The UK has proposed rules to help encourage a potential new insurance market worth billions of pounds as part of a drive to boost competitiveness.
The Bank of England and the Financial Conduct Authority laid out plans for a captive insurance regime, according to a statement Tuesday. Captive insurers are entities set up by companies or public institutions that provide their own cover.
The proposals include:
- A streamlined PRA/FCA authorization process with a target of 4-6 weeks;
- Excluding captives from Solvency UK and Consumer Duty requirements;
- Lower capital and reporting requirements;
- A flexible capital resources framework;
- Dedicated PRA supervisory resource;
- Specifically tailored FCA conduct requirements, including proportionate supervision and reporting.
Insurers have long lobbied for the changes, arguing a less restrictive regime would allow London to compete more effectively with offshore centers like Bermuda and Guernsey. While supporters say captive insurers enhance risk management and can add to external cover, critics warn that they can concentrate losses.
The new regime will come into effect next summer following an industry consultation, the regulators said Tuesday.
“We welcome the continued progress toward a UK captive insurance regime,” said James Addington-Smith, CEO of Marsh Risk UK, a unit of the world’s largest insurance broker. “We will work closely with government and regulators to help shape a framework that is proportionate, competitive and practical to implement.”
Insurers, bankers and financial analysts are now trying to calculate the short-to-medium-term costs of continual temperature rises. Carsten Brzeski, global head of macro at ING Group NV, said in a client note this week that heat waves represent a “new downside risk” to the region’s economic growth.
The analysis feeds into a growing awareness across Europe that homes, schools, hospitals, transport networks and other forms of infrastructure will need significant investments in order to adapt to the rapidly changing climate. Brzeski says Europe faces an accumulated economic loss equivalent to 0.8% by 2029, as tourists stay away, people become less productive and supply chains get disrupted.
Insurance is the corner of finance that’s responding fastest to such risks, according to Sarah Kapnick, JPMorgan Chase & Co.’s global head of climate advisory.
Wherever assets are exposed, prices on insurance coverage “are going up,” she said in an interview with Bloomberg Television in London. And “the stresses that we see today are only going to get worse because heat waves like this ten years from now will be over 40C and it will keep going.”
