The insurance industry in the UK is the largest in Europe and the fourth biggest in the world. It manages investments worth a massive £1.7 trillion. Becoming part of this industry by starting your own insurance company can be financially lucrative. But you’ll face many rules and challenges. Use this guide to discover regulation requirements, ideas to make your business stand out as well as the other business essentials to consider.
1) First, understand what an insurer does to decide if it’s the right business for you
Insurance provides financial protection for individuals and businesses. As an insurer, you will charge your customers a set amount of money to insure against a risk. If no claim is made, you will keep that amount of money as profit. If however a claim is made, you could find yourself paying out a much larger sum in compensation.
A customer takes out pet insurance costing £100 a year. For five years they renew and make no claim so you will keep £500. But if something unexpected happens and the pet requires vet treatment costing £800 you will need to pay your customer this amount, less any agreed excess.
What competition will I face if I become an insurer?
The Bank of England says it currently regulates around 500 insurance companies. Around 25% are life insurers and the rest cover general risks.
- Find out more about the state of the market with this guide from The Association of British Insurers (ABI)
2) Can anyone sell insurance in the UK?
No. Insurance is rightly one of the most heavily regulated industries in the world. To be able to advise on, sell, or arrange insurance in the UK you need to have authorisation from the Financial Conduct Authority (FCA).
Insurance businesses are also regulated by the Bank of England’s Prudential Regulation Authority (PRA). This essential requires financial firms to hold sufficient capital and have adequate risk controls in place.
You’ll need to follow the FCA rules, including rules on client money and assets (CASS).
- Read the FCA Handbook.
- Apply for your FCA licence here.
- Find PRA application forms
3) Next, how can I apply for an FCA licence online?
When you’re ready to start your application process to become an insurance underwriter you should get in touch with The Bank of England:
- Or call 020 3461 8100
The new Senior Managers and Certification Regime (SM&CR) made simple
From December 2018, all dual-regulated insurance firms must follow the Senior Managers and Certification Regime (SM&CR).
- The most senior people (‘senior managers’) who perform key roles (‘senior management functions’) will need PRA or FCA approval before starting their roles.
- Every Senior Manager will need to have a ‘statement of responsibilities’ that clearly says what they are responsible and accountable for. This replaces the existing ‘scope of responsibilities’ document required under SIMR but has a similar function.
- Solvency II firms and large non-directive firms will also have to provide ‘responsibilities maps’ – these replace the current ‘governance maps’ but have a similar function.
- The Certification Regime will apply to employees who aren’t senior managers but whose role means it’s possible for them to cause significant harm to the firm or its customers. These roles are called ‘certification functions’.
- These people don’t need to be approved by us, but firms will need to check and confirm (‘certify’) that they are fit and proper to perform their role at least once a year.
Financial Conduct Authority
4) Should I become a broker or an underwriter?
Becoming an insurance broker is relatively straightforward. You’ll be the person facing customers and find them the best price insurance for their needs, which will be underwritten by an insurance company. You’ll need to understand how insurance works. Knowledge of the area you choose to specialise in can be a real advantage as you’ll be able to use that to help guide your customers. For example, if you plan to broker insurance for classic cars, it helps to understand the particular needs of people who own classic cars, such as agreed value cover. You’ll need to register with the FCA and PRA.
If you start an insurance underwriter business, your company takes on the insured risk. There are stricter regulations in place because the financial risks you’re taking are greater. To become an insurer you must register with the FCA and PRA. Even if you are already registered with the FCA as an insurance intermediary, you’ll need to start a new authorisation if you want to become an insurance business.
The authorisation is structured into two areas:
During the pre-application period, you’ll work with the FCA and PRA to ensure everything is in place for you to become an insurer. When you’re ready, you should contact NewInsurerStartupUnit@bankofengland.co.uk or call 020 3461 8100. An initial meeting will be arranged. You can submit materials, such as your business plan and capital management strategy for discussion at least 10 days before the meeting date. Within 10 working days, you’ll be officially advised of the next steps in writing. A feedback meeting will follow this.
After a series of meetings, you may be in a position to move forward with your actual application.
How much does it cost to register?
New insurer authorisation costs £25,000.
Once you’ve submitted your application, you’ll be notified if your wish to start an insurance company has been granted. If your submission is complete, you’ll receive this within six months. The FCA and PRA make their decision whether or not to grant authorisation separately. The PRA make the final decision, but will not approve authorisation if the FCA does not provide consent.
5) How much money do you need to set up a new insurance company?
Every insurance company is required to hold a minimum amount of capital. The amount depends on whether you have set up a Solvency II or non-directive business. The type of business you plan to underwrite can also affect the total.
