(Original script, may differ from delivered version)
Thank you. It is a pleasure to be here with you today in this historic room.
Lloyd’s of London emerged at the end of 17th century, as London’s prominence as a global trade centre grew, leading to an increasing demand for ship and cargo insurance.
Lloyd’s may now have its own dedicated building rather than a corner of a coffee house. The ships and cargo may have changed. And our office wear doesn’t involve bodices, breeches and a wig… But the underlying strengths of London are as true today as they were then.
London remains a leading global trade hub and is now a global centre of insurance skills and expertise. You only have to walk along the “market floor” to see the different types of insurance contracts being brokered and underwritten here in London for businesses in every corner of the world.
So speaking to you here today in the Old Library gives me the unique opportunity of celebrating one of Britain’s great and enduring business success stories: insurance.
As both a minister and a constituency MP, I have seen first-hand how insurers play a fundamental role in the economy of this country.
Whether it’s supporting individuals to plan and finance their retirement, helping households get back on their feet after a flood, or using your unique business model to fund long-term investment.
I realise that I am preaching to the converted here and that many of you will already be aware of the statistics, but insurance does not always get the attention that it merits and so they do bear repeating.
The UK boasts the largest insurance sector in Europe, providing 300,000 jobs in the UK, playing a huge role as an exporter, with over a quarter of our net premium income coming from overseas business.
As the recent London Market Group report highlights, the London insurance market’s direct contribution to GDP is estimated to be £12 billion as of 2013. This represents 10% of UK financial services and 21% of the City’s overall contribution to [UK] GDP.
And you only have to look at the London skyline to see how the growth in insurance is making its mark in the City of London. London’s two newest icons, the Cheesegrater and the Walkie Talkie – names which your 17th century counterparts would have been bemused by to say the least – are largely occupied by insurers.
And, importantly, the industry contributes to the wider UK economy, not just that of London, but also regional hubs in Edinburgh, Norwich and York. In fact I could easily be giving this speech about the significance of insurance to the UK economy in one of those cities.
The importance of insurance does, of course mean that we need to work especially hard to maintain our leading position in the world.
The reality is that London competes with other global financial centres – be those traditional hubs like New York, or the emerging centres of Singapore and Hong Kong. And many other cities worldwide have their own aspirations for a place at the top table.
We all know that London has a range of innate and historical strengths, such as location, time zone, a respected legal system, crucial business and support services and a multinational and multilingual workforce.
But we cannot rest on these strengths alone. The City needs to continually evolve to maintain and build upon its competitive position as the number one global financial centre.
As a government we have been proactive in maintaining London’s number 1 status by developing a regulatory framework which ensures greater financial stability, while at the same time developing new strings to the City’s bow.
So this year we became the first country outside the Islamic world to issue sovereign Sukuk. And last month the International Finance Corporation issued an Indian Rupee 10 billion bond – the largest ever Rupee bond to be issued on the London Stock Exchange.
And at Autumn Statement we also announced a number of new measures building on the government’s wide reaching programme of reforms to improve competition in banking, support challenger banks and make the UK the leading global hub for FinTech.
We’ve worked closely with industry in the development of these new services and products.
Forums such as the Financial Services Trade and Investment Board – chaired by the Treasury, but bringing together other Whitehall departments and industry – play a strategic role in attracting inward investment, promoting external trade and removing barriers for the UK’s financial services industry.
For the insurance sector, we have the Insurance Growth Action Plan (IGAP). This was developed in consultation with industry and was launched in December 2013 right in this building. It is a clear demonstration of the strong partnership between government and industry to increase the sectors contribution to economic growth.
IGAP identifies actions that government, industry, and other partners can take forward in 5 key areas:
grasping opportunities in emerging markets
targeting inward investment
promoting the role of insurers as long-term investors
ensuring that the industry best serves the consumer
building a talented, skilled and diverse insurance sector
As the formal implementation of IGAP has come to an end, I would like to take this moment to celebrate what we have achieved together in a number of key areas.
