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The UK insurance industry has urged ministers to adopt a light-touch regulatory regime for so-called captive insurance companies to encourage hundreds of businesses to bring these subsidiaries onshore and fill a gap in London’s specialist insurance market.
The push comes ahead of a planned government consultation in early 2024 to design “a new framework for encouraging the establishment and growth of captive insurance companies in the UK” announced in November’s Autumn Statement.
Captives are in-house insurers typically set up by large companies to cover some of their risks, such as property damage. Interest in setting up these businesses is at its highest in decades on the back of a rise in commercial insurance premiums for 24 consecutive quarters, according to brokers.
Research commissioned by trade body the London Market Group found that lighter-touch regulations could see almost 700 captive insurers either moved onshore, from jurisdictions such as Guernsey and Bermuda, or set up in the UK.
The outcome of the consultation will provide a key test of the commitment of the government and the Bank of England to support the UK financial sector’s competitiveness after Brexit.
Executives argue a new regime would have to be comparable with those in other territories to be successful, which would mean captives would be covered by significantly lighter capital and regulatory requirements than a standalone insurance company.
“There are lots of good reasons why companies would want to come to the UK, but we can’t take it for granted that if we build it, they will come,” said Caroline Wagstaff, London Market Group’s chief executive.
She added said there would be benefits to the insurance sector both in terms of activity — it estimates economic value of £153mn could flow from new UK captives — but also over the long term, by filling the key gap in the City’s specialist insurance market.
There would also be benefits to companies in bringing captives onshore, according to insurers, given the typical requirement for board meetings and underwriting decisions to be made wherever the specialist unit is based. “If you’re a UK plc, the government is doing something to make your life easier,” Wagstaff added.
Chris Lay, chief executive of the UK arm of insurance broking giant Marsh McLennan, said the current regulatory environment was “preventing the UK from becoming a viable location for captive insurance vehicles”.
The government needed “to show how the UK will be as welcoming for new business as some of the more established captive domiciles,” he added. He said his clients had set up 400 new captives globally since 2020, in risks such as cyber and property catastrophe damage.
The government said it aimed to gather views on proposals to create “an attractive and competitive new UK captive insurance regime that works for businesses”.
The Bank of England declined to comment but Sam Woods, chief executive of the Prudential Regulation Authority, has said that the idea of a lighter treatment for captives that hold a single business’s risk was “worth looking at”.
But he cautioned that the regulator “might need a few more staff” if growing a UK captive insurance market became a priority for policymakers.