For Solvency II businesses the minimum capital requirements are:
(1) 2,500,000 euro for firms, including captive insurers, which have Part 4A permission to effect contracts of insurance or carry out contracts of insurance that are contracts of general insurance, except in the case where all or some of the general insurance business classes 10 to 15 are covered, in which case it must be no less than 3,700,000 euro;
For non-Solvency II general insurance businesses the base capital resources requirement is:
- A mutual that is a Solvency I = £2.25million
- An insurer that is a non-Solvency I firm = £280,000
- Other = £3million
- A mutual that is a Solvency 1 firm = £1.5million
- An insurer that is a non-Solvency I firm (classes 1-8, 16 or 18) = £210,000
- An insurer that is a non-Solvency I firm (classes 9 or 17) = £140,000
- Mixed insurer = £3million
- Other (excluding pure re-insurer) = £2million
Long-term insurance business capital resources requirements:
- A mutual that is a Solvency I firm = £2.25million
- A mutual that is a non-Solvency I firm = £560,000
- Any other insurer (excluding pure reinsurer) = £3million
- Pure reinsurer = £3million
- Identify the capital requirement for your company using the PRA Rulebook
6) Next, what types of insurance can I offer?
There are lots of different types of insurance, aimed at private individuals and companies. They can be roughly grouped into two areas:
- General insurance, covering things like property, vehicles, pets etc. General insurance also includes emerging risks like climate change and cyber security.
- Life insurance, providing a lump sum or regular payments if an
- individual dies or covering pension funds
7) Find your niche to boost your business success
If you’re starting your own insurance company, you’ll need to decide what insurance you are going to offer. If you have a particular area of expertise, it can be wise to specialise in that.
Drivers with classic cars have different priorities when it comes to insurance that those drivers with standard modern vehicles. Things like an agreed value will be important to them. They may also represent a lower risk because they tend to be driven less often and owners may take much more care of them. If you understand this market, you’ll be in a better position to offer competitive prices and still make money than a business that does not.
- Familiarise yourself with the insurance trends for 2019 to see what these insights could mean for your new insurance business.
8) Think of new ways to target customers for bigger profits
Making your new insurance company stand out from the rest is crucial in the crowded insurance market. You could follow one or all of the below:
- Attract customers to move their business to you from another insurance company
- Identify new areas of insurance need, such as cyber crime
- Use new technologies, such as smart home technology or AI, to offer a new approach
- Understand how new technologies are disrupting the insurance market. Then use this knowledge to strengthen your offering.
- If you’re setting up as a broker, these 10 marketing strategies could give your business a boost.
9) How can wholesale insurance help your new insurance company to succeed?
If you’re thinking of becoming a retail insurance broker, working with a wholesale insurance broker can be a real boost for your business.
A wholesale insurance broker acts as an intermediary between your customer-facing retail broker business and the non-customer facing insurance company. Working with a wholesale insurance broker can bring many benefits, especially to new insurance businesses.
- The wholesale insurance broker that you link with will already have established relationships with the insurance companies. This can mean better prices on premiums than you may be able to get if you go directly to the insurance company.
- A wholesale broker may have a much greater buying power than your business on its own. Again, that can mean better discounts can be negotiated.
- A wholesale broker may have areas of specialism that your business does not. With this expert understanding, cheaper prices can be established without compromising on the cover provided.
- You only need to speak to your customer and the wholesale broker, with no need to do the ringing around insurance companies. That can save you lots of time.
- All of the above can be especially helpful if you’re trying to place a hard-to-insure risk.
Get in touch with Park Insurance to see how its Wholesale Insurance service can help you.
10) Choosing a name for your new insurance business
Your insurance start-up will need a name. You’ll need to think carefully about this and make sure you have the correct permission. The word ‘insurance’ is considered a sensitive term. To use it in your business name you’ll need to get permission first from the Secretary of State. You’ll also need to get an opinion on your proposed name from the FCA.
You can’t use the word insurance in your business name until you have the authorisation to trade from FCA and PRA. So, you’ll need to choose a name without a sensitive name to start with until you get authorisation. Then you can change your name after you are registered.
- For a full list of sensitive terms relating to finance click here.
- Apply for consent to use a sensitive term in your business name:
- Complete the sensitive business name request form
- Email it to SensitiveBusinessN@fca.org.uk
Starting an insurance company is never going to be straightforward. But if you can beat the challenges and meet the regulations, then your efforts may be richly rewarded. Grab a coffee. Sit down. Then go through our list above to make sure you’ve covered everything. Good Luck!
Find out more about Park Insurance and their wholesale insurance services. Call 0117 955 6835 or get in touch.