Lighting the fuse for innovation in insurance − speech by Shoib Khan

I'm delighted to be speaking at this prestigious innovation summit, amongst many leaders and thinkers shaping the future of the insurance market. With the summit being held on Guy Fawkes night, I'm sure there will be fireworks today, but I promise not to light any actual fuses during this speech - just a few rhetorical ones.

My colleagues David Bailey^{footnote [1]} and Vicky White^{footnote [2]} spoke about innovation and prudential regulation earlier in the year, so this isn't the first speech that the PRA has delivered on supporting innovation. In fact, I also spoke last year about what we are doing to enhance our Secondary Competitiveness and Growth Objective (SCGO) in the context of UK insurers^{footnote [3]}. In that speech I highlighted that one of the regulatory foundations that underpins the SGCO is the PRA 'taking a responsive approach to UK risks, opportunities and innovation'. Don't worry, I won't be going over that ground again, but I reference it to highlight that the SCGO provides a strong basis for us to support innovation in financial services. Today, I'll attempt to bring together a broad range of regulatory initiatives currently underway to support innovation across life insurers, general insurers and the London Market.

Everything that I say today should, however, be set within the context that the PRA must always act in pursuit of its primary objectives of safety and soundness and policyholder protection. But innovation is a means to that end - for example, where it protects firms by enabling their business models to adapt to the ever changing landscape. And our secondary objective of competitiveness and growth is proving a powerful tool for prioritising initiatives which make a meaningful contribution to the UK economy.

So, I'm going to talk to you about how we are endeavouring to support innovation in the UK insurance industry: firstly, through creating regulatory space for firms to innovate; secondly, through actively building a regulatory framework that facilitates innovation; and thirdly, through being innovative in our own supervisory approach.

First: Creating space for the market to innovate

Let's start with how we want to allow for appropriate regulatory space for industry to safely "ignite" new initiatives. Take, for example, the London Market, which has a strong tradition of innovation. Since its launch in 2018, the Lloyd's Lab has supported over 150 transformative Insurtech solutions, with £2.5bn of underwriting capacity launched to test and scale new products. The credit for this lies with Lloyd's, but it demonstrates that the regulatory environment of the London Market is sufficiently receptive to this sort of innovation. Another example would be the London Market's pioneering of cyber insurance, a market now worth over £1 billion in premiums^{footnote [4]}, again illustrating sufficient regulatory 'space' for this market to grow to meet the demands of businesses seeking cyber loss protection.

We're also focused on having effective regulatory processes at the PRA to ensure we make it as efficient as possible for firms to engage with us. This includes the PRA's speed of authorisation and reducing regulatory costs, such as minimising regulatory reporting and ensuring that any new data requests are necessary and proportionate. This frees up resources at firms that can be reinvested in innovation - whether that's new products, new platforms, or new ways of managing risk.

Second: actively enabling innovation

Let's now turn to how we at the PRA are actively facilitating innovation for insurers.

Take, for example, the Matching Adjustment Investment Accelerator ("the Accelerator") which we launched last month^{footnote [5]}. Through this new initiative we're taking further action to reduce barriers facing life insurers to invest in UK productive assets^{footnote [6]}. As many of you will know, under Solvency UK, we implemented significant reforms in 2024 to improve the life insurance sector's ability to invest in the UK, which the industry pledged to take advantage of by making £100bn of productive investment. The Accelerator, builds on those reforms, and will allow firms to make timely investments as soon as they identify them and gain the favourable matching adjustment capital treatment, based on their own assessment of eligibility. There will no longer be a need for life insurers to wait for PRA approval before investing in eligible assets. We've already had a flurry of interest from annuity-writing firms and they will have the opportunity to use the Accelerator by year end, allowing them to get on with making a wide range of productive investments for the benefit of the UK economy.

We're also actively looking to introduce reforms which will ensure that UK corporates have more risk management tools available to them, after hearing from them directly that a UK-based captives regime would allow them to better incubate and manage new risks.

We're working closely with the Government and industry to build a captives regime in the UK that will be internationally competitive. We're currently assessing what a captives regime should look like, working with corporates, consultants, insurers and trade bodies to understand what they would want to see in a UK regime. Our vision is for a regime that: (1) is responsive in terms of authorisation, (2) has proportionate capital and oversight requirements, and (3) is flexible in terms of responding to different business needs and the classes of risk that could be ceded.

We recognise that captives can allow for risk management advances and assist in fuelling product development and innovation as risk incubators - where emerging risk is initially housed in a captive to build a data track record, before ultimately being ceded to the insurance market. In other words, when used properly, captives can allow corporates to safely innovate. We're working hard to deliver an internationally competitive captives regime - expect to see a PRA consultation next summer, with a target delivery date of mid-2027.

