Will London Market captive insurer plan get Labour’s blessing?

This question has been gnawing away at me ever since the flurry of excitement across the London insurance market in the wake of Chancellor Jeremy Hunt’s promise to consult on the possibility of creating a special regulatory regime to attract captive insurance companies to London. I think we might be edging nearer getting an answer.

This week’s Labour charm offensive to the business community and financial services sector has offered a myriad of clues as to what their approach might be.

The promise by Labour’s shadow chancellor Rachel Reeves to “unashamedly champion” the financial services sector was rather overshadowed by the accompanying announcement that Labour would not reintroduce the cap on bankers’ bonuses. I am not sure what Labour thinks it has to gain by this. The ditching of the cap was one of the many controversial decisions made by the short-lived and disastrous Truss government. Reinstating it would be an obvious easy win for any party looking to place itself on the side of ordinary people battered by the endless waves of financial crises.

Championing the City of London and the key financial services sector makes more sense. Labour needs to keep capital and the business it generates in London if it is to deliver the financial stability lacking under the Tories in recent years and finance its commitment to restore public services.

This should mean that the captive insurance proposals developed by the London Market Group get a fair hearing if Labour forms the next government.

Where are the staff?
To deliver the huge benefits LMG and its supporters claim will take more than the creation of a more appropriate regulatory regime, however. That should be the easy part as there are plenty of models nearby. Luxembourg, Ireland and recently France have all shown how regulatory regimes for captive insurers can be accommodated within the rigorous European Union insurance regime. In the United States, Vermont has a thriving captive sector living alongside domestic insurers.

A key challenge so far little remarked upon will be staffing.

The London insurance market already describes itself as being in the midst of an escalating war for talent. The arrival of captive insurers will exacerbate the already alarming skill shortages across the market. It will also push up wages, blunting some of the appeal of London as a new captive domicile.

Of course, one solution that could ease that would be to restore the free movement of people across the EU. This would probably have to be part of setting the UK on a trajectory to rejoin the Single Market which would never be acceptable to a Tory Party still blighted by deep splits over Europe but could find more favour with an incoming Labour government. This would not be undoing Brexit as the extremist anti-EU elements inside and outside the Tory Party claim. The Single Market was not on the Brexit referendum ballot paper and leaving it should never have been part of the Brexit settlement.

To make the captive insurance market plan work is going to require an engagement with bigger issues than tweaks to the City’s regulatory regime.