Insurance products provide protection against a vast array of different types of risk exposure, ranging from retail customers insuring their cars or homes, to complex areas such as cyber risk or space risk for commercial clients.See Lloyd’s of London, ‘What we insure’. Such risk is underwritten through insurance contracts.The ‘insurance’ value chain comprises significant reinsurance and retrocession markets, as well as direct insurance. These distinctions are explained in further detail in section A1.4—in this … Continue reading Much of this business, along with many associated supporting services, is internationally mobile in nature. The insurance sector as a whole is one of the largest contributors to UK GVA, accounting for approximately £30bn per year.ABI (2019), ‘The state of the market 2019’, p. 6.
The UK insurance industry comprises life insurance, general retail insurance, and commercial insurance. We focus in particular on those parts of the insurance sector where contracts are especially internationally mobile.We provide more detail on the market of internationally traded insurance contracts in section A1.4. In particular, we consider the ‘London Market’ as a large cluster of insurance providers and support services that provide for specialty insurance and reinsurance for international corporate clients.The London market comprises Lloyd’s (a highly specialist market that insures large-scale complex risks), and the Companies Market (which includes international insurance companies with operations … Continue reading The London Market is the leading global insurance hub, accounting for approximately £80bn in gross written premium in 2018.London Market Group (2020), ‘London matters 2020’, p. 9. The London Market accounted for £15bn in direct GDP contribution in 2018, rising to £26bn when including indirect contributions.Ibid., p. 17.
One reason why London is attractive in this sector is that it has traditionally been an innovative market, with market participants working to write risks and continually develop new products. London has therefore established a longstanding reputation as the world’s leading centre for insuring specialty risk. The widespread use of English law in internationally traded insurance contracts is another important factor behind the economic value that the insurance market brings to the UK. English law is chosen to govern many insurance and reinsurance contracts globally.
After London, the next largest insurance hubs globally are Bermuda, Zürich and Singapore. Although London remains the largest market, recent years have seen faster growth for the Bermuda and Singapore markets.London Market Group (2020), op. cit.
In addition, as trade in some markets shifts to new regions (e.g. growing global container flows in Asia), demand for insurance may follow since a large share will remain insured locally (e.g. Asia may become the largest market for marine cargo insurance).See, for example, BCG (2014), ‘London matters: The competitive position of the London Insurance Market’, p. 16. In turn, this may lead to an increase in the global use of insurance contracts not under English law. To demonstrate the potential scale of the impacts, we consider some stylised scenarios.
- If 10% of international insurance activity currently in the London Market were to move elsewhere and possibly be governed by a law other than English law, this could represent £8bn in gross written premium and an impact on GDP of approximately £2.5bn per year.
- A 30% reduction in UK international insurance activity from the London Market would involve losing £24bn in gross written premium, and £7.5bn loss to the UK economy.
However, there are many new developments and innovations within the insurance sector that offer opportunities for continued growth of business in the UK market and under English law. Markets may expand and market shares grow and/or return. Potential new developments may include cyber risks, privacy concerns around the use of biodata, and climate change, as well as ever-evolving technologies.For example, see IUA (2020), ‘Annual review 2019/20: Navigating the changing nature of risk’. Also see Oxera (2020), ‘The value of cyber insurance to the UK economy’, October. There is therefore great potential for the future use of English law in internationally mobile insurance transactions to generate significant value for the UK economy. For instance, if there were to be a 5% increase in activity in the London Market, this could represent more than a £1bn benefit to the UK economy per year.