London re/insurance market needs true innovation: DAC Beachcroft

by Artemis on September 11, 2015

The London insurance and reinsurance market needs “true innovation” as it seeks to cement its role at the centre of global re/insurance commerce. Purely repackaging what has been done well elsewhere, or making marginal gains, is not sufficient according to a report from DAC Beachcroft.

“Making predictions about the future of the insurance market is not for the faint-hearted but this is what we asked our insurance experts to do,” commented David Pollitt, partner and head of insurance at law firm DAC Beachcroft.

But that is what the law firm seeks to do, in a recent report highlighting 50 challenges (and opportunities) facing the UK re/insurance market, titled ‘Insurance Market Conditions & Trends 2015/16.’

Adrian Williams, a partner at DAC Beachcroft, discusses the need for the London insurance and reinsurance market to innovate, in order to remain relevant as a leading marketplace.

“The London Market needs true innovation, not just repackaging and marginal gains,” Williams explains.

Here, Williams cites the example of the ambition to bring catastrophe bond and insurance-linked securities (ILS) business to the London market, an initiative which has government backing and is being facilitated by the London Market Group (LMG).

Williams explains however that the London insurance and reinsurance market’s real edge is its underwriting expertise, it is not related to the capital markets or access to financing.

“London will begin to understand that its real advantage in the global insurance market is underwriting expertise and experience, not proximity to capital, which is now genuinely global,” Williams said.

This is a key point, as the world’s capital has indeed become more mobile in recent years and will shift to wherever the service, facilities, regulatory environment and range of options is greatest or most suitable for its needs.

And Williams seems skeptical of the mission to bring ILS business to London, suggesting that this may be missing the point or the bigger picture.

He continued; “Competing for a share of the established cat bond market or repackaging existing capacity in consortia will not take the fight to Bermuda or establish London insurers in the high-growth markets of Asia and Latin America.”

As Artemis wrote when the working group on catastrophe bonds and insurance-linked securities (ILS) was established in London, this is a chance for London to think bigger.

Williams is right that there are bigger opportunities out there for the London market, however pursuing ILS business with a view to attracting business from high-growth markets to London, by making ILS and cat bond activity simple to execute and transact, would not be a bad thing.

London has a chance to do something radical with the ILS working group, perhaps to really change the game in terms of the risks available to ILS investors, or to enable those companies and territories that have not been able to access ILS capacity to finally find a place where it is easier, simpler and cheaper to transact.

“We wait to see which London players will bring game-changing innovation to the market this year,” Williams continued.

He then cites a number of innovative initiatives that DAC Beachcroft would like to see, that could positively affect the London market’s prospects in insurance and reinsurance. One of these is ILS related.

The first thing Williams lists is a desire to see “Insurance Linked Securities for new types of risk,” which would certainly be beneficial for the London market.

With London’s insurers and reinsurers having an accepted expertise in specialty risks, lines like casualty and also life and health, it would be interesting to see what the LMG’s ILS working group can suggest to make it easier to match capital markets investors with new classes of risk that would provide them with portfolio diversification.

That would be a step in the right direction towards “true innovation.” The ILS initiative provides London with an opportunity to surprise the market and come up with something truly radical that cements the London re/insurance market’s future as a hub for transacting in risk.

Also read:

Lloyd’s is actively looking to develop alternative capital structures.

London has to fight its corner on ILS: Michael Wade, Cabinet Office.

London ILS task force participants revealed, holds first meeting.

LMG sets up London cat bond & ILS group, a chance to think bigger.

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