28 January 2014
Jonathan Moss, partner at DWF Fishburns, is a guest lecturer at the Insurance Law Institute within the School of Law at Queen Mary. In this guest post 'Insurance Law and the City' he focuses on the importance of insurance to the UK economy, with reference to job creation, effects on the economy and the London market as a centre for insurance excellence.
Insurance is said to be at the centre of a well-functioning society and economy, and an essential part of wealth creation and preservation. The UK insurance industry is the third largest in the world and the largest in Europe. It is an essential part of the UK’s economic strength, managing investments equivalent to 25% of the UK’s total net worth and contributing to over £10 billion in taxes to the Government. This industry employs around 320,000 people in the UK with almost a third of all financial services jobs in the insurance industry. The Lloyd’s insurance market plays an important role in the London economy and is responsible for revenues of $40bn.
Insurance lawyers in London service the industry in a variety of different ways, by drafting policy wording and advising on its effects including the extent of cover, defending claims brought by Claimants against Insureds and by prosecuting subrogating actions. Specialist lawyers operate in very specific fields within the insurance sector including Political Risk, Employers and Public Liability, Professional indemnity, Directors and Officers, Errors and Omissions, Marine and Reinsurance. The constant changes to the insurance regulatory framework bring with them new opportunities for insurance lawyers to advise on the implications of Solvency II, the Bribery Act and the scope and extent of sanctions affecting business in Syria and Iran, for example. This leads to many opportunities for insurance lawyers to work overseas as barristers, in-house advisers within insurance and reinsurance companies, and in international law firms.
Whereas in 2008 the UK general insurance market revenue declined by 2.8% CAGR (Compounded Annual Growth Rate), from 2013 onwards, the market is forecast to increase at 5.4% CAGR to total £62.2 billion in 2018. Profit margins are also forecast to improve as investment income along with premium income increases, and changes in regulation over the near future are said to be likely to affect the performance of the insurance sector.
Increased regulation and a rise in claims as well as the predicted expansion of the insurance market in the coming years reinforce the importance of Insurance Law as a specialism and underpin the significance of its study. A thriving insurance sector is essential to both the UK economy and to individuals, yet it is important that this is supported with a sustainable and stable regulatory regime and skilled and expert legal advisers generating the associated benefit of attracting international investment to London.
The City of London is at the centre of the global financial markets. The presence of leading multinational companies and the operations of the London Stock Exchange, make London one of the most important places for business in the world. The London insurance industry's place as one of the largest insurance markets makes a notable addition to the international financial services market. Specifically, the global focus on the London market implies that the insurance industry in London and the UK plays a central role in managing the risks within the global economy.
The insurance market has performed strongly despite the economic slowdown and financial crises of recent years. There is now recognition of the huge contribution that insurance, particularly specialist insurance, plays in economic growth and economic security. Research from Lloyd’s shows there is a relationship between GDP growth and levels of insurance purchased in a country. As GDP rises, and asset values grow, insurance levels also tend to rise. A single percentage point increase in insurance penetration is associated with an increase in domestic investment by insurers equivalent to 2% of nominal GDP - potentially a key driver of economic growth. According to analysis from PwC, sustainable and well regulated growth in the UK finance sector could generate approximately 22,000 additional jobs in the insurance industry and related industries such as legal services by 2020.