Foreword
Summary
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A1
Acknowledgements
Figures and tables
Economic value of English law | Oxera

A1.4.1: Size of the market

Published: October 5th 2021
Download the Report Executive Summary Funders
2.1: Introduction 2.2: Economic value is created by ‘gains from trade’—realised through transactions 2.3: The law underpins growth in the volume of transactions (and therefore the generation of economic value) 2.4: Considering the law as infrastructure on which transactions take place
3.1: Introduction 3.2: The economic value created through the UK legal services ecosystem 3.3: The economic value created for the UK as a whole -3.3.1: English law as a global market standard -3.3.2: Agglomeration effects -3.3.3: Reduced transaction costs for UK businesses trading internationally 3.4: The choice of law and legal services for internationally mobile transactions
4.1: Introduction 4.2: English law provides significant value to the UK economy -4.2.1: Maritime sector -4.2.2: Commodity trading -4.2.3: ISDA swaps and derivatives -4.2.4: International insurance contracts -4.2.5: The value of English law to the UK economy is significant 4.3: Risks and opportunities 4.4: Future opportunities for the use of English law represent significant potential value to the UK
5.1: Introduction 5.2: English law suffers from a type of ‘market failure’ 5.3: Solutions to the free-rider problem: coordination across private and public parties 5.4: How to manage the ‘provision’ of English law
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Chapter A1

A1.4.1: Size of the market

The insurance sector as a whole accounts for approximately £30bn in GVA.[1]ABI (2019), ‘The state of the market 2019’, p. 6. It accounts for 1.1% of total UK employment, and its net exports are over £15bn per year.[2]House of Commons exiting the European Union committee (2017), ‘Insurance and pensions sector report’.

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. In particular, we consider the ‘London Market’ as a cluster of insurance providers and support services that provide for specialty insurance and reinsurance for international corporate clients.

The London Market is the leading global insurance/reinsurance hub, accounting for approximately £80bn in gross written premium in 2018.[3]London Market Group (2020), ‘London matters 2020’, p. 9. It employs around 47,000 people and contributes 7.7% of London’s GDP, as well as the majority of the insurance sector’s exports.[4]London Market Group (2020), ‘London matters 2020’.

Indeed, the London Market is a particularly global one, with international risks accounting for 80% of premium underwritten.[5]EY (2019), ‘2020 UK Insurance outlook’.

The London Market accounted for £15bn in direct GDP contribution in 2018, rising to £26bn when including indirect contributions.[6]London Market Group (2020), op. cit. A stylised diagram of the insurance value chain for internationally traded insurance/
reinsurance business is shown in Figure A1.4 below. We identify five broad categories within the overall value chain:

  • policyholders—these are largely commercial firms (including firms from around the world) that seek to insure themselves against a certain risk, and to a lesser degree these also include individuals;
  • intermediaries—the policyholder typically accesses insurance through a broker. This ‘local’ broker in turn may contact a ‘London Market’ broker;
  • insurers/underwriters—these underwrite the risk and are backed by capital that secures the claim of the insured. At Lloyd’s of London, syndicates are groups made up of members who provide capital. A syndicate will have a managing agent who appoints the underwriter to insure/reinsure the risk on behalf of the syndicate;[7]For further explanation of the role of the syndicate (and other participants) at Lloyd’s of London, see ‘The Lloyd’s market’.
  • reinsurance—in some cases, insurers transfer some of the risk to another insurer. On the whole this is done through a reinsurance broker, though it can also be done directly;[8]Reinsurers themselves also reinsure the risks they receive with other reinsurers (referred to as ‘retroceding the risk’). London is a very significant retrocession market in itself, though for … Continue reading
  • supporting services—there is a wide range of additional supporting services, including claims handling, lawyers, asset managers and actuarial consultants.

As with the maritime sector, the insurance/reinsurance industry benefits from agglomeration effects as participants throughout the value chain exchange information and develop expertise. Proximity of location also facilitates efficient interaction with the numerous vital supporting services.

Figure A1.4 Illustrative diagram of the international insurance contracts ecosystem

Figure A1.4 Illustrative diagram of the international insurance contracts ecosystem
Notes: 1 Reinsurance in this diagram also includes ‘retrocession’, where reinsurers themselves reinsure risks they receive with other reinsurers. 2 IUA, International Underwriting Association.
Source: Oxera.

References

References
↑1ABI (2019), ‘The state of the market 2019’, p. 6.
↑2House of Commons exiting the European Union committee (2017), ‘Insurance and pensions sector report’.
↑3London Market Group (2020), ‘London matters 2020’, p. 9.
↑4London Market Group (2020), ‘London matters 2020’.
↑5EY (2019), ‘2020 UK Insurance outlook’.
↑6London Market Group (2020), op. cit.
↑7For further explanation of the role of the syndicate (and other participants) at Lloyd’s of London, see ‘The Lloyd’s market’.
↑8Reinsurers themselves also reinsure the risks they receive with other reinsurers (referred to as ‘retroceding the risk’). London is a very significant retrocession market in itself, though for simplicity in this report we include retrocession under the broader category of reinsurance.