First, UK infrastructure investment.
We all know that long term investment is vital for sustainable economic growth.
Institutional investors have unique advantages as investors, in that they are large holders of long term liabilities, which can be matched with long duration assets.
And insurers have long been significant investors in the UK economy – not least in public and private infrastructure.
So our focus as a government has been creating the right regulatory conditions for this.
We made negotiations on Solvency II a priority and negotiated a good outcome, with a matching-adjustment that actively promotes long term investment growth.
On the back of this positive outcome, insurers are now in a better position to take long term investment decisions – creating benefits to policyholders and, ultimately, the growth we all want.
As part of the IGAP, the following insurers – Aviva, Friends Life, Legal & General, Prudential, Scottish Widows and Standard Life – have committed to work with government, with the aim of delivering at least £25 billion of investment in UK infrastructure in the next 5 years.
And today, I’m delighted to report positive progress.
Since publication of the IGAP in December 2013, these insurers have invested a total of over £5billion in new direct infrastructure investment. Investments have included housing, energy, social and transport infrastructure projects. Examples include Prudential’s investment of up to £100 million in the Swansea Bay Tidal Lagoon Project and Aviva funding 178 residential properties in Oxfordshire for GreenSquare Community Homes. Legal and General have invested £252 million with Places for People, which will contribute towards the building of affordable housing across the UK. While Standard Life have invested £80 million with Town & Country Housing Group, in providing social housing in the heart of Kent and East Sussex. This will include the development of 600 new affordable homes over the next 2-3 years.
And this strong commitment from the insurance sector in UK Infrastructure is further illustrated by this month’s Autumn Statement measure on Private Placements.
The Investment Management Association announced that over the next 5 years, Allianz Global Investors, Aviva, Friends Life, Legal & General, Prudential and Standard Life intend to make investments of around £9 billion in private placements and other direct lending to UK companies.
Our position as a leading global centre for insurance is built on a talented, highly skilled and diverse workforce. If the industry is to succeed in contributing to domestic growth, the sector must sustain and advance the UK’s competitive advantage in this area – by attracting new talent.
Recognising this, the industry made a commitment in the IGAP to double the number of technical apprentices over the next 5 years, and developed an industry-wide apprenticeships programme.
I’m pleased to report that all elements of the insurance sector have come together, and more than risen to this challenge.
Since the programme was launched at an industry event in March, more than 50 apprentices enrolled onto the programme. The launch was followed up with another industry event hosted by Aon, where apprentices met and made connections with senior industry figures – so thank you, Aon.
And the recently announced Trailblazer Insurance Apprenticeship is setting rigorous standards geared to industry’s needs, so our apprenticeships really are the best.
The third area where we have made real progress is in setting up a more coordinated, targeted approach to trade promotion.
Emerging markets is an area where we have a really significant comparative advantage. The expertise the UK insurance industry has to offer is widely respected.
In implementing IGAP, UK Trade & Investment have worked up action plans for 5 emerging target markets for insurance – these being China, India, Brazil, Turkey & Indonesia.
These are detailed action plans, which identify opportunities in each individual market, the barriers which prevent UK firms from taking advantage of those opportunities, and the levers we can pull to overcome those barriers.
They set out action points for government and for industry, and will be reviewed twice a year to ensure we are on track.
And they are already delivering commercial success.
Through close co-operation between the Treasury, the Foreign Office and Lloyd’s of London, we were able to utilise our respective networks to secure a licence for the Lloyd’s Beijing branch.
They have enabled us to ensure that, in the Indian Insurance Bill which increases the foreign direct investment limit from 26% to 49%, the unique legal structure of Lloyd’s of London is properly reflected in the bill, so as to ensure that Lloyd’s are able to fully operate in the Indian insurance market.
My role in all of this has been to showcase British industry abroad. I recently did this during my visit to South East Asia in October.
For example in Mumbai, I followed up on the Chancellor’s July announcement to establish a Financial Services Partnership with India, and I announced the initial themes of the partnership would include cross-border provision of financial and insurance services.
