UK captive regime requires flexibility, scope, and speed of licensing: Lay, MMC

As the UK government consultation period concerning a potential new approach to captive insurers, aimed at enhancing the competitiveness of the UK insurance sector, comes to an end, Chris Lay, UK Chief Executive Officer (CEO) at global re/insurance broker Marsh McLennan (MMC), has called for the establishment of an effective, modern, and efficient captive insurance regime in the country.

The discussions on establishing a UK captive insurance regime began around three years ago, with the UK’s departure from the European Union seen as an opportunity to rethink solutions.

As a large global captive manager, MMC notes that it is well-positioned to respond to the questions within the consultation document. The broker submitted a comprehensive response to HM Treasury regarding whether a different approach to captive insurance is required and the advantages and disadvantages of various avenues.

Lay explained, “The establishment of an effective, modern and efficient captive insurance regime could help accelerate the growth of the UK insurance market and continue to make it competitive on the international stage. However, in order to achieve this, any new framework must be built with appropriate and proportionate regulation and capital requirements.

“If a new UK regime is to compete with other established domiciles, and new emerging locations, it needs to offer the flexibility, scope, and speed of licensing to provide an internationally competitive alternative for captive owners and prospective owners.”

During the government consultation, the broker advocated for introducing a captive framework that could help the UK reinforce its position as a centre for insurance excellence.

The broker highlighted the need for captive-specific rules that could make the UK a more attractive base for companies and support the development of a more holistic insurance market.

Additionally, MMC stressed that as the captive sector develops, it could increase innovation and enhance the competitive nature of the UK market.

MMC also underlined what the UK needs to offer to achieve this goal, emphasising that the country as a whole needs to implement a speedy and efficient application process, as well as capital and reporting requirements that are fair, proportionate, and reflective of the low-risk nature of captives, and costs that are competitive but still allow for sufficient resources to support effective regulation and oversight.

The broker believes that regulation can be scaled to ensure it is fit for the captive market, while sufficient flexibility will allow the UK captive market to develop and expand.

This line of thinking has been supported in the past, when Caroline Wagstaff, CEO of the London Market Group, which is lobbying for a UK captive insurance regime, said that a critical issue is ensuring regulators grasp the concept of “proportionality,” explaining that regulators need to understand where risk lies and what risk is being posed to the system.

If the UK sets up a captive regime, captive insurers may not necessarily move to the UK, however, a UK captive regime may appeal to UK-based companies that had not considered establishing a captive before and would have been hesitant to use an offshore vehicle because of reputational concerns.

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