The UK Insurance Market

Overview

According to the Association of British Insurers (ABI), there are over 400 companies that supply insurance services in the UK, of which just over 300 are ABI members. These ABI members paid £10.4 billion in taxes in the 2010/2011 tax year and paid out over £70 billion in settlement claims, making the UK insurance market the largest in Europe and the third largest in the world. It employees over 250,000 people and is, as a sector, one of the largest contributors to UK economic output.

History

Insurance has existed in various forms since at least ancient Chinese and Greek societies in the 3rd and 2nd millennia BC. It developed in post-Renaissance Europe. At this time, insurers would sell contracts to mitigate the risks of trade such as insuring against the death of the head of a trading organization, the death of trading partners or a head of state, events which might adversely affect their business. Speculative life insurance flourished which became a form of gambling. Contracts could be taken out on the life of military leaders and bets placed on the number of refugees who would be alive at the end of a battle.

Professionalization of the industry began after the Great Fire of London when an entrepreneur opened "The Fire Office" to insure brick and frame homes. From these beginnings, various insurance societies and associations developed, moving on from transactional relationships where people could place bets to form contractual groups, where members could share risks.

Positive aspects of the insurance market

Today, this risk sharing aspect of the insurance market means that insurance firms supply an essential economic and social function. People and businesses can manage short- and long-term risk. The insured receives an insurance policy, which is a contract that details the conditions and circumstances under which the insured will be financially compensated. This contract allows the insured person or company to assume a guaranteed (and relatively small) loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the case of a potentially much larger financial loss such as one from a house being destroyed or a legal claim being made.

Negative aspects of the insurance market

In 2013, the Financial Conduct Authority announced that it was launching a probe into the experiences of people who have submitted a claim to their insurance company in the UK. The chief executive of the Financial Conduct Authority, Martin Wheatley, has stated that the Financial Conduct Authority will look at the extent at which firms are delivering on their obligation to pay out valid claims, how good insurers are at explaining the process for claims, how well they then keep people informed of progress, whether payments are fair and consistent, and whether firms are acting ethically towards their customers. The Financial Conduct Authority announced the review of the insurance industry after a record number of complaints from consumers who felt that their claims were not being dealt with properly, not being paid or being paid out after delays. Another area that the Financial Conduct Authority has announced that it will investigate is the understanding of policy documents, which form the contract between the insurer and the person or company insured.