(Reuters) — London's commercial insurance market is in talks with the Bank of England about allowing companies to set up captives without unnecessary red tape, aiming to catch up with Bermuda, Singapore and the European Union, an industry body said Thursday.

Any final decision would be up to the U.K. government, the Bank of England's insurance policy head said.

The commercial insurance market in the U.K. is the largest in the world, but to remain top there must be product innovation, such as by allowing captives, Caroline Wagstaff, CEO of industry body the London Market Group, told a Westminster Business Forum event.

Companies set up their own captive insurance units to insure their company directly, cutting out outside insurers.

Companies are increasingly favoring using captives as commercial insurance becomes more expensive.

Most FTSE 100 and Fortune 100 companies own one, industry sources say, but if the company is U.K.-based the captive insurance unit will be based overseas for now.

Several other countries, however, allow the establishment of captives, including member states of the European Union, which Britain has left.

“The best experts sit in London, but the U.K. does not actually have any captives within our jurisdiction. Here is a clear opportunity for the U.K. to grow its market,” Ms. Wagstaff said.

Insurance may no longer be the “bright jewel in the crown” of U.K. financial services it once was, given a decade of stagnation in the market share of London's commercial insurers, Ms. Wagstaff said.

“We don't have the right regulatory environment,” she said.

Captives could be set up under current rules, but the London Market Group is talking to the Bank of England's Prudential Regulation Authority, which regulates insurers, about ensuring the process would be quick.

A slow process would act as a deterrent, Ms. Wagstaff said.

Regulators in Britain need to rethink how they apply strict retail consumer safeguards in a commercial market used by large professional buyers that don't need the same “one size fits all” protections, she said.

“The biggest change that we will be looking for is less about rules and more about behaviors and culture,” Ms. Wagstaff said.

Alan Sheppard, PRA head of insurance policy, told the event the regulator was "neutral" on captives and it was up to government to decide whether a domestic captive market would be good for the wider U.K. economy.