On ISPVs, we're continuing our work to ensure the UK regime is competitive. In its current form, the regime has delivered some notable successes: for example, London Bridge 2 has brought over $2bn of capital into the London Market. Again, we're not taking credit for others' hard work, but we are making sure that we look to improve and enhance our ability to support such innovation. We know there's more to do and, in July, we implemented a series of significant enhancements to the UK ISPV regime, taking steps to streamline and simplify the approvals process (approving cat bond vehicles within 10 working days of a complete application), reducing the number of SMFs, and allowing ISPVs to issue multiple contracts.^{footnote [7]} Necessary legislative changes, currently under consultation by HMT, signal a broader ambition to ensure the UK remains a leading centre for risk transfer innovation.

As well as the traditional use of ISPVs in the property and casualty market, we're also looking at wider possibilities for their use. As my colleague Vicky White mentioned in her recent speech, the PRA will work with industry and HMT on identifying alternative capital options which will consider how the ISPV framework (or other structures) could be made more accessible to UK life insurers, and we expect to publish a discussion paper on this later this month.

With the introduction of captives, and the continued work to reform the ISPV regime, our ambition is clear: to play our part in helping the UK fulfil its important role as a global hub for insurance and risk management. By facilitating innovation, through making it easier for capital to come into the insurance market, firm resilience is improved, risk is better spread, and more coverage and new products are provided to those who need it across the real economy. Ultimately, this is good for both financial stability and policyholders.

Third: innovating ourselves

The final piece of the jigsaw is, of course, innovating ourselves. Enabling innovation in the market goes hand-in-hand with evolving our own supervisory approach. To bring this to life, I'd like to offer a few examples of how we've done this so far.

Internally, we're modernising how we operate. Initiatives such as our 2026 Dynamic General Insurance Stress Test will bring a new dimension to the stress-testing of the general insurance sector. We're also ensuring our authorisation processes make it as easy as possible for new firms to set up here, through our recent introduction of an early 'mobilisation' option for new insurers and an accelerated pathway to authorise wholesale insurers. We're also actively supporting the new Office for Investment (colloquially referred to as the 'concierge service') to engage with prospective international insurers. And, as the Chancellor of the Exchequer mentioned in her speech of the 24 October, we're introducing with the FCA a new 'Scale-up' unit to support banks and insurers to grow and innovate in the UK.^{footnote [8]}

We're reducing the burden our processes place on established firms too. This includes, for example, streamlining the Lloyd's Managing Agents approval process and our supervisory approach for such firms to ensure that our processes are as proportionate and efficient as possible.

Within the PRA's oversight of the GI sector, we've also partnered with third parties to use Artificial Intelligence (AI) tools that improve our working practices - for example, helping us enhance our claims reserving analysis, which helps mitigate against insurers underestimating technical provisions which can distort firms' resilience and market competition. It also enables us to identify outliers earlier, reverting to those firms more quickly, saving time for both us and the market. We're also experimenting with multi-agent AI systems to help us improve the efficiency and effectiveness of our own day to day supervision.

Externally, we're working with the International Association of Insurance Supervisors (IAIS) to share good practice on how AI is being used in the insurance sector, and to support the development of supervisory guidance that recognises both the risks and benefits of insurers adopting AI. We're also in bilateral discussions with other regulators about their use of AI.

All of this will help us become more data-driven, spot market trends more quickly and make better informed supervisory judgements.

Conclusion

Let me conclude by saying that we very much see our role as being supporters of innovation in the insurance sector. The investment accelerator is already live, and once our work on ISPVs is complete, we'll have added more optionality to the UK regulatory regime. From innovation in the Lloyd's Lab and London Bridge 2, the market is providing new products and solutions. The UK is becoming a more competitive jurisdiction for insurance-linked investment, thanks to our reforms aimed at making these vehicles more accessible, transparent, and resilient. And a captives regime will offer corporates in the real economy the opportunity to retain and manage new risk in an efficient manner that allows for innovation.

Looking ahead, we want our commitment to innovation and competitiveness to be increasingly clear - not just in what we say, but in what we do. Of course, balance is key: and where innovation poses a risk to our objectives we will scrutinise that closely.

But, based on all the examples I've given today, we feel we're doing our bit. The next step is for you - the market - to light the blue touch paper of innovation.

Acknowledgements

I am grateful to Madeleine Lynch Williams and John Reed in preparing these remarks. I am also grateful to Talitha Linley, Casper Davidson, Nylesh Shah, Alan Sheppard, Stefan Claus, Cassandra Archer, Gareth Truran, Manuel Sales, Vicky White, Robin Chowdhury, Santosh Pandit, Chris Wiltshire, Sancho Chandran, Andrea French, Dan Kriss for their support and comments.