London market losing battle for start-up ventures and new capital on stiff regulatory approach

The London market could slowly atrophy towards a talent-draining tipping point should regulatory burdens continue to push new insurance ventures towards easier markets, Robert Childs (pictured), non-executive chairman at  Hiscox, told a House of Lords inquiry.

Regulators must be incentivised towards “flexibility, more agility and speed” or else the UK will “end up with a very stable market that is just going to shrink.”

The UK should measure regulatory impact on the insurance industry by the start-up count and fundraising tallies vis-à-vis global hot-spot jurisdictions, he said.

“The market as far as I can see is thriving,” Childs told Lords.  “But the more companies that set up elsewhere, eventually you get to a tipping point and you start to lose the expertise.”

Scores from the big match-ups have not been favorable to London. Bermuda beat the UK in raising capital after the 9/11 attacks at a ratio of about 9:2, then 9:1 in the period following the 2005 Atlantic hurricane season, Childs noted in his testimony.

The ratio of start-ups in London versus other financial centers may look every bit as bad, he suggested. Would-be entrants following major hurricane seasons, which run to October, would seek quick entry ahead of the 1.1 renewals season. Few would risk waiting on the UK regulator, he said.

“Our business is the business of opportunity and opportunity doesn’t wait,” Childs said. “If you want to set up a business, you wish to take advantage of 1.1; you can do that elsewhere.”

Current regulation is not flawed per se, nor are current regulators acting in bad faith, but the existing framework has led down a one-way street towards accumulating burdens, Childs argued. Other regulatory bodies have simply taken a “make it happen” approach for fast-tracking attractive new business registrations, without compromising on quality.

Even for existing London insurers, regulatory burdens have grown. Childs claims the number of interactions with regulators has doubled every year since 2010, something Hiscox has not seen on other markets where it operates.

Childs, much like the leaders of industry lobby groups LMG and LIIBA who have already testified, suspects the answer lies in a regulatory mandate to promote competitiveness.

The current framework puts supporting competitiveness as a secondary objective “and as a secondary objective it tends to get submerged.” Nothing gets done that hasn’t been assigned and given its proper KPIs, Childs said. “Without that, you won’t get change.”

Regulatory offices could benefit from hiring a few industry vets to broaden perspective, he suggested.

The House of Lords Industry and Regulators Committee is conducting an inquiry into London market regulation. The Committee has said it hopes to explore the extent to which regulatory policy is well-designed “and proportionately applied” as well as options for post-Brexit tweaks.

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