The London Market has for more than 300 years been the specialty insurance capital of the world. But what is its future in the increasingly global insurance industry?
Last year’s London Matters report (external link), commissioned by the London Market Group (LMG), provides the first proper analysis of London’s position in the global insurance industry. But, by putting London’s performance in its international context, the report also raises the prospect that, in the future, London may not be the global force that it has been.
Some may think that London’s declining share in sectors such as reinsurance is simply a consequence of the very competitive market, and that its fortunes will inevitably rise when the market hardens once again. But that view ignores the global picture outlined in the London Matters report: the abundance of capital; the rise of local and regional underwriting hubs to rival London; the preference for buyers to do business in their own language and business culture; and today’s global distribution network.
The growing challenges to London’s status has prompted businesses to acknowledge they need the London Market to remain the global centre for specialty risks. The London Market is a shining example of an “economic cluster”, in which companies in a particular industry are concentrated in one location. Even in today’s global economy, it makes a huge difference to be part of such a cluster, because of its advantages in productivity, innovation, information, and expertise.
But the truth, revealed in the report, is that London’s position in the global insurance industry can no longer be taken for granted. It needs to become more competitive.
Ensuring a bright future
However, the market will not look after itself. The five initiatives (external link) launched by the LMG in response to the London Matters report should ensure London thrives in future.
By revamping its (sometimes outmoded) processes, London can close its expense gap – which is 7-9% higher than other markets around the world – but also seize the opportunity to become a world leader in an industry that doesn’t ‘do’ technology well.
We also need to flex our collective muscles. The London Market is a £60 billion player, putting it among our industry’s global giants, but it has not acted in that way. I’ve learnt that in London we love to compete with each other over just about everything. But I think we’d all be much better off if we worked together on some things, such as marketing London and developing new products that would give us an edge over our global rivals.
Attracting the best talent is another area in which we should collaborate. We need to persuade the brightest and best people that they should pursue a career in insurance, rather than in other financial industries. Also, we need to broaden the ethnic mix of those working in our market, as our business increasingly looks for growth eastwards, beyond the mature markets. Although London is one of the most culturally and ethnically diverse cities in the world, this variety is not reflected in the London Market.
A voice for the market
The report has already enabled us to develop a very important dialogue with the government, which now realises how important the London Market is to the City of London, contributing 21% of its GDP in 2013, and employing 48,000 people. Previously, we didn’t have a voice with which to speak in the corridors of power, which is why I think it’s vital for the LMG to be properly funded and to have the remit to look out for the interests of the London Market as a whole.
Although a newcomer to this business, I have got the impression that, in the past, tribal loyalties took precedence over protecting the interests of the market as a whole. Whereas, in my work with the LMG I have been encouraged to see senior figures from across the market analyse the challenges facing our market with open minds and work together to find commonsense solutions to protect London’s future.
The London Market has shown the ability to adapt in the past. In times of crisis, such as the early 1990s, the market rallied round to find a solution. But now, unlike then, the London Market is not facing an imminent threat to its existence. The market is healthy; it has plenty of capital and is making strong profits. But there is a question mark over whether business will continue to flow into London in the years ahead.
Today, there isn’t an issue over whether London can survive to trade with its clients, but rather whether its clients will continue to want to trade with London. It’s about London’s continuing competitiveness and relevance. I hope the companies within this market can once again work together to secure London’s long-term future. Our success depends upon it.