London thrives when it’s dealing with risk – just ask the insurers
Financial services, and the City at large, is primarily an operation derived from risk – the taking of it, and the limiting of it. Nowhere is that clearer than in the insurance industry, which yesterday proved its worth yet again with a London-wide undertaking that will allow the UN to avert a potential ecological catastrophe off the coast of Yemen, one that would have made Exxon Valdez look miniscule in comparison.
Just as with the Ukrainian grain deal, the London market has effectively de-risked a high-risk operation, taking on a decent amount of risk themselves.
For all the stereotypes of the insurance industry, not all of which are entirely without merit as anybody walking through Leadenhall Market at 2pm on a Thursday will know, yesterday’s triumph is a perfect example of the merit of the Square Mile at large.
The risk for the capital is, ironically, a lack of risk. Plenty agree. In the last two months alone, the boss of Schroders has said an ‘aversion to risk’ is holding back shareholder returns in the UK. Julia Hoggett, the London Stock Exchange chief, says the same thing.
The pensions fund industry, handcuffed by regulations which encourage investment in long-term bonds rather than equities or (God forbid) potential high-growth companies, is also the subject of much chat about risk appetite.
At London’s Tech Week, there is much enthusiasm for taking on risk; you’d perhaps expect it at a gathering of entrepreneurs, but it was heartening to hear nonetheless.
The politicians in the audience – indeed, one could not move for politicos looking to hang their hat on the tech industry – would do well to listen to that verve. From regulators through to ministers, avoiding the worst-case scenario seems to have become the sine qua non of decision-making; witness the interminable speed of changes to Solvency II regulations for exhibit A.
Perhaps we should put the insurers in charge.