UK Insurtech Sector Aims for Global Leadership with Strategic Policy Boost

The UK insurtech sector, a vibrant and rapidly evolving segment of the broader insurance industry, is poised to strengthen its global leadership with the launch of Insurtech UK’s Policy Manifesto on June 25, 2024. This comprehensive roadmap focuses on leveraging the latest technological advancements and creating a supportive policy framework to drive sustainable growth. The UK insurtech sector is already the second-largest cluster globally, with a combined value exceeding $20 billion, supporting 60,000 jobs and contributing nearly £5 billion to the economy. To harness this potential fully, the manifesto emphasizes regulatory adaptation, financial incentives, and growth-enabling strategies.

Regulatory and Digital Transformation

PRA’s Momentum in Evolving Regulatory Regime

The Policy Manifesto advocates for a regulatory environment that is both flexible and supportive of insurtech companies, particularly during their nascent and scaling phases. Significant focus is placed on the PRA (Prudential Regulation Authority), calling for streamlined application processes to help new entrants gain authorization more efficiently. Additionally, the PRA is committed to the newly introduced PRA Mobilization regime by the end of 2024, offering clear guidance and transparent communication throughout its implementation. These steps aim to reduce the barriers to market entry and promote a dynamic environment conducive to innovation.

Furthermore, Insurtech UK emphasizes the importance of consistency and predictability within regulatory frameworks. This includes comprehensive reviews and adjustments to ensure that the regulations keep pace with the rapid technological changes characterizing the industry. Enhanced regulatory clarity will provide startups with the confidence to innovate and scale without being hampered by excessive red tape or regulatory ambiguities. By fostering a regulatory landscape that is both adaptable and forward-thinking, the UK insurtech sector can maintain its competitive edge and continue to drive global advancements in insurance technology.

FCA’s Collaboration with Insurtech

Insurtech UK’s Policy Manifesto also highlights the critical role of the FCA (Financial Conduct Authority) in fostering a collaborative ecosystem. Ensuring the sustainability and reliability of the Appointed Representative scheme is a major focus, facilitating easier market access for startups and enabling embedded insurance innovations. This scheme allows smaller entities to operate under the umbrella of an established, authorized firm, significantly lowering entry barriers. By creating an environment where innovative ideas can be tested and scaled more efficiently, the FCA can help insurtech companies bring cutting-edge solutions to market more swiftly.

Moreover, the FCA is urged to adopt a forward-thinking approach towards emerging technologies like AI, blockchain, and Open Finance. By integrating these developments into the regulatory framework, the sector can maximize consumer benefits while maintaining robust safeguards. This strategic incorporation will enable insurtech firms to experiment and innovate without the constant fear of non-compliance, ultimately driving sector-wide progress and consumer trust. The collaborative efforts between regulators and insurtech firms will ensure that the UK remains at the forefront of technological advancements in the insurance industry, solidifying its position as a global leader.

Access to Finance

Extension of SEIS and EIS

Financial support is a cornerstone of the Policy Manifesto, recognizing that a vibrant investment ecosystem is vital for insurtech growth. One major recommendation is the extension of the SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) eligibility to all insurtech categories. This move aims to attract more investment by offering tax reliefs to investors backing startups. Particularly, it addresses transitional phases where Managing General Agents become regulated entities, ensuring uninterrupted investment flows. By extending these schemes, the government can stimulate entrepreneurial activity and attract more investors willing to finance innovative insurtech projects.

The extension of SEIS and EIS beyond their existing scope will likely bring more capital into the insurtech sector, allowing companies to focus on developing groundbreaking solutions. Startups will particularly benefit from these incentives, as they often face significant challenges in securing initial funding. The additional resources will enable these companies to invest in research and development, hire skilled personnel, and scale their operations more effectively. This financial support will not only bolster the competitiveness of individual firms but will also contribute to the overall dynamism of the UK insurtech ecosystem.

Expansion of EMI Qualifying Criteria

The manifesto also suggests raising the EMI (Enterprise Management Incentive) qualifying asset threshold from its current £30 million limit. This change is designed to attract seasoned talent to the insurtech sector, which is crucial for its sustained growth and innovation. By expanding the qualifying criteria, insurtech firms can offer competitive equity-based compensation packages to highly skilled professionals, thus drawing in the expertise required for industry advancement. As insurtech companies grow, retaining top talent becomes increasingly important, and enhanced EMI criteria will play a pivotal role in achieving this.

Additionally, attracting experienced professionals will help bridge the talent gap that often hinders the scaling of startups. The ability to offer attractive equity incentives can make the tech sector more appealing to high-caliber professionals, many of whom might otherwise favor larger, more established companies. This infusion of talent will ensure that insurtech firms can maintain a high level of innovation and technical excellence, driving the sector forward. A strong workforce equipped with the necessary skills and experience is essential for navigating the complexities of the insurance industry and seizing new opportunities for growth.

