“Playing by the Rules”: Advances in Prudential Regulation and Supervision of UK Insurance Startups and Insurtech

This chapter presents advances in addressing the regulatory challenges in the digital insurance era, based on the UK insurance industry. In particular, it focuses on the prudential supervision of insurance startups and insurtech, after presenting a review of existing supervisory practices from the Prudential Regulation Authority for the UK re-insurance sector, inclusive of Lloyd’s of London. Emphasis is placed on the latest PRA approach to insurance supervision and the New Insurer Start-Up Unit Guide, jointly developed with the Financial Conduct Authority. Developments toward the effective supervision of prudential matters for insurance startups and insurtech are discussed, linked to Pillar 2 (Governance and Risk ManagementRisk Management) of the Solvency II Directive. This is extended to cover the core components of insurance prudential risk management: (i) the Solvency II Own Risk and Solvency Assessment, (ii) Stress Testing, (iii) Model Risk Management, and (iv) Resolution with Solvent Exit. Using the UK re-insurance industry as a case study, this chapter attempts to provide insights from the prudential supervision of insurtech. Recommendations for the prudent supervisory approach to insurtech’s risk management practices are detailed, along with proposals for future developments to ensure their sound prudential risk management.