The UK Insurance Industry - Coursework Example

The UK insurance Industry School: Introduction The British insurance industry is the largest in Europe; it is the third largest insurance industry in the world (ABI, 2013). The insurance industry of the UK is a critical component of the economic power of the UK. The insurance sector manages massive investments, which contribute more than £ 10 billion in taxes to the national economy (ABI, 2012). The insurance sector is behind the investment of more than £1.8 trillion, which accounts for about 25 percent of the total net worth of the UK’s sector. The contribution of the insurance industry to the national economy accounts for about a quarter of the total net worth of the UK’s economy. The British insurance industry employs about 320,000 people within the borders of the UK. The insurance industry is among the major exporters in the UK’s national economy; more than 26 percent of the net revenues of the industry are sourced from foreign markets. This paper will explore the insurance industry of the UK, giving information about the premium net growth and the size of the industry, in relation to the domestic household and motor insurance (Finkelstein and Poterba, 2004). The paper will make reference to life, commercial and pensions, focusing on domestic insurance lines, and offering a description of the financial services authority and the regulatory structure of the insurance. The statistics of the UK’s insurance industry Non-life (general) insurance packages offered by the insurance sector include property, motor, liability, accident and health and pet insurance among others. These insurance packages contribute an important part in the UK market and society, noting that more than 75 percent of UK households posses some domestic insurance package. The toughness of the economic environment has pushed UK businesses and consumers to buy adequate insurance packages. According to 2012 statistics, about 20.2 million from the total of 26.4 million households owned contents insurance, which reflected an increment in the consumption of insurance services. Out of the 20.2 million households, 19.6 million owned motor insurance, 3.6 million owned mortgage protection packages and 1.7 had bought medical insurance plans (ABI, 2013). Under the area of motor insurance, there were 23.3 million insurance plans for private cars bought in 2012 and 3.7 million insurance plans bought for commercial vehicles. Additionally, 600,000 (0.6 million) insurance plans were bought for motorcycles. The underwriting absorbed by the insurance industry in 2012 amounted to about £ 286 million, which was registered as an underwriting loss; the industry has registered underwriting losses since 1994 (ABI, 2013). Among the owners of private vehicle insurance plans, the sector registered 2.9 million claims, and against the claims lodged, UK insurance compensated their customers about £ 19.1 million, as claim settlements on a daily basis. Under the area of health and accident insurance, UK insurers paid £ 8.4 million towards servicing of health insurance claims. Similarly, UK insurance agencies paid out a total of £ 1.1 million towards the servicing of accident claims (ABI, 2013). The health insurance sector registered an underwriting profit amount of £ 70 million during the year 2012; the sector registered an underwriting profit over the past decade. The accident insurance line registered an underwriting profit gain of £ 89 million during 2012; the line has registered these profits over the past five years. The life insurance and the long-term savings lines cover annuities, pensions, savings and investments and protection policies. During 2012, the line registered a total of £ 164.7 billion in long-term insurance premiums and an extra £ 196.2 billion of benefits and claims were paid. Among the 26.4 million households reported in the UK insurance sector in 2012, 180,000 had bought income protection insurance plans; 0.5 million owned fixed-term life insurance plans; 1.1 million had bought mortgage endowment plans; 2.7 million had purchased a personal pension plan and 5.3 million had bought life insurance plans. As of 2012, 47 percent of the population that was working had bought pension policy plans. Among the 20.7 people that had purchased individual pension plans, about 66.6 percent were linked policies. Among the customers of personal pension plans, 8.8 million policies were those serviced with regular premium income (ABI, 2013). The passage of the Financial Services Act of 2012 saw the beginning of a new regime in the regulation of insurance services sector, within the UK (The chartered Insurance Institute, 2013). The passage of the 2012 Act saw the end of the authority of the FSA, and the creation of three different regulatory agencies, including the Prudential Regulation Authority, the financial Conduct Authority and the financial policy committee (Dunn et al., 2013). The roles of the Financial Conduct Authority (FCA) The FCA plays the all-encompassing strategic role of checking that the various markets work well. The duties of the FCA can be classified under three general objectives, including that it reviews the