Christine Seib says criticisms of regulatory regime are justified, but the City regulator needs time to put house in order
First, a confession. That FSA conference speech I was going on about in the last column? I never delivered it. I had good intentions of doing so, honest. I managed to resurrect the previous ABI speech on which it was based, even did some new research and had it all ready to go. However, I wasn't expecting the biggest M&A to hit the insurance industry since I started covering it for The Times 18 months ago to happen on the same day. So instead of delivering my dubious wisdom to the assembled professionals at the FSA's general insurance conference, I spent last Monday begging various institutional investors and investment bankers to make some comment, hell, any comment, about Aviva's "friendly merger" with the Pru.
Then, last Wednesday, having cancelled on the FSA's events team at the last minute, I added insult to injury by covering the ABI's survey on the cost of general insurance regulation, just over a year after the City watchdog took over monitoring the sector. The trade organisation's take on the regulatory regime was not entirely flattering. The ABI claims that statutory regulation has resulted in consumers paying £400m a year more for their cover, as insurers hike premiums to offset the cost of form-filing and buyers stop shopping around because they cannot bear to listen to the mandatory information spiel over and over again.
The ABI reckons that consumers are bombarded with information they do not want. Insurers, meanwhile, do not want prescriptive instruction on how to sell every product; they want freedom to tailor the amount of information given during the sales process to the individual product, the ABI says. And do not get insurers and brokers started on the exemption from statutory regulation handed by the government to travel agents and the sellers of retail products.
To be fair to the FSA - and not just because I feel slightly guilty about my failure to deliver on the speech front - when it announced its rules on general insurance in January 2005, the response from the industry was broadly positive. The feeling was that, generally, the watchdog had the balance right. In practice, the regime has proved a little too straight-laced. The lesson from this is, I guess, that no matter how many other sectors a regulator regulates, each have their own quirks and the best regulatory regime must be flexible enough that, over time, it grows to fit the sector and its foibles.
On this, the FSA seems to have got the message. For starters, it is concentrating on problem areas. This week the regulator will meet with the banks, building societies and other big sellers of payment protection insurance to tell them that, although they might be meeting the letter of regulation, their PPI product design is not in the best interest of consumers and needs to change.
Second, the regulator has announced its own review of the general insurance regime. Okay, the review is going to take a year, with the possibility of an interim report appearing at the end of 2006, but at least the FSA has promised to undertake extensive consumer research. If the ABI's story on consumer disgruntlement is true, the regulator is going to hear it loud and clear. Finally, no one should forget that, at the start of statutory regulation, the government promised to review in two years' time the exemptions it gifted from monitoring. That may give the industry another chance to better shape the regulatory regime. It may be my natural Aussie optimism talking, but not all seems to be lost quite yet.