Latvian insurers shouldn’t be given free pass to Britain, Steve White says
Biba is calling for the Treasury to question whether European insurers should be able to operate in the UK without the approval of the Financial Conduct Authority (FCA).
Under current European rules, any general insurance firm approved by a regulator in any of the 27 other EU member states plus Iceland, Norway, Liechtenstein or Gibraltar can set up a branch in the UK.
The practice is known as passporting and is controversial because the FCA’s requirements for domestic firms are more stringent than those of some other European countries.
Biba believes passporting should be re-examined as part of the government’s ongoing audit of how the EU affects the UK. The “review of the balance of competences” is looking at financial services between now and next summer.
“There have been a number of problems with poorly capitalised eastern European insurers that operate here on a passport,” Biba chief executive Steve White told Insurance Times.
“The Treaty of Rome prevents our regulator from exercising any judgment on who can be allowed into the UK from the rest of Europe.
“We think considerations should be given to the regulator being able to exercise a degree of control. We are the starting point of a process of discussing that with Treasury.”
Likening the UK regulator to a night club operator, White said: “Our regulator has a pretty tough door policy.
“Just because you can get into the Latvian nightclub, we don’t think you should be allowed past the British bouncer without being frisked.”
Stuart Reid, chair of the Chartered Insurance Institute’s broking faculty, backed the calls. “If an insurer is passporting into the UK they may not be covered by the Financial Services Compensation Scheme. Time has taught us that whilst not all are doomed to failure, some passporting insurers working in the UK have come unstuck leaving policyholders to try and recover losses in foreign lands or simply with no cover at all.
“If you have your clients best interests at heart I would suggest you avoid using those markets that do not have a rating from a recognised ratings agency.
While having a rating does not guarantee financial probity, recommending a rated insurer would help brokers demonstrate to the FCA that they have undertaken due diligence, Reid added.
“If a passporting insurer does go bust, then a broker’s professional indemnity will no doubt not cover the consequences, leaving a broker exposed to a financial loss they may not have considered,” he said.