London market issues Brexit recommendations to government as £8bn of EU premium at risk

European risk managers are already seeking to reduce their exposure to the London insurance market because of uncertainty over how claims will be settled and the reliability of cover provided in the post Brexit world, concludes a new report from the London Market Group. This is a big problem for the London market that takes some £8bn of premium a year from brokers on behalf of European customers. Moreover, over £6bn of international business is written in London by firms with a parent company or principal base located elsewhere in the EU. It is essential that mutual market access between the UK and EU is maintained post Brexit. These are stark conclusions drawn from a set of recommendations published today by the LMG for the UK government as it attempts to negotiate the best possible Brexit deal with Brussels. The LMG represents Lloyd’s, the London company market via the International Underwriting Association and brokers through the London & International Insurance Brokers' Association. Collectively the London market employs some 48,000 people and handles £60bn of revenue a year. It is vital that the market retains unfettered access to the massive European non-life insurance market that in 2015 generated total gross written premium of $432bn and represented 21% of worldwide non-life gross written premiums. As the European and world economy continues to get riskier by the day, European risk managers will increasingly turn to the international specialty insurance market for solutions to top up their more standard programmes. London remains the leading international specialty insurance market and if the EU decides to make access to London difficult it will not be doing European business any favours. The LMG already sees dark clouds on the horizon as the UK government and Brussels enter negotiations. “This [Brexit] is creating uncertainty in the minds of EU customers over the settlement of claims and the continuity of cover in future years and some are already seeking to reduce their exposure. Many of their policies will have a duration longer than the two-year Article 50 negotiating period for the UK to leave the EU. Others will give rise to claims that will be settled after this period,” states the LMG. The good news is that it believes a trade deal that delivers mutual benefits to both the UK and the European Union (EU) is within reach. The report highlights three key areas for future trade: -The need for a guarantee that the London insurance market will be considered to have regulatory equivalence with the EU -A new trade deal with the EU that gives UK and EU insurers, reinsurers and brokers continued rights to undertake cross-border activity -Early agreement on an implementation period to avoid a “cliff edge” on the day the UK leaves the EU. The UK government appears to understand how important this is for the London insurance market and wider UK economy. Nicolas Aubert, chairman of the LMG and CEO of Willis Towers Watson, said: “Since before the referendum LMG has focused on building relationships with government and we appreciate their willingness to develop an ongoing dialogue. As a result of these discussions they understand that a new deal is critical. Over £8bn of EU business comes to London. So, we are continuing to work closely with the government to see where there are existing precedents in current international agreements which could be used for the Brexit negotiations to support our industry.” Mr Aubert added: “While these alone will not be enough, they are a good place to start and could provide elements that deliver significant advantages to both UK and EU insurers, reinsurers and brokers. This is crucial as it is not legally possible to write EU business from the UK under WTO Rules.” LMG also believes that Brexit offers an opportunity to review the current regulatory environment to ensure that domestic regulation remains “proportionate” and does not put London at a disadvantage. The current UK regulatory system does not allow a joint approach from the regulator that enables it to both police and effectively support the market it supervises. Other markets such as Bermuda and Singapore hugely benefit from the support of their authorities. “Our competitor hubs in Bermuda, Dubai, Singapore and Zurich have regulators with duties to actively support the promotion of their local insurance markets. The FCA and PRA do not have such objectives and we think there would be value in giving them a balancing statutory objective to consider the impact of their actions on the competitiveness of the financial services sector,” said Mr Aubert. The LMG chairman said that the group would like to see the creation of a dedicated inward investment unit within the UK’s Bank of England to support and encourage new market entrants to the country, as well as retain those currently present. “This would ensure that our regulators maintain a day-to-day focus on helping to maintain London as the global centre for specialty commercial insurance and reinsurance,” said Mr Aubert. “We are right at the start of the negotiations and we are optimistic about what can be achieved. We welcome the government’s desire to work collaboratively with the industry to get the very best deal for the London market and the UK economy,” he concluded. Commercial Risk Europe and its sister title International Programme News are currently carrying out a detailed analysis of the London specialty insurance market, what it offers to the European and global risk management community and how it needs to evolve to meet customer needs. This report will be published as part of our new publication Specialty Insurance Buyer in late April to coincide with the Rims conference. We would be interested to hear the views of our readers on this important matter. Please email Adrian Ladbury on aladbury@commercialriskonline.com to share your views.

London market issues Brexit recommendations to government as £8bn of EU premium at risk

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