FSA proposals for stricter capital requiremens will not change insurers' behaviour, unless the regulator provides incentives. That's according to consultancy Mercer Oliver Wyman.
FSA proposals for stricter capital requirements will not change insurers' behaviour, unless the regulator provides incentives. That's according to consultancy Mercer Oliver Wyman.
Responding to the FSA's latest paper on capital requirements (CP190), the strategy consultancy warned that unless the FSA gives incentives for firms to improve risk management, insurers are unlikely to change their practices.
Chief among its other concerns was the lack of detail on how the incentives would work in practice.
Anthony Stevens, head of Mercer Oliver Wyman's Insurance practice, criticised the FSA proposals for failing to address the "key drivers of non-life insolvencies -under pricing and under reserving".
He said: "By essentially replicating a model that is very similar to the Standard & Poor's capital adequacy model, the FSA has significantly advanced the debate about what framework is needed for improved prudential and solvency regulation in UK insurance.
"But unless the FSA gives real incentives for improved internal risk management and in particular encourages (and in some cases mandates) the use of internal risk models, there will be no real change in insurers' risk management capabilities and behaviour."
