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

A1.4.3: Risks and opportunities

Published: October 5th 2021
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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

A1.4.3: Risks and opportunities

After London, the next largest insurance/reinsurance 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.[1]London Market Group (2020), op. cit.

Highlighting the international mobility of this business, the London Company Market reports that restructuring necessitated by Brexit has meant that £4.5bn premium income was lost to operations in the EU in 2019.[2]The London Company Market covers that part of the London Market that is not in the Lloyd’s of London marketplace: IUA (2020), ‘London Company Market, Statistics report’, October, p. 20. While this is not a direct consequence of a change in governing law, it does highlight the potential for such transactions to move jurisdictions.

Box A1.4 Value at risk in international insurance contracts—stylised scenarios

As trade in some primary markets shifts to new regions (e.g. growing global container flows in Asia), demand for insurance will follow since a large share will remain insured locally (e.g. Asia may become the largest market for marine cargo insurance).1 In turn, this may lead to an increase in the use of international insurance contracts not under English law.

  • 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 a £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 provide opportunities for continued growth of business in the UK market and under English law. Potential new developments may include cyber risks, privacy concerns around the use of biodata, and climate change, as well as ever-evolving technologies.2 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 this market, this could represent a benefit of over £1bn to the UK economy per year.

Note: 1 See, for example, BCG (2014), ‘London matters: The competitive position of the London Insurance Market’, p. 16. 2 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.

Source: Oxera analysis, based on House of Commons Exiting the European Union Committee (2017), ‘Insurance and pensions sector report’, and London Market Group (2020), ‘London matters 2020’.

References

References
↑1London Market Group (2020), op. cit.
↑2The London Company Market covers that part of the London Market that is not in the Lloyd’s of London marketplace: IUA (2020), ‘London Company Market, Statistics report’, October, p. 20.