Stemming the industry flow to Gibraltar

I have often written about legislators and regulators passing laws and making rules without thinking through the potential consequences.

And it seems another example of such cause and unintended effect is concerning UK insurers and brokers.

The migration of books of personal lines business from Lloyd's to Gibraltar is what many warned against when they spoke of the potential dangers of excessive costs of regulation by the Financial Services Authority. John Greenway, chairman of the All Party Parliamentary Group on Insurance, has already warmed to the theme of the costs of regulation distorting the market.

Mainstream insurers are also getting concerned by the trend. Pierre Lefevre, chief executive of Groupama, warned the recent Chartered Insurance Institute conference of the potential exodus of capital to offshore centres such as Gibraltar. He challenged the FSA to say how it will meet its statutory objective of consumer protection when dealing with growing numbers of insurers setting up in Gibraltar.

The move is being led by the Lloyd's personal lines market and it is not hard to see why. Already paying substantial amounts into the Lloyd's Central Fund, they are now having to contribute to the Financial Services Compensation Scheme as well. In effect, they are being told to pay twice.

This is not an attractive prospect for relatively low-margin business, so off they go to Gibraltar, and a more flexible attitude towards capital.

A bit of parliamentary pressure during the autumn might prompt the FSA to moderate its stance on Lloyd's and the FSCS. This won't stop the exodus but it will limit it.