area of consumer protection, where it works towards guaranteeing that a suitable level of protection is accorded to the customers of the markets under its coverage. The second operational objective is that of guaranteeing that the integrity of the UK’s financial sector is protected and fostered, which helps to improve the reputation of UK markets (The chartered Insurance Institute, 2013). The third operational objective is that of checking competition patterns and levels. This objective is dedicated towards creating a climate where the competitive plane is friendly to the needs and the interests of customers throughout the markets covered. The markets administrated under this strategic objective include that for investment exchange and that for regulated financial services. Additionally, the FCA adopts the proactive duty of reviewing that the interests of customers are guaranteed, before they are affected (The chartered Insurance Institute, 2013). The Prudential regulation Authority (PRA) is tasked with the roles of enhancing the soundness and the safety of important firms, particularly insurers, and guaranteeing that their customers are protected, during the event of firm failure (The chartered Insurance Institute, 2013). The approach used by PRA in the administration of supervision and regulation is predominantly forward-looking, where the emphasis is that it assesses the firms in the market for both current and potential future risks (Policy and Public Affairs, 2013). The PRA employs a judgement-based approach; the PRA uses its judgement to evaluate the health and the safety of financial firms, and its responsibilities are targeted at the firms and the issues that threaten the stability of the financial policyholders of the UK and the financial system as a whole (The chartered Insurance Institute, 2013). The Financial Policy Committee (FPC) works as a committee at the Bank of England, which is responsible for scanning the market for emergent risks that could affect the financial system and also in directing the strategic focus of the regulatory regime (The chartered Insurance Institute, 2013). The FPC holds the authority to employ macro-prudential tools to offset the risks of systemic risks. The tools at its disposal include the enforcement of specific capital preconditions for certain asset classifications and the imposition of leverage limits to different banks (Dowd et al., 2007). Through the deployment of macro and micro-prudential tools in monetary policy (Zeckhauser, 2008), the bank of England has grown into one of the world’s influential central banks. The Association of British Insurers is the spokes-agency of the members of the UK insurance industry and the industry in general. The ABI works as the representative of the different lines of insurance, including investment and long-term investments and general insurance (ABI, 2013). The ABI is responsible for the transmission of industry news, key information, statistics and views about insurance, in its work of representing the industry. The ABI is the umbrella agency for more than 300 insurance firms, and their business accounts for about 90 percent of the insurance premiums collected from the industry (ABI, 2013). Conclusion The British insurance industry is among the top performers in the industry; the insurance industry is a critical contributor to the economic power of the UK’s economy. According to the statistics of 2012, the UK industry had reached 20.2 out of the total 26.4 million households. The insurance lines that have performed well in the recent past include the accident insurance line, which registered profits in 2012. The passage of the Financial Services Act of 2012 saw the beginning of the era of the FSA, which has three arms. The FCA arm takes the overarching role of checking the working of markets. The PRA is responsible for the roles of guaranteeing that insurance firms are safe and sound enough to operate in the market. The FPC is a committee from the Bank of England, which scans the market for emergent issues that could affect the financial system. The ABI works as the mouthpiece of insurance agencies, aiding with the provision of updates, news and consultation. Reference List ABI, 2012. UK Insurance Key Facts. [Online] Association of British Insurers. Available at: https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/Migrated/Facts%2 0and%20figures%20data/UK%20Insurance%20Key%20Facts%202012.ashx [Accessed on 09 April 2014]. ABI, 2013. UK Insurance key facts 2013. [Online] Betterregulation. 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Available at: http://www.cii.co.uk/knowledge/policy-and-public-affairs/articles/cii-briefing-fca- financial-risk-outlook-business-plan-2013/25138 [Accessed on 09 April 2014]. The chartered Insurance Institute. 2013. The UK’s New Financial Services Regulatory Landscape. CII Policy Briefing, [Online] pp. 1-16. Available at: http://www.cii.co.uk/media/4372607/regulatory_landscape_update_april_2013_vfonline. pdf [Accessed on 09 April 2014] Zeckhauser, R., 2008. Insurance. In David R. Henderson (Ed.). Concise Encyclopaedia of Economics. 2nd Ed. Indianapolis: Library of Economics and Liberty. Read More