Revising Long-Stop Date for Advance Subscription Agreements

Another recommendation from the Policy Manifesto is to extend the long-stop date for Advance Subscription Agreements (ASAs) back to 12 months. The current 6-month limit imposes undue pressure on startups to conclude funding rounds abruptly, potentially stifling their growth and innovation. By giving more time for these agreements, startups can secure financing at a more organic growth pace, ensuring they have the necessary resources when scaling operations. This adjustment aims to alleviate administrative burdens and provide startups with a more flexible and supportive financial environment.

A longer stop-date for ASAs will encourage more strategic planning and stability, essential for driving long-term success in the insurtech sector. Startups often require extended periods to fully develop their products and business models before seeking substantial funding. Allowing more time for these processes will enable companies to present stronger, more viable proposals to potential investors. This change will help insurtech firms navigate the challenges of early-stage development more effectively, ultimately contributing to a more robust and resilient ecosystem.

Review of HMRC R&D Credit Scheme

The Insurtech UK’s Policy Manifesto also calls for an urgent review of the HMRC (Her Majesty’s Revenue and Customs) R&D (Research and Development) credit scheme. Ensuring clarity, consistency, and confidence in the criteria and administration of this scheme is essential for fostering ongoing innovation within the sector. By making the R&D credit scheme more accessible and understandable, insurtech firms can better leverage these credits.

A transparent and well-administered R&D credit scheme will help insurtech companies invest more confidently in research and development activities. These credits can significantly offset the costs associated with innovation, allowing firms to allocate more resources towards developing cutting-edge technologies and solutions. Enhanced clarity and consistency in the scheme’s criteria will reduce uncertainties and administrative burdens, enabling companies to focus more on their core activities. This review is a critical step towards ensuring that the UK remains a conducive environment for insurtech innovation, attracting both domestic and international players to the market.

Addressing Barriers and Driving Growth

Fairer VAT/IPT Regime

To dismantle barriers and stimulate growth, the Manifesto suggests targeted actions including proposing revisions to the VAT/IPT (Value Added Tax/Insurance Premium Tax) policies. Ensuring that insurtech companies can scale more rapidly and compete on an equal footing with other tech sectors is crucial. By creating a fairer tax regime, the government can alleviate some of the financial pressures that disproportionately affect smaller, innovative firms.

A fair VAT/IPT regime will not only reduce costs but also encourage more startups to enter the market, fostering a more dynamic and competitive landscape. Simplified and equitable tax policies will enable insurtech firms to allocate more resources towards innovation and expansion. This approach is essential for sustaining long-term growth and positioning the UK as a hub for insurance technology. Equitable tax treatment will ensure that insurtech firms operate on a level playing field, promoting fair competition and driving industry-wide progress.

Three-Year Strategy by Department for Business and Trade

Encouraging an international promotion strategy for UK insurtech to facilitate entry into key overseas markets and attract inward investment is another focal point of the Manifesto. The Department for Business and Trade is urged to develop a comprehensive three-year strategy to achieve this. Leveraging successful precedents like insurtech corridors and fintech bridges, this strategy will aim to enhance the global visibility of UK insurtech firms and foster international collaborations.

By actively promoting UK insurtech on the global stage, the sector can capitalize on international opportunities and attract a wider range of investors. Strategic international partnerships and collaborations will help UK companies penetrate new markets and gain a competitive edge. This three-year strategy will provide a structured approach to global expansion, ensuring that UK insurtech firms can effectively navigate regulatory and market complexities abroad. Increased international presence will not only boost the sector’s growth but also enhance its reputation as a leader in insurance technology innovation.

Government-Backed Reinsurance Schemes

Advocating for the creation of new reinsurance schemes, dubbed Innovation Re, is another key recommendation of the Manifesto. These schemes aim to provide coverage for emerging societal risks and support financially inclusive insurance policies. By addressing new and evolving risks, government-backed reinsurance schemes can offer a safety net for innovative insurtech firms, enabling them to experiment with novel solutions without the constant threat of financial instability.

Innovation Re will play a crucial role in supporting the development of insurance products tailored to the needs of underserved markets. These government-backed schemes would mitigate the financial risks associated with insuring new and complex risks, fostering a more inclusive insurance market. By providing a layer of financial protection, Innovation Re will encourage insurtech firms to develop policies that cater to a broader range of consumers, promoting financial inclusion. This approach will ensure that the benefits of insurtech innovations reach a wider audience, ultimately contributing to the sector’s growth and resilience.

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