All of which gives great opportunities for you as you expand your businesses and the range of services you provide.
The pinnacle event of 2014 was the Insurance Regulators and Policymakers Summit, at the start of September.
The summit – coordinated by The City UK – brought together 13 senior insurance officials from markets including China, Brazil and Nigeria. The summit aimed to showcase the UK insurance sector, to deepen their understanding of the UK market and to identify opportunities for industry to take advantage of these emerging markets. In particular, how could we share our skills and best practice to meet gaps in those emerging markets?
I am pleased that the summit has opened further opportunities for UK firms. For instance, recognising the low penetration rate in Brazil, a delegation is coming over early this year, its aim being to attract UK firms to invest in the Brazilian market.
This positive step follows the Chancellor’s visit to Brazil in April last year, where he announced that Hiscox have joined Lloyd’s Brazil reinsurance platform – boosting the amount of business they do in Brazil.
So my message today is: if you want to expand, we will help you do so.
And though the formal implementation of IGAP has been completed, our commitment to the insurance industry remains.
At last year’s Autumn Statement – which I know, after Christmas and the New Year, seems like a very long time ago – the Chancellor announced the following:
Building on the UK’s position as a world leader in the global insurance market, the government will explore options to ensure that the UK’s regulatory and tax regime is as competitive as possible to attract more reinsurance business to the UK.
Of course, we need to do so in a way that preserves the revenue base. As the Chancellor made clear at the Autumn Statement, we are committed to “low taxes, but taxes that will be paid”, which is why the UK has introduced the new diverted profits tax. Your comments on the current consultation – particularly how reinsurance should be treated – are welcome as we finalise the rules to ensure they are clear and targeted.
But we also want to make sure that businesses are here in the first place.
Here in London we have huge depth and knowledge of the international insurance markets and, of course, the reinsurance markets to. By definition, then, both underwriting groups and brokers with London offices are also trading on the world stage. We think of the key Lloyd’s firms such as Amlin, Brit, Hiscox, Beazley & Novae - each with London plc listings. And then the huge ‘distributors’ such as AON, Marsh and Willis.
However, the issue for the UK is not just these organisations utilise the ‘London Hub’ - but that they trade, transact and place their insurance contracts here in London whenever possible – and not, for example, in Bermuda, Zurich or elsewhere.
Increasingly, the proportion of business actually traded in London by these groups is diminishing - so we need to understand why this happens and work out what can be done to ensure ‘London’ is the preferred trading domicile.
So behind the Chancellor’s statement is the question – how can the UK be a more attractive place to transact this business? What are the barriers? How do we create these more favourable conditions in London?
And this is where each of you can help the UK government – by making your views known in detail so that they can be examined and assessed.
I would encourage you to do so through the London Market Group as a really good conduit. In turn, both HM Treasury and Michael Wade are in close touch with the London Market Group to try and bring these issues into urgent consideration in time for the Budget Statement in March.
As many of you may be aware, the London Market Group produced a recent report emphasising the contribution the London insurance market makes to the UK economy. I have already stated the hugely impressive figures.
In total the London market transacts £58 billion in premium per annum, which is equivalent to over a fifth of the City’s contribution to UK GDP. Of the £58 billion, £6.8 billion is from the reinsurance of non-UK domiciled insurance & reinsurance companies, and £23.2 billion relates to the insurance of overseas commercial enterprises. A significant international component, in other words.
I know that we must continue to work together to promote the strengths of the UK financial services sector and to ensure that we continue to remain the global financial centre.
Insurance has a significant role to play in ensuring that the UK and London remains one step ahead of the competition. IGAP has developed the foundations upon which the insurance sector can continue to contribute to the UK’s economic growth – whether in UK infrastructure investment or through developing a skilled workforce.
And I can assure you that we will continue supporting the insurance sector to take advantage of the exciting opportunities the 21st century will present.
Thank you for inviting me to speak to you today – and I look forward to working with you all in the future.