Joining 55 other business leaders in signing an open letter to the Times, Lloyd’s Chairman John Nelson offered his support to the Prime Minister’s strategy of UK negotiating a new relationship with EU and then backing it by a referendum. In returning the favour to David Cameron who himself took time to launch Vision 2025 at Lloyd’s last summer, the Chairman is tapping into growing resentment about how the European regulators are handling the introduction of Solvency II across the member states. According to The Independent; the British insurance industry has spent more than £3 billion in preparation for the implementation of the new rules and with no date yet set for their introduction, a challenge to the perceived culture of “red tape”, central to the current Europe debate, is bound to be popular.
Whilst reforming the EU institutions has broad appeal, Cameron’s strategy to tackle it, criticised by Richard Branson and Martin Sorrell amongst others, is nevertheless controversial. Holding a referendum could create uncertainty that may endanger economic recovery with potentially dangerous consequences if renegotiation with our partners ultimately leads nowhere for UK other than to the exit door from the single market.
Since the EU insurance directives were passed in 1992, all European companies have been free to trade cross-border and set up operations in each other’s markets. Firms like Axa, Generali and Allianz have built strong global businesses by successfully executing a pan European strategy. These three companies now have the highest insurance brand value in the world according to consultants Brand-Finance. Yet in contrast over the past two decades UK flag carriers, RSA and Aviva have made very little headway on the continent where they remain low profile.
Lloyd’s efforts have hardly been better. Two of its most adept insurers, Hiscox and Catlin are grinding away in Germany and France but have yet to produce a truly significant profit stream. Amlin is just emerging from a testing period of integration and re-underwriting following its difficult acquisition of Dutch owned Fortis. Although 18% of Lloyd’s premium volume is generated in EU, this figure should be substantially greater if only to reflect the relative size of the European market in relation to the rest of the world, let alone its proximity to UK and ease of doing business there.
That British insurers have not cashed in on the opportunity that the single market provides, unlike most of their European counterparts, is not because of EU bureaucracy or red-tape. Spoilt by the historic position of the London Market and its association with North America, UK firms have simply failed to adapt to the business culture, trading style, buying patterns and linguistic differences prevalent in Europe. An attitude endemic in senior management is that Europe should really conform to how UK operates, and not the other way round. Unfortunately London-based insurers are discovering that European buyers can mostly cope fine without them. More worrying still, as he sets out to redefine the country’s relationship with the rest of the Continent, Mr. Cameron may similarly find that our fellow member states of EU also need UK a lot less than we need them.