Farewell Gibraltar, hello PRA - is the tide about to turn for new UK-regulated insurers?

It is a question that I have asked myself more than a few times in my quarter century at Insurance Post, but: when was the last time a ‘brand new’ general insurer was granted regulatory approval to operate in the UK?

When the question was put to the Prudential Regulation Authority last week I was informed that the most recent insurer to be granted authority was ‘Great Lakes Services UK’ in July 2022.

However, this can hardly be deemed a ‘brand new’ insurer in the truest sense, given the muscle and history behind it.

Indeed looking at the statement by its parent Munich Re at the time it commented that [subsidiary] Great Lakes Insurance SE had “made the next decisive steps to comply with the new regulatory environment following Brexit”

It added on 28 July 2022, “the PRA granted full authorisation to Great Lakes’ existing UK branch in London, which has operated under the Temporary Permissions Regime so far.

“Additionally, the PRA granted full authorisation to Great Lakes’ new UK Subsidiary, Great Lakes Services UK, which will be renamed Great Lakes Insurance UK soon”.

This move was a move born out of necessity to continue to trade post-Brexit. It was hardly the first signs of a new wave of British insurers.

Of course, there have been some new entrants operating on these shores during my 25 years associated with Post, but most were regulated in jurisdictions such as Gibraltar and Malta, and passported in the UK.

However, even the introduction of these entities have slowed down in numbers recently.

Abacai, the high profile start-up founded by ex-Aviva CEO Mark Wilson chose the acquisition route, buying Complete Cover Group and its Gibraltar based insurance arm Mulsanne when it was looking to get off the ground, rather than go for any greenfield options at home or abroad.

“It’s all about pace,” Wilson revealed to Insurance Post in 2021. “It’s about being able to move quickly with a relentless, obsessive focus on customers. When we were looking for an existing business [to build Abacai around] we wanted an underwriter as it’s hard building these things. I’d say every insurtech wants to be an underwriter, but they realise it takes them 10 or 15 years.”

‘Experts’ anti-PRA

In 2018 Paul Anderson, one of the co-founders of once aspiring full stack motor insurer Guevara told a Post event: “Every expert we talked to told us not to go anywhere near the Prudential Regulation Authority. It is way too slow, doesn’t like start-ups and so we went down the Gibraltar route.

“That was really fast, it was really approachable and then Enterprise collapsed and the stress testing got harder, the regulatory capital you needed got higher, which meant we had a much more difficult problem to solve. Raising so much regulatory capital for a start-up insurer with its own full stack balance sheet was a problem we could not really solve.”

Despite the collapse of Enterprise and a few others, both Zego and Marshmallow have succeeded where Guevara failed and managed to launch new insurance companies in Gibraltar, but Anderson’s point about the ramification of this failure and others has resonated throughout the insurance market.

Not least with Liz Bilney, who has become the latest person to throw their energies into launching a new insurer with Lumun as exclusively revealed by Post last week.

The big difference being she is daring to tread where Wilson, Anderson and others have avoided by ignoring the ‘experts’ and looking to the PRA for authorisation.

Despite the collapse of Enterprise and a few others, both Zego and Marshmallow have succeeded where Guevara failed and managed to launch new insurance companies in Gibraltar

“Because Gibraltar has been burned so many times it is harder to set up there now, so it is not an easy route,” she said. “And even the likes of Guernsey and Jersey [have tightened up]. So regulation is changing. For transparency reasons, and because we wanted to be better, we wanted to be seen as best in class, and fulfil our vision to be a big insurer [the PRA is the best option for us].”

As with all things in life timing is everything; and there could be new found logic in Lumun’s PRA courtship on a number of levels from the abolition of Solvency II rules to the cost of living crisis making the regulator potentially more welcoming to ‘no legacy’ insurers offering a more competitive alternative to the status quo. A bit similar to the situation from which a small cohort of Neo Banks arose.

Throw in a female founder CEO as the cherry on top and the whole package does have more than a few attractions if the PRA is looking to show the market that it is open to helping new insurers launch into the UK from within rather than outside.

A crash course in standards

What makes Lumun and Bilney’s decision to go down the PRA route a doubly interesting case study is her past run-ins with regulatory authorities. Most notably when as CEO of Somerset Bridge the broker was ordered to pay a penalty in respect of 21 email newsletters that were sent to 51,000 Leave EU subscribers and which contained Eldon [Somerset Bridge’s previous name] marketing material in contravention of the Privacy and Electronic Communications (EC Directive) Regulations 2003.

Her Lumun co-director and former Leave EU campaigner Andrew Wigmore noted: “The best thing that happened to Liz, [former Somerset Bridge owner and self-proclaimed Bad Boy of Brexit] Arron [Banks] and us is that for six years we were under the forensic watch of everybody to the point you were paranoid about everything.”

“We had new investigations opening up left, right and centre. We had the banking regulator, we had the ICO, the National Crime Agency, and that made our standards super high,” interjected Bilney. “And so that raised the bar in terms of what we were doing. We literally had a crash course in how to have the highest standards possible because they said to us if they find anything untoward we are switching you off.

“And we were audited and the only thing we failed on was that the photocopier wasn’t locked. And that was the only thing we had to change, it was to a ridiculous high standard.”

Based on her past experiences it could be a case that Bilney has an appetite and tolerance to trying the PRA route that others just cannot match; And that Lumun is an outlier and not a trend setter.

However, given Brexit might have meant that the PRA has greenlit a few more new (old) insurers like Great Lakes Services UK as a by-product, it might seem only fitting that if there is to be a new influx – no matter how large or small – of new (new) UK regulated insurers, it should be started by someone who worked under the auspices of Banks.