It’s good to talk, says Eric Galbraith. In fact, dialogue and a little appreciation from the government and the FSA are at the top of his festive wish list
Last month the CEA, the European insurance and reinsurance federation, published eight key messages on the financial turmoil. Overall, the statement suggested a stronger position for insurers despite provisions for write-downs on financial assets and the potential for increased claims.
It is a cautiously positive document and reflects what I believe strongly: that the general insurance and the general insurance intermediary sectors are low-risk areas of the financial services sector from a regulatory point of view.
My first Christmas wish, then, is that government and the regulator recognise not only this low risk, but also the strength and, perhaps most importantly, the value of the general insurance and intermediary sectors.
We are almost four years into FSA regulation and facing an unprecedented credit crisis. This is the point at which the general insurance sector needs to re-evaluate what it wants to see in the next four to five years.
The importance of risk management, insurance protection and advice combined with a re-evaluation of the impact of regulation, its future focus and cost, need to be recognised. This is my second wish.
A government/industry group is looking at issues in the insurance sector and considering its long-term strength. This group is perhaps part of the solution. It does, however, need to represent all of the market – large and small.
However, a strategic review should not mean an open cheque book to pay for consultancy firms and administratively expensive questionnaires from Europe, the FSA or the government. It is about dialogue with the sector. This should also include a reappraisal of the Financial Services Compensation Scheme (FSCS) cross-subsidy.
The idea of providing compensation in the event of an insurer or intermediary’s failure must be promoted as a benefit, but the idea that intermediaries, large and small, must contribute to a major bank failure is fundamentally flawed – so that’s another Christmas wish.
There is no doubt that we need regulation. However, I believe the cost of FSA regulation will increase and would urge government and the regulators to look at the facts and not lump us together with the lenders and aggregators that need to address Treating Customers Fairly. The general insurance intermediary sector must not be grouped with the rest of the financial services sector. If regulation were a commercial venture then we should be looking at reductions in its cost, given our low risk and the current economic crisis.
The Financial Services Practitioners Panel and the Smaller Businesses Practitioners Panel provide conduits for the dialogue that is needed to take us through the next four to five years. Biba will endeavour to engage with the panels (we have representation on them) and all of the other areas of UK and EU government, the FSA, FSCS and the Financial Ombudsman Service.
By the time this article is published on 11 December, I hope Biba will have announced – or will be about to announce – the outcome of our long dialogue with the FSA on dealing with conflicts of interest, status and transparency in the commercial market. A market solution that achieves FSA industry guidance status would be a considerable achievement. This is also on my wish list.
Assuming we achieve this position, we must focus on embedding the guidance into our sector so that it becomes business as usual. Biba intends to hold a number of regional events to help the industry understand what is required.
While I hope that in a year’s time we will have moved forward on this subject, reassessed the impact of regulation on the intermediary sector and our customers, I am always a little sceptical.
There is one thing for certain that we all must do in the coming months and years. Our general insurance sector is based on trust, good faith, advice, professionalism and ethics. Our reputation may not be as damaged as the standing of the banks has been, but that does not mean we should ignore how our customers perceive us. We do so at our peril.
If you think I have asked for too much this Christmas, I can assure you that Biba’s wish list is far larger than the points made here. The Biba manifesto for 2009 covers a whole range of wishes. It is a working document and it will grow and change during the coming months.
It would be unlike me not to be a little more controversial but the intermediary sector needs to make sure that it has one voice. A number of the large composite insurers have adopted stronger brand promotions that could have an impact on broker/intermediary distribution.
The intermediary community needs to promote the value of advice and ensure that solutions for commercial and personal customers are easily accessible. Distribution of risk management and general insurance advice is not just for large clients, smaller customers need that assistance too, and those insurers who believe otherwise need to ask if they are treating customers fairly.
This takes me back to the confusion on advice and guidance, and that applies to both insurer and broker. This is something that the FSA has sought to clarify in its feedback statement on the retail distribution review. Let’s get that discussion under way in the general insurance sector.
Eric Galbraith is chief executive of Biba