I will come on to Brexit shortly. First, however, I would like to address the key issue of talent.
We recently conducted an industry survey among 700 respondents. The majority of organisations said they did not look outside the insurance market for new hires. At the same time, our research highlighted skills gaps in areas such as claims, wordings and operations.
This mismatch is a compelling argument for accessing a wider talent pool than is currently the case. Ours is an incredibly interesting market in which to work and we need to do more to bring on board talent with diverse skills.
We believe huge potential lies in attracting experienced hires.
For example, one group we are targeting is lawyers – both those just finishing their training contracts, and those a few years post-qualified. We are keen for them to think about new careers in the Market.
We are working with the Government to build a better business environment for innovation. A particular product we want to introduce is insurance-linked securities, so-called catastrophe bonds. There is a very significant market for catastrophe bonds in Bermuda but as things stand we cannot issue this type of product in the UK. We have worked closely with the Government to enact legislative change that will allow us to do so and it is our desire that this will be enacted speedily, stimulating the flow of new capital into the market.
Additionally, as part of an ongoing agenda we are exploring with Government how it can help us grow the market overseas. This brings me neatly onto the thorny issue of Brexit.
The EU is of course highly significant to us. Depending on how you look at it, the EU accounts for between 16-20% of our business. As a share of £60bn, it goes without saying that this is a huge amount of money. Yet a related point must be stressed: that means 80-84% of our business is from outside the EU. The onus is on us and others to be positive in promoting the resilience of the market to the rest of the world.
Nevertheless, we are mindful of the difficulties posed by Brexit and are lobbying in the interests of securing the best possible outcome. We have made our position clear in a recently released statement providing an initial perspective post EU referendum from the London insurance and reinsurance market.
Our top priority is the issue of ‘passporting’. We are calling on the Government to secure an arrangement as quickly as possible which ensures that passporting by UK headquartered firms into the Single Market and by EEA headquartered firms into the UK can continue uninterrupted on the occurrence of Brexit. This will ensure that both UK and EEA headquartered firms retain the single licence, remain subject to exclusive Home State prudential supervision and will provide assurance to EEA reinsurers currently operating within the London Market.
These are challenging times but I am heartened by the level of support the LMG enjoys for its agenda and optimistic about the future prospects for the London Market.
The LMG is a market-wide body, bringing together the specialist commercial (re)insurance broking and underwriting communities in London. It is the only body that speaks collectively for market practitioners on growth and modernisation issues, and its aim is to build and maintain London’s position and reputation as the global centre of insurance excellence. It is supported by the International Underwriting Association of London (IUA), Lloyd’s of London, the Lloyd’s Market Association (LMA) and the London & International Insurance Brokers’ Association (LIIBA).