Growth and economic security are rightly a central mission for government. Achieving this requires recognising the opportunity and difficulty in attempting to grow businesses and attract investment within the current economic climate. BIBA stands ready to work in partnership with government to achieve this shared aim, as nothing moves without insurance.
In this challenging ecosystem it’s essential that businesses have the right insurance, both for resilience and for stable, assured growth. SMEs make up most of the economy, but often lack the in-house expertise to gauge their risks or the cover that is appropriate for them. Insurance brokers offer an essential service to them. Brokers work for their customer and provide free advice to ensure they access suitable cover, at a competitive price for their needs.
As the UK’s leading general insurance intermediary organisation representing the interests of insurance brokers, intermediaries and their customers, we have a vital perspective on the sector. Not only do our members advise businesses (94 per cent of all commercial insurance is intermediated), but the majority of BIBA’s members are SMEs themselves, with 60 per cent having fewer than ten employees.
Brokers aren’t just an intrinsic part of the insurance sector. They are community-based and play a vital role in local and national economic pictures by helping individuals and businesses find the insurance they need, hiring local talent, and investing in local economies.
Brokers operating in the London insurance market are global leaders in the design and placement of complex insurance and reinsurance programmes. This pre-eminence is important to preserve and strengthen the UK if we are to retain our position as a global leader in international insurance markets and the investment this brings in.
Businesses need financial services to enable them to start up, survive and scale up. Insurance is part of the ecosystem supporting SMEs to access finance enabling business growth. The right business insurance provides the financial protection to help businesses survive economic turbulence and go on to expand – for example, through innovation or improved productivity – contributing to growth across the economy.
Opinium research in 2023 showed 79 per cent of SME decision-makers think advice from a broker (with no upfront cost for the advice and no obligation to buy) is useful. Over 60 per cent also agree the financial protection of insurance has enabled them to grow their business, either by taking greater risks or making larger investments, with one quarter feeling this to a great extent.
This shows brokers aren’t just valued by business leaders, but also their service is essential to the growth of our economy. Yet, to ensure brokers can continue to support the growth agenda, there are fundamental points to be addressed. Businesses and consumers are facing instability through a growing protection gap caused by greater levels of under-insurance and cutting cover to respond to cost pressures. Sedgwick estimates 80 per cent of SMEs in the UK are underinsured, while Opinium research in November 2023 among 500 UK SMEs revealed 42 per cent had to reduce the amount of insurance brought in the last 12 months for financial reasons.
For macroeconomic reasons – including inflation, supply chain issues and weather-related trends – insurance premiums have been rising. The increased level of receipts from insurance premium tax flowing from these higher premiums adds to the cost of insurance. This is likely to result in further reductions in essential protections, reducing a business’ resilience to shocks or willingness to take risks and expand.
We believe the government could help alleviate financial pressures by reducing the standard rate of insurance premium tax from 12 per cent to 10 per cent. This would help maintain levels of financial protection and help businesses invest for growth.
Consumer protection that promotes trust and stability is fundamental to a well-functioning insurance market. It also needs sufficient market participants, to foster choice and offer the most competitive prices for consumers and businesses. Yet we are concerned about the gradual decline in the number of brokers in the market since 2006: a reduction of around 50 per cent, with many who exit the market citing the regulatory load as the primary reason for leaving. So, while customer protections themselves should always be upheld, we must consider whether introducing costly processes delivers better consumer outcomes.
We welcome the government’s commitment to introduce a regulatory innovation office, which we hope might set strategic priorities for the financial regulator, leading to a better understanding of the whole ecosystem of insurance market participants. We also want to see greater scrutiny of how the regulator achieves all its objectives. This will further ensure both strong consumer protection and a healthy competitive marketplace is available to insurance buyers.
Like any marketplace, the desire for skilled talent is ever present, so we fully support the government’s announcement of reform to the apprenticeship levy and the creation of Skills England. But we would urge the government to go further and consider supporting all SMEs/non-levy payers by fully funding training and skills opportunities within the new levy scheme. Providing routes into well-paying professions, with the option for lifelong learning is an economic necessity.
Finally, our current agreement with the European Union doesn’t include provision for financial services, which is particularly problematic for our members in Northern Ireland. Historically they could place Republic of Ireland risks and use insurance market capacity in the UK and the EU. Now unless a broker has a presence in both NI and the EU, they are unable to do serve clients in the RoI.
Access to wider EU capacity could ease some of the insurance challenges in NI, as well as capturing the wider benefits for the UK economy.
We therefore welcome, the government’s commitment to resetting the relationship with the EU and urge them to consider the opportunity for financial services and particularly the impact in Northern Ireland.
It’s not hyperbole to say the UK leads the world when it comes to insurance. Our insurance industry provides employment to over 300,000 people in well paid high-skilled jobs across the country, with two thirds of these jobs outside of London and our broking sector generated £23bn of revenue last year across 3,809 businesses.
So, making sure the sector remains both successful and attractive to continued investment is key. Doing so not only ensures it remains one of the flagship sectors of the UK economy but is also fundamental to growth and the security of our economy
Related
