SOURCE: The Boston Consulting Group

The Boston Consulting Group

The Boston Consulting Group

November 10, 2014 13:59 ET

London Insurance Market Is £ 60 Billion Industry, but Is Under Significant Threat, Warns New Study

A New Study Released by London Market Group and The Boston Consulting Group Is the Most In-Depth Market Sizing Effort to Date

LONDON, UNITED KINGDOM--(Marketwired - Nov 10, 2014) - The Boston Consulting Group

  • The London Market is the largest in the world for commercial and specialty risk, controlling more than £60 billion of annual premiums
  • It employs 48,000 people and contributes nearly £30 billion to UK GDP
  • London is uniquely positioned as the only genuinely global insurance market
  • But in the near term London is losing global share and importance as emerging markets drive premium growth
  • Call to action for market participants, Government and regulators

London Market Group (LMG) and The Boston Consulting Group (BCG) today published the results of extensive market research into commercial insurance and reinsurance, and over 300 interviews with customers and market participants around the globe. The report -- 'London Matters: The Competitive Position of the London Insurance Market' -- addresses the current status and future prospects of the market and reveals that London's position as the undisputed global hub for commercial insurance is under threat.

The London Market, the largest global hub for commercial and specialty risk, reached £60 billion of gross written premium in 2013, with £45 billion of this written in London and backed by London capital. The study shows that, based on business written in London alone, the market (£45bn) is nearly double the size of Bermuda (£25bn) and Zurich (£19bn) and 11 times bigger than Singapore (£4bn).

The study's findings are also a strong reminder of the role the London Market plays in supporting the UK economy. The Market contributed £30 billion to UK GDP in 2013, which is 21 per cent of the total GDP contribution of 'The City' and 8 per cent of total London GDP. It employs a collective 48,000 people throughout the UK and 34,000 in London alone. It also plays a role in supporting the broader global economy by paying large claims every year, including for specialist risks which are hard to cover elsewhere. A total of 94 FTSE 100 companies are covered by the London Market and in the last five years more than £140 billion in claims has been paid to London's policyholders.

But the 300 year old market is at a tipping point warns LMG and BCG in today's report. Analysis reveals that London is only tracking global growth in commercial insurance, while it is losing its share in reinsurance: London's share declined from 15 per cent to 13 per cent between 2010 and 2013. Furthermore, London, heavily reliant on the UK, US, Australia and Canadian markets, is failing to capture the emerging market opportunity. Only 0.5 per cent of the absolute growth in emerging market premiums in markets such as Latin America, Asia and Africa, was placed in London. Its share of the Asian insurance market, for example, is currently just 2 per cent. More than half of future growth will come from emerging markets, meaning that London's global leadership will become increasingly challenged.

"I see an increasing amount of my risk being written in regional centres of expertise such as Singapore. They have a better understanding of our specific needs and risk exposures than someone in London." Risk Manager, Asia

Interviews with 120 market participants from around the globe track what is driving placement decisions and reveal additional stark challenges facing the London Market. Unanimously customers prefer to buy insurance in their local market or region, which puts up to 40 per cent, or £16 billion, of London premiums under threat where underwriting expertise and capacity is available locally. Interviewees also expressed concern over the comparatively high regulatory burden on London Market participants which raises costs and could put London at a price disadvantage. London's costs were 9 percentage points higher than its peers in 2013.

"The burden of regulation and the cost that imparts on carriers is a concern, especially if it means a reduction in the flexibility of London to offer bespoke solutions and to be able to offer competitive prices." Chief Executive, Risk Management Association

The report further points to the opportunity for the London Market to build on its reputation for innovation and flexibility to cover new risks such as cyber, supply chain and reputation in order to offset the commoditisation of more traditional coverage.

Steve Hearn, Chairman of LMG, commented:

"The findings of this research tell a clear story: the London insurance market matters. But London cannot rely on its historic advantages to guarantee its future growth. As a collective, the market must react with speed to the global competition, respond with new innovative products and reinforce the message that London is the best place in the world to underwrite complex commercial risks."

Hearn continued: "For the first time, we have a complete picture of the economic contribution of the London Market. Government and regulators need to take note and understand our challenges and play their part in helping us to capture our opportunities. We need the right culture and environment to ensure that London continues to be the global centre of innovation and expertise -- think the Silicon Valley of the insurance world."

Pia Tischhauser, Senior Partner and BCG's global lead for Commercial Insurance said:

"This study provides a broad view of the challenges and opportunities for London Market participants. The growth of regional hubs such as Singapore, Zurich and Bermuda is challenging the traditional structure of the global insurance industry and London's role within it. The London Market must grasp the opportunity that is most definitely in their reach. It has products and capabilities nobody else has, it can develop expertise that nobody else can, and it needs to be confident and coordinated in building and marketing these strengths to secure its future."

Notes to Editors

The London Market is defined as specialty commercial insurance and reinsurance business, backed by London capital, and other business marketed through or controlled by London Market participants.

About London Market Group

London Market Group (LMG) is the senior body helping create and articulate the vision for the way insurance is transacted between members of International Underwriting Association (IUA); Lloyd's Market Association (LMA) and London and International Insurance Brokers' Association (LIIBA). LMG oversees all elements of the market mechanism and identifies areas where proactive action can improve London's competitive position. LMG is made up of senior representatives of each market constituency -- IUA; LIIBA; LMA; and the Corporation of Lloyd's. Each of these constituencies suggests possible issues to be added to the LMG agenda. More detail on LMG's work is available here.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

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