London's Insurance Industry
London is one of the world's most influential financial and insurance markets. Its cosmopolitan appeal and the well-developed regulatory, business and political framework that supports these markets have turned London into one of the largest financial centers globally. With a market cap of GBP 3,740 billion as of September 2012, the London Stock Exchange (LSE) is ranked fourth in the list of the largest stock exchanges in the world.
According to the Association of the British Insurers (ABI), the UK insurance industry is the largest in Europe and the third largest in the world. Although since 2010 a negative trend has been recorded in the number of insurance companies operating in Europe (2 percent decline in Germany and 7 percent decline in France in 2012), the UK insurance market has recorded a 3 percent growth. Premiums increased by 8.3 percent on a yearly basis reaching €173bn as a result of a new pension premium. The UK, along with Germany, France and Italy jointly account for nearly 70 percent of the total European life premiums, whereas the UK accounts for 7 percent of total worldwide premium income.
London's insurance industry is regulated by the Insurance Companies Act (1982), which was originally implemented by the Department of Trade and Industry and later by the Treasury. Additionally, the promotion and sale of investment business were originally regulated by the Financial Services Act of 1986, which was repealed in 2000 and in 2012. The main principles of the Financial Services Act of 2012 are to protect consumers, discourage any fraudulent business activity through business investment and to use the resources of each regulator efficiently.
The key players in the London insurance industry are insurance companies and insurance brokers. Operating under Lloyd's of London, the marketplace of 56 independent managing agents and 91 syndicates, which undertakes complex and high-risk liability exposures, insurance and reinsurance companies and insurance brokers offer high quality services to their customers by providing access to insurance products and underwrite the local and global business in the London market. In spite of the global financial crisis that has affected global financial markets, London's insurance industry has remained relatively stable. In 2011, Lloyd's recorded losses of GBP 516 million as a result of natural disaster claims following the Japan earthquake and the Thailand floods. Lloyd's premiums skyrocketed as financially weaker companies could not cover the large payouts following those natural disasters. However, in 2012, Lloyd's recorder a pre-tax profit of GBP 2.77 billion, proving the strength of London's insurance industry and the well-developed framework in which it operates.
London's insurance industry is a major contributor to the UK economy. In 2011, the contribution of financial and insurance services to the UK economy reached GBP125.4 billion in gross value added (GVA), accounting for 9.4 percent of total value added, whereas London alone accounted for 45.8 percent of the total UK financial and insurance GVA. Average insurance spending per capita in the UK climbed to 5056 in 2011 from 3952 in 2010, an increase of 27.9 percent. Additionally, it is estimated that nearly 290,000 people are employed in the UK insurance industry alone, whereas in March 2012 there were 1.1 million workforce jobs in the financial and insurance activities industry in the UK, 3.6 percent of all workforce jobs. Investment management accounts for 26 percent of the UK's total net worth and contributes GBP10.4 billion in government taxes. Additionally, the London insurance industry is one of this country's major exporters, with nearly 30 percent of its net premium income incurring from overseas business.
The City of London's global positioning as a major financial centre makes it a natural partner for emerging economies and developing financial sectors. By strengthening its already sophisticated insurance industry, London serves as one of the largest insurance players in the global financial markets. Risk management within the global economy is an intricate task that requires globally recognised insurance solutions.