The UK insurance market is the third largest in the world and the largest in Europe. It accounts for 8% of worldwide premium income and is responsible for investments of GB£1.6 trillion (Association of British Insurers (ABI), "UK Insurance − Key Facts" September 2010). The FSA has authorisations for nearly 1,000 companies to undertake insurance business in the UK. In 2009, the top ten general insurance groups accounted for 70% of the general business written and the top ten life and pensions insurance groups accounted for 80% of the long-term business written. London is understood to be the only place in the world in which all 20 of the largest reinsurers have a presence.
The 2 principle sectors of the UK insurance industry are Lloyds and the mutual sector.
The Lloyd's market writes a broad portfolio of general insurance and reinsurance business, complex and specialist risks, operating in more than 200 territories worldwide. The main business activities are casualty, property, marine, energy, motor, aviation and reinsurance. Lloyd's provides cover for 96% of FTSE100 and 87% of Dow Jones industrial average companies (Lloyd's, "Key Facts 2010"). It is not an insurance company but a society of corporate and individual members, who underwrite in 85 syndicates. Each syndicate is managed by a professional managing agent employing specialist insurance underwriters to which the syndicate's members delegate absolute discretion as to the risks that can be underwritten on their behalf.
The expanding mutual sector comprises friendly societies, companies limited by guarantee and industrial and provident societies, all of which have the common feature of being essentially non profit-making e.g. P&I Clubs. The UK mutual insurance sector accounts for 3% of the UK insurance market and has assets of GB£75 billion and 15 million policyholders (association of mutual insurers, "Common Promotion for the UK mutual insurance sector - The appetite for Mutuality").
Financial Services and Markets Act 2000 (FSMA) provides the framework for the regulation of insurance and reinsurance companies in the UK. The FSA is the regulatory body therefore, although it does not regulate members of Lloyd's directly, it regulates the Society of Lloyd's itself for certain purposes and has the power under the FSMA to bring Lloyd's members within its jurisdiction.
Recently it has been difficult for insurers to return to the levels of income and profitability they previously enjoyed, due not least to some high-profile global events resulting in some enormous claims. Long-term structural changes that have been made in industry and commerce in the wider economy, as a response to the global financial crisis, have also fundamentally altered the characteristics of some of the risks written by insurers.
An insurance broker acts as an intermediary between clients and insurance companies. Clients may be either individuals or commercial businesses and organisations. Brokers use their knowledge of risks and the insurance market to find and arrange suitable policies. Unlike tied agents, they are independent and offer products from more than one insurer to ensure that their clients get the best deal. In a large company, a broker may specialise in a core area; in a small firm, a broker could be involved in most functions, including new business development and acting as placing broker and claims broker. Typical work activities depend largely on the size and nature of the employer and the scale of the business, but many incumbent tasks will sound familiar to a commercial lawyer: gathering information from clients and assessing their needs and risk profile; understanding the nature of clients' businesses; building and maintaining ongoing relationships; researching policies and negotiating with underwriters; preparing reports for insurance underwriters and surveyors; advising clients on risk management and helping to devise new ways to mitigate risks; administrative tasks such as dealing with paperwork, correspondence, keeping detailed records; developing relationships with other professionals; marketing and acquiring new clients; keeping up with changes in the markets and in the clients' industries.
Underwriters decide if applications for cover should be accepted, and the terms of any acceptance. They assess a risk according to the likelihood of a claim being made by weighing up a number of factors and asking for detailed information from prospective policyholders. The aim is to minimise losses for their company and help to make a profit. Most underwriters will specialise in one type of insurance. They study proposals; gather and assess background information; calculate possible risk and set a premium; consider sharing risk with a re-insurer; compute results for appropriate premiums using actuarial information; visit brokers or potential customers and prepare quotes; liaise with specialists for risk assessment; gather information and various types of reports from specialists; negotiate terms with policyholders or their brokers; specifying policy conditions; negotiate with brokers draw up contracts and policies; keep detailed records.