TechTalk: ‘Licensing process is a maze’ for insurtechs tied up in complex regulation

In November 2019, Zego became the first UK insurtech to secure an insurance licence from the Gibraltar regulator, enabling it to sell its own insurance products.

March 2020, Zego secured an insurance broker licence in France awarded by French regulator ORIAS. Later, in December 2020, the insurtech received approval from Dutch regulator AFM that allowed it to work with European Union-based insurance partners and customers without friction post-Brexit.

Almost three years later in June 2023, Lemonade was the first Insurtech UK member to be awarded a UK carrier licence by the Prudential Regulatory Authority (PRA). It was “an important milestone for other insurtechs”, according to Insurtech UK’s cochair John Warburton.

A PRA carrier licence provides authorisation for a firm to carry out activities that the PRA regulates.

This licence is for firms wishing to become an insurer, bank, credit union or managing agent of a Lloyd’s syndicate.

Despite the many options arising from licensing, few insurtechs in the market have made the step to acquiring a licence. 

Speaking exclusively to Insurance Times, Luisa Barile, cochair at Insurtech UK, said: “Historically, the licensing process for insurtechs has been a maze, often proving to be a deterrent for budding startups.

“This complexity has created uncertainty and even driven some UK insurtechs to seek friendlier shores, like in Gibraltar, for authorising their operations over the PRA.”

In the UK, insurtechs have primarily sought to apply to to Gibraltar for a broking licence, partly because of the quicker regulatory speeds compared to the UK. Marshmallow has an insurance licence awarded by the Gibraltar regulator.

The average time period is around three to four months to be authorised by the Gibraltar Financial Services Commission (GFSC), compared to much longer waits in the UK.

Simplifying licensing

Improving authorisation speed for UK firms is one reason that, in October 2021, insurtech trade body Insurtech UK cosigned a statement of intent with Gibraltar Finance to ensure all 115 of its members had improved access to the Gibraltar regulatory market.

This statement of intent committed Insurtech UK and Gibraltar Finance to working together to raise awareness, promote opportunities and provide direct access to officials in the Gibraltar government.

Insurtech UK has a stated goal “to ensure the UK remains at the cutting edge of insurtech innovation, attract businesses to the UK and promote certainty for our sector,” according to Barile.

She explained: “Since its inception, Insurtech UK has championed the cause for a more streamlined and transparent licensing process, working with the responsible regulators and government.

”We firmly believe that for the insurtech sector to grow and scale, an agile and inclusive regulatory environment tailored to our sector is of paramount importance.

“Insurtech UK has been at the forefront of attempting to simplify this process, actively engaging with the PRA, FCA and other industry stakeholders to help simplify this landscape and refine the process.”

AR opportunities 

Former Lloyd’s Lab head of innovation Ed Gaze knows the importance of smooth regulatory function well, having headed the accelerator at Lloyd’s of London for four years until his departure in August 2022.

Gaze, who is now chief executive at Innovative Risk Labs (IRL), which he cofounded, also faced challenges himself when applying for a broking licence and realised how complicated and expensive it was.

IRL became a Lloyd’s broker in June 2023 after securing a licence to operate in the Lloyd’s market.

For Gaze, there is a lack of understanding from insurtechs about how the Lloyd’s market works – with IRL aiming to improve this while helping insurtechs to secure capacity.

On the flipside, many insurtechs will not need a broking licence to operate – or a licence of any kind.

Gaze continued: “Some data companies don’t need to be regulated and that’s great for them, as it’s just an additional overhead. For those that want to be a broker or anywhere in the distribution group then they need to be regulated.”

This means that insurtechs aiming to become brokers or MGAs need to be regulated by the FCA.

“To get regulated by the FCA directly means you’ve got a full licence yourself, that’s really hard for a startup – it’s not really practical because you need to have a team of experienced people who have run a broker before and you need to have all your policies, procedures and technology ready,” Gaze added.

“If you are a startup, the number one rule is to get to market quickly and get to see if people [like the product] as quickly as you can.

”If you are going to wait nine to twelve months before you start selling any insurance [and] you don’t really know if your proposition works, you [have] spent a lot of money getting regulated for something you don’t know works.

”Getting directly authorised for a startup that’s trying to be nimble [and] get to market quickly [doesn’t make sense]. That’s why the appointed representative [AR] route is so powerful for insurtechs and startups to get going. It’s not just for UK insurtechs, it’s [international] business that want to come to the UK and get a footprint.”

ARs operating in the UK insurance sector include Arma Karma, for example, which sells insurance on behalf of its insurer. Stubben Edge also established its own AR network in March 2022, while broker network Movo is also supportive of the route to market.

Journey to Lloyd’s broker 

Insurtech Superscript was one of the first to become a Lloyd’s broker back in October 2020, after becoming a coverholder in 2019.

David Dickson, Superscript’s broking director, told Insurance Times: “Before we were a Lloyd’s broker, we would have to go by other brokers to go to market for us.

“While we are a technology company doing insurance, there’s enough insurance heads within the business to understand how powerful Lloyd’s is.”

“As a broker, we are very much intermediary, which means we can get closer to product innovation.”

For Dickson, there was no question that Superscript should become a Lloyd’s broker as any other licence would “materially change what we could do as a business”.

After Superscript became a Lloyd’s broker it was able to arrange cover for its clients.

Dickson added: “There’s money to be made as a as a coverholder but [that is] based on the profitability of the book, after claims and expenses. As a carrier, you’re taking on more risk. There’s also more reward, as you’re essentially taking commission.”

Therefore, for insurtechs that service one type of customer with a few core products it makes sense for them to become a carrier, Dickson explained.

Dickson added: “Typically, for insurtechs it’s more common that they become a Lloyd’s broker rather than a carrier because they will also go down the Lloyds coverholder [route].”

Lastly Barile added: “The UK’s insurtech sector is a beacon of innovation, experiencing exponential growth over recent years. However, with this growth comes the pressing need for a regulatory framework that not only supports, but also fosters further advancement.”