For example, the proposed expansion of open finance suggested by the TIGRR could have a ‘big impact on the broker market’ as it paves the way for ‘a new type of tech-savvy intermediary’
This June, the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR) set out over 100 recommendations on how the UK can reshape regulation to capitalise on new opportunities arising after Brexit by driving innovation, growth and competitiveness.
The 120-page independent report was produced in response to a request from prime minister Boris Johnson to former ministers Sir Iain Duncan Smith, Theresa Villiers and George Freeman.
It advocates that more relaxed regulation should be smart and digital, wherever possible, and based on a new ‘Proportionality Principle’ – where regulation is made proportionate to both the scale and risk being mitigated and the capacity of the organisations being regulated.
At one level, every detail of these proposals could be considered indirectly relevant to general insurers - particularly to those involved with liability covers, because they potentially impact on the regulation of virtually every type of company needing insurance.
Matthew Connell, director of policy and public affairs at the Chartered Insurance Institute (CII), said: “If regulation is relaxed for areas being insured, then risk is likely to increase and [professional indemnity] cover will be an area that insurers will be studying closely.
“Sometimes reducing the amount of regulation comes at a price of increasing uncertainty, leading to higher insurance premiums or greater cover restrictions.”
On the other hand, however, despite the report having plenty to say about financial services as a whole, the TIGRR report makes no more than a handful of suggestions that could directly impact general insurers.
Branko Bjelobaba, managing director of general insurance regulatory consultancy Branko, pointed out that the cornerstones of European Union (EU) legislation - like the Insurance Distribution Directive, the General Data Protection Regulation (GDPR) and Solvency II - were agreed by Europe when the UK still had a seat at the table.
He said: “I don’t recall any vehement UK disagreement with these laws at the time and I would be hard pressed to identify an area of general insurance regulation which you would want to dilute and therefore expose consumers to a lesser degree of protection.”
Less red tape
The main reason for the general insurance community to get excited about TIGRR is around the proposal to simplify and streamline reporting and approvals to increase transparency, which is listed under the reforms to Solvency II.
According to the report, Solvency II has increased the volume of regulatory reporting by between four and eight times. So, the TIGRR has advocated a need to reduce duplication, cost and delay in regulatory engagement.
Ironically, however, by suggesting this, the authors are themselves duplicating efforts made in the Review of Solvency II: Call for Evidence consultation that ended this February.
Keith Jennings, chief life actuary at Zurich UK, noted: “We would definitely welcome less red tape as this would reduce the cost of running insurance businesses and be a clear benefit to policyholders.
“But, as a result of consultation with the Prudential Regulation Authority (PRA), this is going to take place anyway.”
Other Solvency II proposals to reduce risk margins and refine matching adjustments are of much more relevance to life than general insurers and, once again, are duplicated by the recent Call for Evidence.
Hugo Laing, partner at Eversheds Sutherland, added: “Opening up flexibility of investment is a good thing, as Solvency II is quite rigid about what you can invest in and the capital you have to hold against an equity investment is very high.
“But general insurers are much keener on equivalence than life assurers as they do more cross-border work.
“A number of these proposed reforms depart from Solvency II risk not being equivalent and so could be a problem for general insurers - potentially even dangerous for them.”
Open finance implications
A proposal to mandate the quick expansion of open banking to open finance and for the UK to take a more market-led, Australian-style approach may also have implications for general insurance innovation.
Jamie Macgregor, chief executive of financial technology analyst Celent, said: “It could have a big impact on the broker market, as the entry barriers to creating innovative new propositions would fall down dramatically.
“By breaking down the boundaries between different financial sectors, it could create the opportunity for a new type of tech-savvy intermediary that offers converged products across the retail sector, spanning different silos.
“However, this proposal may cause internal challenges for insurers or intermediaries [that] are still faced with legacy infrastructures that would prevent them from taking up these new opportunities.
“This will be costly to address if they haven’t yet invested in modern [application programming interface]-enabled solutions.”
Overwhelmed with complexity
Perhaps the most radical proposal of all from the TIGRR is the one to introduce a UK data protection framework to replace GDPR, which is berated for the way it “overwhelms people with consent requests and complexity they cannot understand, while unnecessarily restricting the use of data for worthwhile purposes”.
Revising data privacy regulations is considered particularly necessary for artificial intelligence (AI) and growth sectors if innovation is to be enabled.
This could have huge implications for general insurance underwriting, which makes heavy use of AI.
However, some industry commentators feel that the proposals go too far - particularly the one to remove Article 22 of GDPR, which stipulates that individuals should not be subject to a decision based solely on automated processing.
Kenny McIvor, insurance consulting and technology director at Willis Towers Watson (WTW), explained: “Potentially it could set a bad precedent, as Article 22 is there to safeguard firms using AI without appropriate restrictions.
“So, this [proposal] could be sending out the wrong message as it seems a very sensible restriction, certainly regarding its application in insurance.”
The most common reservation expressed about the TIGRR’s GDPR proposals is simply that it is considered unlikely that the intended new framework will come up with anything significantly better than the GDPR to justify yet another painful implementation process.
Ashwin Mistry, chairman of Brokerbility, said: “Unfortunately, GDPR has created a sledgehammer to crack a nut and is particularly cumbersome for smaller businesses and the voluntary sector.
“But, although ripping up the rule book may sound romantic, when the detail comes for the replacement, it won’t be too different to what we’ve got at the moment.”
Sceptical
Whatever views industry professionals form on the TIGRR’s proposals, no-one should be bracing themselves for an imminent revolution.
Similarly vague and verbose documents have been issued for years on all sorts of topics without triggering an iota of change.
Mistry continued: “I’m sceptical because I’ve had a long-standing involvement with government on a range of committees and proposals like this rarely come to fruition. And, if they do, they often get diluted.
“I can see why Boris Johnson is happy to peddle this line, as it’s basically saying Brexit is a good idea and I think it’s been done largely to satisfy the centre right.”
This will be music to the ears of many brokers because the scant detail provided in this recently-published paper makes it hard to argue a case for them being inconvenienced by further regulatory upheaval.
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