Deregulation vital if UKGI wants to remain at the forefront of UK’s growth strategy

The latest gloomy forecast from the Bank of England has underlined the scale of the UK’s economic challenges.

It predicted this month (February 2025) that the British economy will expand by just 0.75% this year, which is a long way from the government’s stated pre-election mission to achieve the fastest growing gross domestic product (GDP) in the G7.

In a speech in Oxford last month (January 2025), chancellor of the exchequer Rachel Reeves outlined the government’s strategy to improve the economy’s anaemic growth prospects.

A centrepiece of this speech was Reeves’ commitment to “systematically remove” the barriers that face the “investors and entrepreneurs who drive economic growth”.

Reeves had already hauled the heads of the UK’s regulators into number 11 Downing Street on 16 January, to glean their ideas for driving growth within their sectors and how they could be “more agile and responsive” to the needs of the businesses that they regulate.

At the same time, newly appointed economic secretary Emma Reynolds addressed delegates attending Biba’s 2025 manifesto launch, noting that regulation “must not hinder [the] growth and competitiveness” of firms and the sector as a whole.

So how could the government’s stated growth drive benefit insurance?

Ministers certainly should be interested in the potential of insurance for driving growth.

According to a November 2024 report by the House of Commons, the financial and insurance services sector contributed £208.2bn to the UK economy in 2023, amounting to 8.8% of total economic output. This made the sector the fourth largest in terms of economic output.

Meanwhile, the London Market Group’s London Matters 2024 report – published last May – highlighted that the London market contributed £49bn to UK GDP, equating to 2% of the UK economy’s GDP and 32% of the City’s GDP.

The UK capital remains the fourth biggest centre for insurance worldwide. And while other insurance hubs might be able to provide “run of the mill” insurance services, the London market remains top dog for specialist and wholesale commercial risks, according to Helen Dalziel, director of public policy at the International Underwriting Association (IUA).

“The power of the London market is in innovation, new products and specialty risks that can’t be placed elsewhere,” she told Insurance Times.

The government’s own draft industrial strategy, published in November 2024, cited insurance as one of the sectors where the UK has an “especially high” comparative advantage.

The same document highlighted insurance alongside pharmaceutical manufacturing as examples of sectors characterised by “high” levels of productivity.

The UK insurance industry remains internationally strong, said Graeme Trudgill, chief executive at broking trade body Biba.

He continued: “Our members are world leading and our biggest members have branches in 140 countries around the world.”

London pipped at the post?

However, UK insurance cannot rest on its laurels. The saga of insurance-linked securities (ILS) offers a salutary lesson of how “overzealous” regulation can hamper the industry’s growth, explained Dalziel.

The UK introduced its first ILS regime around 2016. However, the regulatory requirements surrounding the introduction and approval of such schemes proved “so slow” that the number of ILS schemes set up in Singapore “far outstripped” those in the UK, even though the island state’s regime was established several years later, Dalziel continued.

ILS are investments that transfer insurance risk from the (re)insurance industry to capital market investors in return for a premium.

Dalziel added: “[ILS] was created in London. The opportunity was there, the market responded with innovative products and new ways of transferring risk, but it was hampered by regulation which wasn’t agile or proportionate enough.

“We’re not looking for a complete bonfire of regulation. That is not what the market wants. The market understands that the UK’s stable and sound regulatory environment attracts inward investment, but that proportionality is fundamentally key to making sure London can still compete with these other hubs that continue to grow.”

According to Biba, one in four employees at a typical small broker are working on compliance.

Trudgill said: “That is enormous and is something that we need to change.

“We have members [that] have international branches and they tell us they have twice as many compliance people here in the UK than in some of their other European branches.”

Being able to reduce the level of these compliance burdens would help the industry to deliver the government’s growth ambitions, Trudgill added.

Less red tape would also make insurance a more attractive place to work, observed compliance consultant Branko Bjelobaba, principal at Branko.

“The FCA and other regulators should really take on board that small businesses don’t want to drown in red tape,” he continued.

“If you’re an 18 or a 21-year-old and you think you might want to work in insurance, why would you work in a heavily regulated industry that puts a break on entrepreneurship?”

While the regulator’s “primary job” remains to protect customers, Bjelobaba added: “The government should be ensuring that happens, but at the same time, that the regulator doesn’t impede the free functionality of a domestic and international insurance market.”

Far-reaching role

A well functioning insurance market offers not only potential export riches, but can improve the domestic economy’s performance.

Dalziel explained: “It is an enabler as well as a risk transfer mechanism. [Insurance] enables businesses to be able to transfer the risk they can’t take themselves and allows them to be able to innovate.”

And pushing down the cost of young people’s motor premiums could improve access to job opportunities, said Bjelobaba: “That is a definite inhibitor economically because if you’re living in a remote location and you can’t drive, you can’t get to work and you’re just going to claim benefits.”

Biba’s most recent manifesto, published on 16 January 2025, outlined a “regulating for growth” plan.

Top of this agenda, said Trudgill, is speeding up the FCA’s authorisation process, which is “often much shorter” overseas than in the UK, where it can take upwards of six months.

By contrast, the process takes an average 113 days in the Republic of Ireland and 13 weeks in the Netherlands. “Internationally, we’re at a disadvantage,” Trudgill commented.

Citing an example from a UK insurance broker Trudgill is aware of, the FCA took four months to provide Senior Management Functions (SMF1) approval for the appointment of a chief executive who was already an authorised individual.

Such delays give overseas-based brokers a “competitive advantage”, he said.

Trudgill continued: “If [the broker was] able to get that [approval] within four weeks, not four months, [it] would have been on the front foot.

“There are certain checks and balances that have to be done, but when someone has been the nominated chief executive, they already have SMF permissions anyway. Why should it take four months? [The FCA needs] to be quicker.

“It is much better for our country and the Labour party government’s growth mission that we can get people freed up to trade.”

Hampering productivity

Other “unnecessary regulations” which Biba’s manifesto believes should be axed include removing requirements on brokers to carry out product value assessments and compliance with Insurance Conduct of Business Sourcebook (ICOBS) rules that are effectively now covered by the overarching Consumer Duty all financial service companies must comply with.

And the Consumer Duty itself, which came into effect from July 2023, should no longer apply to big companies, the manifesto urged.

The IUA agreed with this stance. Dalziel said: “Particularly for larger clients, you just don’t need those types of protections. It just hampers business, increases costs and ultimately that flows down into premiums.

“At the end of the day, the price of what you’re looking for is a huge factor in where you decide to spend your money.”

On a similar tack, Biba has pushed for a streamlining of reporting requirements, to ensure that senior staff are thinking about clients’ evolving risks rather than worrying about back office tasks.

Trudgill said: “It’s more drag on resource, taking people away from innovating and serving clients.

“If business owners and the c-suite are spending the majority of their time on compliance, they’re not serving clients with new ideas.

“We need to spend the majority of our time on our clients and working with insurance companies to bring new products forward.”

‘Golden opportunity’

The FCA responded to Reeves’ request for growth ideas in mid-January 2025.

Trudgill is optimistic that the insurance industry can grasp the opportunity offered by the government’s growth push.

Pointing to the FCA’s secondary goal to promote the UK economy’s international competitiveness and growth, he said: “This is a golden opportunity for Biba, the FCA and the government to work together to end up with a better regulation system for insurance.”

In March 2025, the government has committed to publish its regulatory action plan. Perhaps that will tell the insurance industry whether the government is prepared to back up its pro-growth rhetoric with actions.