The Isle of Man has steadily built a reputation as a leading location for international life insurance business. Mike Lightfoot looks at the development of this fast growing life sector
The Isle of Man first attracted the presence of international life insurance businesses in the late 1970s and early 1980s, with a small number of pioneer companies establishing operations under the Income Tax (Exempt Insurance Companies) Act 1981. This Act effectively exempted policyholders' funds from income tax, where underwriting risks were assumed exclusively on behalf of non-Isle of Man residents. This status has remained in force ever since, although recent developments in the island's tax strategy will mean that, before long, these products will also be available to island residents.
In the beginning, the products offered by these businesses were firmly targeted at the British expatriate market in areas such as the Middle and Far East
From a UK perspective, life insurance products had traditionally proved to be efficient tax planning vehicles. The primary success of the international life industry has always been its ability to rapidly devise and develop new products and services, in order to adapt to changing market conditions. In addition, the establishment of efficient distribution networks has also been a significant factor to growth within the sector, with most companies continuing to receive introductions from a wide network of intermediaries, professional advisors and consultants in a diverse range of countries.
From inception the industry has always maintained a strong investment bias offering a wide variety of investment opportunities housed within single premium policy structures. Alongside this there has also been a strong regular savings and protection bias too ' with life offices offering a range of savings, pensions, life and critical illness contracts.
Regulatory developments over the last fifteen years in particular have ensured the Isle of Man, and the life industry specifically, has developed a strong reputation with global consumers as a world class life insurance centre.
A significant component of this reputation has been policyholder protection which regulators and businesses alike have always regarded of paramount importance in establishing consumer confidence in insurance products. The Isle of Man became one of the first offshore centres to introduce a formal policyholder protection scheme. The Life Assurance (Compensation of Policyholders) Regulations 1991, created a statutory scheme designed to provide up to 90% of the insurer's liability to a policyholder in the event of insolvency.
In more recent times, this protection has been supplemented by additional investor compensation measures. Most notably this involved the introduction, in January 2002, of the Financial Services Ombudsman Scheme ' an independent dispute resolution service for customers with a complaint against Isle of Man financial services' businesses.
These initiatives, along with other industry-wide financial services developments in anti-money laundering and compliance, have helped to instill a large degree of confidence in the island and have led to unparalleled growth within the life insurance sector.
Considering the collection of small but fast growing companies that established operations in the island over twenty years ago, the life industry has grown substantially in terms of funds under administration and people employed within the industry. The 17 life companies currently licensed by the IPA administer almost £15bn in policyholder funds, and employ in the region of 2,100 staff.
From outset the island was able to easily accommodate the scale required by these businesses, with life offices now typically operating from hi-tech, large-scale servicing centres employing hundreds of staff each. Operations of this size would have been impossible to establish in other offshore centres where office space and labour pools came at a premium.
The UK has always represented a significant market with many Manx life offices still offering a wide variety of investment, tax planning, and protection contracts into the UK market. These products are now firmly directed towards the high net worth UK residents, or foreign-domiciled individuals residing in the UK, seeking legitimate tax deferral opportunities or financial products to manage efficiently their exposure to inheritance taxes, or to assist with succession planning.
In recognition of the island's strong regulatory infrastructure it has held 'Designated Territory Status' under UK legislation since 1988. This enables island-based insurers to market their products into the UK, providing they comply with all relevant aspects of UK financial services legislation relating to those products.
The product offerings, while changing to adapt to constantly evolving client demands and market trends, tend to fall loosely into eight main product categories:
1. Fully personalised investment bonds
2. Pooled fund bonds with wide collective investment
3. Unitised and conventional with-profits bonds
4. Guaranteed or structured equity bonds
5. Restricted unit-linked products
6. Regular savings contracts
7. International pensions products
8. Life protection, keyman and critical illness policies.
Of course variations occur, and additional trust packages may be incorporated with such arrangements to fulfil specific client objectives but, in general, each of the 17 providers offer products from within these main categories.
The majority of these products tend to operate on an underlying 'fund supermarket' concept, where the widest possible range of investment options from a broad base of both internal and external asset management companies may be selected. The island is also regarded as a centre of excellence for highly personalised bonds allowing access to the world equity markets in a cost effective and structured manner. These products leave the policyholder, or his chosen adviser, free to change underlying investment, investment houses or asset management strategy as market conditions change, within one simplified product structure.
£92bn transferred since 2015
Achievements, charity work and other happy snippets
Since first announcement